Housing bankruptcy in Australia is spreading, and accelerating. Prices in Sydney and Melbourne drop from levels a year ago, sales plummet

The largest monthly decrease in nNational home price index since 1983.

by Wolf Richter for Wolf Street.

House prices in Sydney and Melbourne – among the world’s most luxurious housing bubbles – are falling, after inflation in the second quarter hit 6.1% and is expected to rise in the third, and after the Reserve Bank of Australia has raised interest rates by 175 basis points since May. , including 50 basis points in August, to 1.85%. And look at what housing is doing: It’s not only failing as an exaggerated hedge against inflation, it’s regressing.

In Sydney, house prices fell 2.3% in August compared to July and by 5.9% over the past three months, according to CoreLogic. Since the peak in January, the home value index has fallen 7.4%.

Shockingly, home prices are now down 2.5% from August last year. I mean what kind of horror show is this?

In Melbourne, the home value index is down 1.2% for the month, 3.8% for the past three months, 4.6% from its February peak and, shockingly, 2.1% from August last year.

Nationally, CoreLogic’s home value index fell 1.6% in August from July, the largest monthly decline since 1983.

This chart shows price changes on a three month rolling basis for the five major capitals (chart across CoreLogic):

“It’s hard to see home prices stabilizing until interest rates find a ceiling and consumer confidence begins to improve,” CoreLogic said.

On a monthly basis, home prices fell in seven of the eight capitals. Darwin just stuck to earn.

During the three-month period, five capitals have now posted a dip, including Brisbane, which joined the club in August.

Just two months ago, the Brisbane housing market peaked after posting a 42.7% rise in values [since the beginning of the pandemic]. Over the past two months, the market has reversed sharply with values ​​down 1.8% in August after a 0.8% drop in July,” CoreLogic said.

Housing Prices, August 2022

Mom

3 months

year

Mediator A $

Sydney

-2.3%

-5.9%

-2.5%

1,066,493

Melbourne

-1.2%

-3.8%

-2.1%

782.053

Brisbane

-1.8%

-2.5%

17.5%

762284

Adelaide

-0.1%

1.6%

21.8%

652959

Perth

-0.2%

0.4%

4.9%

561781

Darwin

0.9%

2.3%

6.3%

512531

Canberra

-1.7%

-2.6%

7.8%

909748

Hobart

-1.5%

-3.3%

5.8%

714370

Sales fell.

In Sydney, sales were down 35% in the three months to August compared to the same period last year. Sales in Canberra are down 19%, and in Melbourne by 16%, according to CoreLogic estimates. Across Australia, sales are down 15%.

Entering the normally busy spring and summer, “We expect to see less buying activity as higher interest rates and lower sentiment continue to weigh on demand. Should this scenario occur, the end result would be the reported supply build-up which could further put pressure on values, CoreLogic said.

Suddenly out of stock.

Suddenly there’s plenty to choose from: “Sydney and Melbourne, where the housing downturn is more advanced, are already seeing total shares advertised above mid-levels, and there’s a good chance other capitals will follow suit as listings rise through spring and demand continues to decreasing,” CoreLogic said.

In the eight capitals, the number of homes for sale is up 11% from last year. New listings over the past 28 days in capitals are significantly higher than the previous three years, but lower than in 2018 (graph via CoreLogic):

But don’t panic anymore.

The pullback follows ridiculous price gains, driven by RBA quantitative easing and interest rate suppression. Significant price hikes from the start of Covid to a related peak earlier this year, according to CoreLogic data:

  1. Adelaide + 45%
  2. Brisbane + 43%
  3. Hobart + 38%
  4. Canberra + 38%
  5. Darwin + 31%
  6. Sydney + 28%
  7. Perth + 26%
  8. Melbourne +17%

Year on year house prices fell in Sydney and Melbourne. But in terms of negative equity, most homeowners in these two markets who bought before August of last year, and most homeowners in other markets who bought before 2022, still have positive equity in their homes, given the massive rise in prices.

“A 15% peak to lower low would bring CoreLogic’s aggregate capitals index roughly back to March 2021 levels,” CoreLogic said across the eight capitals.

In addition, buyers made down payments and paid principal with mortgage payments, increasing their equity. “The risk of a negative equity spread remains low,” CoreLogic said.

So no big deal – if the house price drop magically stops at 15%.

Not everyone is so optimistic.

. said Shane Oliver, chief economist at AMP Capital, Sydney-based director of global investment News letters That downturn could be the end of the 25-year housing boom.

“The decline in residential property prices in the past 25 years has been mostly moderate, with prices falling by less than 10%, and short, with prices rebounding quickly to new highs with prices falling to new lows,” he said.

“This cycle could be different – ​​in terms of being deeper and taking longer to recover – thanks to a combination of higher household debt levels, higher house prices to income levels, and the end of the long-term downtrend in interest rates,” he said.

If the RBA’s policy rate were raised to 4%, as expected in the money market, he said, “that would more than double home interest payments and push total mortgage payments to record levels relative to income and likely lead to a decrease of 30% or so. in prices.” But well, it was definitely fun while it lasted.

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