The View | Why Australia’s housing market is showing remarkable resilience despite huge fall in prices

With inflation having almost certainly peaked, home values still growing on an annualised basis in some capital cities and rents still surging, the expected ‘great Aussie housing bust’ has not materialised

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A man waits for a residential home auction to start in the Maroubra area in Sydney, Australia, on November 12, 2022. Australia’s housing market has held up relatively well in the face of a record-breaking fall in prices, defying expectations of a housing bust. Photo: Bloomberg

Published: 10:00pm, 30 Jan 2023Updated: 2:48am, 31 Jan 2023

In Australia, house prices are down 8.4 per cent from their peak in May last year. This might seem like a relatively modest decline compared with much steeper falls in several other advanced economies. In New Zealand, home values have dropped 13 per cent since their November 2021 peak, while Swedish house prices are down 15 per cent since hitting an all-time high in March 2022.

Yet, not only has Australia’s housing slump already exceeded the previous record in peak-to-trough declines – prices fell 8.38 per cent between October 2017 and June 2019 – the current downturn is just nine months old.

The fastest and sharpest drop in Australian home values has come like a bolt from the blue. Although part of a global shift towards higher inflation and higher interest rates, the Reserve Bank of Australia (RBA) has faced heavy criticism for misjudging and miscommunicating the timing of the start of its rate-raising cycle.

Having suggested as recently as September 2021 that rates would not rise before 2024, the central bank abruptly increased borrowing costs by 3 per cent since last May. This has delivered a profound shock to one of the world’s most vulnerable housing markets. With a dangerously high household debt-to-income ratio and a menacing “refinancing cliff” facing many mortgage borrowers this year, Australia is acutely sensitive to rising rates.

In Sydney, one of the world’s most overvalued property markets, prices are down 13 per cent from their peak while sales fell 28 per cent last year compared with a 17 per cent decline nationwide, according to CoreLogic data. Brisbane has also suffered sharp declines, with prices 10 per cent below their record high and transactions down 19.3 per cent last year.

There could be more severe pain this year. Super-cheap money during the early phase of the Covid-19 pandemic encouraged many borrowers to take out fixed-rate loans, which at the time were cheaper than the variable-rate mortgages which account for the bulk of Australian home loans.

.css-1m2rp1p{color:#34b8b5;}The View | Why Australia’s housing market is showing remarkable resilience despite huge fall in prices

The View | Why Australia’s housing market is showing remarkable resilience despite huge fall in prices