Sydney’s property values fell 0.2 per cent in March, notching the second consecutive month of lower prices, while Melbourne prices dipped 0.1 per cent, signalling the start of the broader downturn in these markets, the CoreLogic home value index shows.
CoreLogic’s research director, Tim Lawless, said price falls in Sydney and Melbourne were likely to accelerate in the months ahead after hitting their peaks.
“Sydney prices peaked in January and Melbourne in February, so they’re already entering the first part of the downward phase, into negative growth, probably earlier than what I would have expected,” he said.
“We haven’t seen the same consecutive monthly decline in Melbourne, but the trend is looking virtually the same. It looks like the market pretty much flattened out in December and has been tracking along that bottom since that time.
“I expect price falls will speed up in these markets as the downward pressure mounts, but we’re not expecting the market to suddenly crash over the medium term.”
Shane Oliver, AMP Capital chief economist, said house prices in Sydney and Melbourne could fall by 3 per cent on average this year and around 15 per cent by 2024.
“I think these cities will face more weakness as affordability remains a constraint, and as interest rates continue to rise into next year, we’re likely to see steady price decline,” he said.
Since bottoming out in the first months after the pandemic began, Sydney prices had risen by 27.7 per cent between September 2020 and January 2022, while Melbourne increased by 17.3 per cent between October 2020 and February 2022.
ANZ has predicted Sydney’s house prices to climb by 9 per cent this year, Melbourne by 5 per cent, and nationally by 8 per cent, citing stronger than expected housing activity at the start of the year.
But by next year, the bank expects house prices to fall by 7 per cent in Sydney, Melbourne to drop by 6 per cent, and nationwide by 6 per cent nationwide as the impact of higher interest rates start to bite.
National Australia Bank earlier this year also predicted houses prices would fall by 11 per cent in Sydney and Melbourne in 2023, and the Commonwealth Bank predicted a drop of 9 per cent.
The rise in listings, weakening sentiment and higher costs of living have all weighed on demand, Mr Lawless said.
“Listings in Melbourne are well above the long-term average and Sydney is substantially higher than where it was a year ago, so buyers have more stock to choose from, less urgency, and they can negotiate more,” he said.
“Higher inflation implies less disposable income and lower household savings which could make it harder for prospective buyers to raise a deposit and demonstrate their ability to service a new loan commitment.
“Weak sentiment, along with slowing housing markets and the prospect of rising interest rates, is likely to cause prospective buyers to think twice before engaging with the housing market.”
Sydney-based buyer’s agent Amanda Gould of HighSpec Properties said buyers were becoming picky and vendors were now more willing to revise down their price expectations.
“We’re definitely seeing a shift in vendor’s sentiment,” she said. “We just bought a warehouse conversion apartment in Alexandria for $10,000 below the reserve, which was unheard of just months ago.
“We’re also seeing a lot of unrenovated properties getting passed in or not attracting interest. I think buyers are becoming very picky and also may be spooked by the large increase in renovation costs.”
By contrast, the smaller capitals have continued to post monthly gains, led by Brisbane, with 2 per cent rise, followed by Adelaide with 1.9 per cent. Canberra and Perth rose 1 per cent each, Darwin rose by 0.8 per cent and Hobart by 0.3 per cent. Nationally, values lifted by 0.7 per cent.
While the monthly rate of growth was up among some cities and regions, there was mounting evidence that housing growth rates were losing momentum, said Mr Lawless.
“Virtually every capital city and major rest-of-state region has moved through a peak in the trend rate of growth some time last year or earlier this year,” he said.
During the first three months of the year, dwelling values across the country had risen by 2.4 per cent, just half of the growth rate recorded during the same period last year. At its peak in the three months ended May 2021, the quarterly growth had surged by 7 per cent.
Sydney posted the most dramatic slowdown, with quarterly growth rising by just 0.3 per cent, down from the peak of 9.3 per cent in the three months to May last year. Melbourne’s three-month growth slowed to just 0.1 per cent, a sharp drop from 5.8 per cent in the three months to April last year.
With the softening in market conditions, the national annual growth rate rose by a slower 18.2 per cent, lower than the 20 per cent mark for the first time since August last year and well below the cyclical high of 22.4 per cent in January 2021.
Mr Lawless said the annual growth trend will fall sharply in the coming months, as the strong gains recorded in early 2021 drop out of the 12- month calculation.
“The interplay of supply and demand supply side will continue to feature in the housing markets,” he said.
“We know we’re moving through a building boom for detached housing, and we’re also seeing more listings coming on the market now so that there is more supply, whichever way you want to look at it.
“On the demand side, there’s affordability that’s already playing out in the marketplace, there’s the higher cost of debt and also higher household debt levels.
“So I think we probably will see that equation rebalancing, and ultimately, there was always going to be a down phase in this cycle. And it’s happening at a time when interest rates are rising and when affordability is worsening.”
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/price-falls-will-speed-up-after-sydney-melbourne-peak-20220331-p5a9lh