CoreLogic’s daily dwelling values index shows that Sydney property prices have fallen 12.4% from their mid-February peak, with 11.8% of this decline taking place after the Reserve Bank of Australia (RBA) first lifted interest rates in early May:
According to Warren Hogan – Judo Bank’s Chief Economic Advisor and former chief economist at ANZ bank – Sydney’s house price overvaluation has fallen from a high of 33% in 2021 to be 24% overvalued currently. Accordingly, Hogan believes Sydney house prices are around “halfway through the downturn”:
Warren Hogan’s forecast price decline for Sydney is similar to Chris Joye’s from Coolabah Capital.
If true, this would mean that Sydney dwelling values would fall by around 25% peak-to-trough, making it easily the largest house price crash in recorded history, eclipsing the 17.4% decline recorded between 1982 and 1983.
While this 25% forecast decline may seem extreme, we have to recognise that the RBA has effectively unwound a decade of interest rate cuts in only seven calendar months – the fastest monetary tightening on record:
This monetary tightening has already lifted variable mortgage repayments by 41% versus their April pre-tightening level, with more interest rate hikes possible early in the new year:
In turn, these rate hikes have severely reduced borrowing capacity.
Given Sydney is the nation’s most expensive housing market with the most indebted households, it makes sense that it is being hit hardest by the RBA’s record monetary tightening.
Whether Sydney house prices end up falling by 25% will depend on whether the RBA tightens much further.
Either way, this will very likely be the biggest house price correction on record.
