CoreLogic tipping biggest property market downturn since the early 1980s


Some of Australia’s wealthier areas are suffering the sharpest drop in property values, as surging interest rates spark the steepest housing market downturn in four decades.

For the third straight month, the median national home price fell in July – this time by 1.3 per cent, new CoreLogic data showed. House and unit values together have fallen by two per cent over three months.

More pain is expected for borrowers on Tuesday with the Reserve Bank forecast to raise interest rates by 0.5 percentage points or even a ‘super-sized’ hike of 0.75 percentage points. 

Wealthy postcodes in the big cities are leading the downturn with coastal and tree change regional areas also taking a hit after previously being some of the strongest performing markets.

Wealthier suburbs are suffering the sharpest drop in property values with surging interest rates tipped to cause the steepest housing market downturn in four decades (pictured are volleyball players at Manly on Sydney’s northern beaches, where house prices have fallen by 7.8 per cent in three months)

Median house prices fall as interest rates surge

SYDNEY: Down 2.5 per cent in July and down 5.3 per cent over three months to $1,346,193

SYDNEY NORTHERN BEACHES: Down 2.5 per cent in July and down 7.8 per cent over three months to $2,499,569

MELBOURNE: Down 1.6 per cent in July and down 3.7 per cent over three months to $964,950

MELBOURNE INNER EAST: Down  1.8 per cent in July and 4.7 per cent over three months to $1,691,053

BRISBANE: Down 1.1 per cent in July and down 0.3 per cent over three months to $884,336

GOLD COAST: Down 1.6 per cent in July and down 1.2 per cent over three months to $1,078,080

SUNSHINE COAST: Down 1.5 per cent in July and down 2.5 per cent over three months to $1,094,127

NSW SOUTHERN HIGHLANDS: Down 3.3 per cent in July and down 3 per cent over three months to $1,019,326

NSW CENTRAL COAST: Down 2.8 per cent in July and down 5.7 per cent over three months to $985,801

NEWCASTLE, LAKE MACQUARIE: Down 1.8 per cent in July and down 2.5 per cent over three months to $892,329

CANBERRA: Down 1.4 per cent in July and down 1.5 per cent over three months to $1,047,912

HOBART: Down 1.2 per cent in July and down 1.3 per cent over three months to $782,748

CoreLogic’s research director Tim Lawless said Australia’s property market was facing the most severe plunge in four decades, with interest rates already surging at the fastest pace since 1994 and testing the record debt levels of borrowers.

National property prices are now 2 per cent below April’s peak, after soaring by 28.6 per cent during the pandemic when interest rates were still at a record-low 0.1 per cent. 

Mr Lawless is forecasting a possible 15 per cent capital city drop in 2022 and 2023, but feared a bigger 20 per cent plunge in Sydney and Melbourne, which are both more sensitive to rate rises.

‘I do have a feel for where the market may land – a 15 per cent drop looks reasonable to me but it’s fair to say, considering the pace of the speed of the decline at the moment, and the outlook for interest rates, it does look like Sydney and Melbourne could see a decline more than 15 per cent,’ he told Daily Mail Australia. 

A double-digit decline in 2022 and 2023, as interest rates keep rising, would be worse than the 8.7 per cent decline during 1982 and 1983 when there was a recession coinciding with double-digit inflation and unemployment – or stagflation. 

‘Considering the expected interest rate trajectory, there is a good chance the rate of decline will outpace the trajectory of earlier downturns, and we will probably see housing values fall by a larger amount that the peak to trough declines recorded since the early 1980s,’ Mr Lawless said.

‘The biggest difference is simply the sensitivity of households to the cost of debt.’

NEW SOUTH WALES 

Richer postcodes have suffered the sharpest declines with mid-point house prices on Sydney’s northern beaches falling by 2.5 per cent in July and by very steep 7.8 per cent over three months to $2,499,569.

Apartment values in this upmarket coastal area plummeted by 3.3 per cent in one month and by 6.9 per cent over three months to $1,173,049.

Sydney’s inner south, taking in gentrified Redfern, saw its mid-point house price fall by 3.8 per cent in July and by 7.8 per cent in the quarter to $1,773,641. 

Sydney’s eastern suburbs suffered a 1.9 per cent monthly house price drop to $3,384,474, with mid-point house values plunging by 6 per cent over three months.

The city’s north shore saw its median house price drop by 2.4 per cent in a month and by 5.9 per cent over the quarter to $2,884,719.

By comparison, greater Sydney’s median house price fell by 2.5 per cent in July and by 5.3 per cent over the quarter to $1,346,193.

Regional areas a two-hour drive away from Sydney are now taking a hit with the Southern Highland and Shoalhaven area, covering Bowral and the South Coast, suffering a 3.3 per cent monthly plunge, taking house prices back to $1,019,326. 

Newcastle and Lake Macquarie house prices fell 1.8 per cent in July and by 2.5 per cent over three months to $892,239.

Coastal and tree change regional areas a short drive from Sydney, Melbourne and Brisbane are now also taking a hit (pictured are surfers on the Gold Coast where house prices last month fell by 1.6 per cent)

Coastal and tree change regional areas a short drive from Sydney, Melbourne and Brisbane are now also taking a hit (pictured are surfers on the Gold Coast where house prices last month fell by 1.6 per cent)

Historic capital city property price falls

2017-19: Down 10.2 per cent

1982-83: Down 8.7 per cent 

2008-09: Down 7.6 per cent

1989-91: Down 6.2 per cent 

The Central Coast, an hour’s drive north of Sydney, saw its median house price fall by 2.8 per cent in July and by 5.7 per cent during the quarter to $985,801.

The Illawarra region, covering Wollongong, saw its median house price fall by 1.6 per cent in July and by 3.5 per cent over three months to $1,043,277.

The Blue Mountains suffered a 1.9 per cent monthly drop and a 3.2 per cent quarterly plunge, taking the median house price back to $918,448.

Nonetheless, Mr Lawless said a more moderate 10 to 15 per cent decline was more likely in regional areas, near a capital city, as more people continued moving for lifestyle reasons to work from home. 

‘The underlying demand in a lot of these regional areas has been a structural change with some permanency to it as we see more people willing and able to live in these regional areas,’ he said. 

‘I wouldn’t be surprised if we do see a decline trend that’s maybe even a little bit less than their capital city counterparts.’

Regional areas a two-hour drive away from Sydney are taking a hit with the Southern Highland and Shoalhaven area, covering Bowral (pictured) and the South Coast, suffering a 3.3 per cent monthly plunge

Regional areas a two-hour drive away from Sydney are taking a hit with the Southern Highland and Shoalhaven area, covering Bowral (pictured) and the South Coast, suffering a 3.3 per cent monthly plunge

VICTORIA 

In Melbourne’s upmarket inner-east, house values dropped by 1.8 per cent last month and by 4.7 per cent over three months to $1,691,053.

Mornington Peninsula house prices fell 2.2 per cent in July and by 4.1 per cent over three months to $1,009,910.

Overall house prices in Melbourne have plunged by 1.6 per cent in July and by 3.7 per cent over the quarter to $964,950.

Mr Lawless said a 20 per cent plunge in Melbourne would be worse than a similar-sized drop in Sydney, because the Victorian capital hasn’t enjoyed the same kind of growth as other big capital cities. 

‘Sydney’s had a pretty decent upswing so it’s probably more a story about Melbourne,’ he said.

‘Arguably, Melbourne’s a bit more exposed if we did see, say, 15 to 20 per cent drops.

In Melbourne's upmarket inner-east, house values dropped by 1.8 per cent last month and by 4.7 per cent over three months (pictured is an aerial view of Toorak)

In Melbourne’s upmarket inner-east, house values dropped by 1.8 per cent last month and by 4.7 per cent over three months (pictured is an aerial view of Toorak)

‘That would be wiping a lot off Melbourne because it simply doesn’t have the benefit of such a strong growth cycle.’ 

Melbourne’s property growth of 18 per cent during the height of this boom lagged behind Sydney’s 28 per cent increase, with its residents enduring 263 days of lockdown – the world’s longest in 2020 and 2021.

A decline of 20 per cent would leave many more recent borrowers owing more than their home was worth, a situation known as negative equity, as house prices fell back to 2017 levels.

‘Once you get beyond that 15 per cent decline, you start to see a lot more households falling into a position where their home would be worth less than what they paid for it,’ Mr Lawless said. 

QUEENSLAND 

Brisbane, Australia’s best performing property market during much of the pandemic, last month saw its median house price fall by 1.1 per cent to $884,336.

Values for a detached home fell by a lesser 0.3 per cent during the quarter, because prices had continued to rise in May and flatline in June as they fell in Sydney and Melbourne.

The city’s bayside east saw its property values drop by 1.4 per cent last month and by 0.9 per cent over the quarter to $942,649.

Mr Lawless said a smaller 5 to 10 per cent decline was more likely in Brisbane because it was still much more affordable than Sydney or Melbourne. 

Brisbane, Australia's best performing property market during much of the pandemic, last month saw its median house price fall by 1.1 per cent to $884,336 (pictured is the Story Bridge looking towards the city centre from New Farm)

Brisbane, Australia’s best performing property market during much of the pandemic, last month saw its median house price fall by 1.1 per cent to $884,336 (pictured is the Story Bridge looking towards the city centre from New Farm)

‘Brisbane has a lot of underlying factors that should help to insulate the market from such a large decline,’ he said. 

‘It’s got a very strong rate of interstate migration supporting demand.’ 

On the Sunshine Coast, house prices dropped by 1.5 per cent in July and by 2.5 per cent over the quarter to $1,094,127.

On the Gold Coast, house values fell by 1.6 per cent last month and by 1.2 per cent over three months to $1,078,080.

Across the other side of the Queensland border in northern New South Wales, the Richmond-Tweed area, covering Ballina, saw its median house price fall 2.8 per cent in July and by 4.5 per cent over three months to $1,034,826.

 INTEREST RATES

All of Australia’s big four banks are predicting another 0.5 percentage point interest rate rise in August, that would take the cash rate from a three-year high of 1.35 per cent to a six-year high of 1.85 per cent. 

Inflation in the year to June soared by 6.1 per cent, the sharpest increase since 2001 which put it well above the Reserve Bank’s 2 to 3 per cent target.

Westpac and ANZ are expecting the cash rate to hit 3.35 per cent.

This means a borrower with an average $600,000 mortgage, buying a typical Australian home worth $747,812 with a 20 per cent deposit, would be paying $1,060 more a month on their  monthly repayments compared with May.

Some areas of Australia are still defying the national downturn, despite borrowers in May, June and July copping 1.25 percentage points worth of rate rises – the steepest since 1994.

All of Australia's big four banks are predicting another 0.5 percentage point interest rate rise in August, that would take the cash rate from a three-year high of 1.35 per cent to a six-year high of 1.85 per cent (pictured is a Melbourne auction)

All of Australia’s big four banks are predicting another 0.5 percentage point interest rate rise in August, that would take the cash rate from a three-year high of 1.35 per cent to a six-year high of 1.85 per cent (pictured is a Melbourne auction)

Adelaide’s median house price rose by 0.3 per cent in July and by 3.4 per cent over the quarter to $705,634.

Perth’s equivalent value went up by 0.2 per cent in July to $587,024, marking a quarterly increase of 1.2 per cent.

The story was similar in Darwin with house prices last month rising by 0.2 per cent to $589,748, with a 1.9 per cent increase over three months.

But they were the exception with previously soaring markets now going backwards.

Canberra’s median house price in July fell by 1.4 per cent in July to $1,047,912 as Hobart’s mid-point value dropped by 1.2 per cent to $782,748.

CommSec chief economist Craig James said more interest rate rises would see the housing market downturn spread.

‘More parts of the national housing market are responding to higher interest rates,’ he said.

‘Further slowing of home prices, as well as outright monthly and annual declines in prices, can be expected as interest rates rise further.’

But Mr Lawless said a stabilisation of interest rates in 2023 was likely to put a stop to falling prices. 

‘We are expecting this decline trend will probably be fairly sharp but short,’ he said.

A 15 per cent decline in capital city home prices would take values back to where they were in March 2021, four months after the Reserve Bank cut the cash rate to a record-low of 0.1 per cent. 

What borrowers could be paying by November every month compared with May

$500,000: Up $883 from $1,922 to $2,805

$600,000: Up $1,060 from $2,306 to $3,366

$700,000: Up $1,236 from $2,691 to $3,927

$800,000: Up $1,413 from $3,075 to $4,488

$900,000: Up $1,590 from $3,459 to $5,049

$1,000,000: Up $1,767 from $3,843 to $5,610

Calculations based on the cash rate rising from a record-low of 0.1 per cent in May to 3.35 per cent by November, as predicted by ANZ. Monthly repayments based on a popular variable Commonwealth Bank rate increase from 2.29 per cent to a projected 5.39 per cent 

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