Why are house prices suddenly falling in Australia? Sydney and Melbourne lead worst real estate slump ‘since the global financial crisis’, while expats flock home and clean up
- Property prices in Australia rose a record 23.7 per cent in 2021 – but rising interest rates and record household debt have caused a sudden slump in key cities
- And this is just the beginning – experts predict two more years of instability, and overall price falls of 15 per cent, so when should investors swoop in?
After years of recording some of the fastest-rising house prices in the world, residential markets in key Australian cities have slipped into negative territory.
The decline in Sydney of -5.2 per cent since January, and -3.4 per cent in Melbourne, follows a record-breaking 2021 when official data shows residential property prices rose 23.7 per cent in the year.
According to CoreLogic, a property data firm, the decline began in May and is now into its fourth consecutive month. Tim Lawless, CoreLogic’s research director, says that while it’s still early days in terms of a real estate cycle, the data shows that the rate of decline is comparable with the onset of the global financial crisis (GFC) in 2008, and the sharp downswing of the early 1980s. “In Sydney, where the downturn has been particularly accelerated, we are seeing the sharpest value falls in almost 40 years,” he added.
In July, Brisbane also edged into negative growth territory for the first time since August 2020, with values down -0.8 per cent, while Canberra (-1.1 per cent) and Hobart (-1.5 per cent) were also down over the month. Only Perth (+0.2 per cent), Adelaide (+0.4 per cent) and Darwin (+0.5 per cent) remained in positive territory through July, albeit at a far slower pace of growth compared to preceding months.
[Expats are] used to the smaller flat sizes and higher prices in Hong Kong, and are impressed by what they can buy here. They tend not to look around too much
The slide began with the first interest rate hike in May. Noting that, overall, dwelling values in Australia are still 8 per cent higher than this time last year, Lawless believes housing market conditions are likely to worsen as interest rates are pushed higher over the remainder of the year.
“Due to record high levels of debt, indebted households are more sensitive to higher interest rates, as well as to the additional downside impact from very high inflation on balance sheets and sentiment,” he said.
Bucking the national average, though, some top-end homes are still achieving record prices.