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Home values have fallen by more than 3.5 per cent in Sydney and Melbourne since this property downturn began, and experts warn the trend could have longer to run.
Before this year, Australia has recorded 10 national property downturns in a little over four decades, of which seven lasted less than a year and three lasted longer, Cotality figures show.
This time, prices are tipped to keep falling until any sign emerges of an interest rate cut, which could be some time away.
In Melbourne, dwelling values have been falling for seven months, and are down a cumulative 3.7 per cent. Sydney has been in a downturn for most of the past seven months, falling 3.6 per cent, on Cotality data.
Because the mid-sized capitals of Brisbane, Perth and Adelaide continued to rise after interest rates went up this year, values across the combined capital cities have fallen only 1.3 per cent over three months. When regional areas are included, the national drop is even more modest at 0.7 per cent in three months.
Among previous national downturns, two lasted less than six months, five lasted between six months and one year, and three took up to two years – but none longer than that. Dwelling value falls maxed out at less than 8 per cent.
Sydney’s deepest falls were in 2017-19 when the bank regulator clamped down on interest only lending, banks became more cautious under the scrutiny of the financial services royal commission, and investors expected a change to negative gearing rules in the 2019 election that did not happen.
Over 23 months, Sydney values fell 13 per cent.
Sydney lost 12.4 per cent during 12 months over 2022-23, when the Reserve Bank, having said its central scenario was a rock-bottom cash rate until 2024, embarked on a steep hiking cycle to crush an inflation outbreak.
Melbourne values fell 9.7 per cent over 18 months during the interest-only clampdown, and 7.9 per cent during the post-lockdown rate hiking cycle in under a year.
Cotality head of research Gerard Burg said the pace of Sydney and Melbourne’s falls this time was faster than some other cycles but somewhat more subdued than the steep downturn of 2022.
“[In 2022] the degree to which the landscape shifted was very dramatic and that led to that rapid downturn,” he said.
“[This time] it’s a little bit more modest than that one, because we haven’t had quite as severe a shock.”
Interest rate expectations have changed since last year, when cuts were expected but never arrived. The Reserve Bank hiked three times this year, reducing home buyer budgets. But Burg thought the change was signalled in a clearer fashion and expectations were built more gradually.
Buyer sentiment has also been affected by the US-Iran war, while some investors have paused plans since the federal budget unveiled investor tax changes.
Burg acknowledged the timing of any turnaround in prices was uncertain, but he thought this downturn may last for longer than 12 months.
The key shift would be a signal the Reserve Bank will start cutting interest rates, he said. But given the RBA’s expectations as to how long high inflation may continue, Burg thought mid-next year looked like the earliest point that the downturn might end.
That could change if home owners who had been planning to sell chose to withdraw their homes instead, leaving buyers competing for fewer listings, he said, or if inflation improves sooner.
On the flipside, if unemployment were to rise and some home owners were forced to sell, the market could be weaker, albeit he noted that many owners have substantial equity buffers.
Ray White chief economist Nerida Conisbee agreed the downturn has longer to run.
“We don’t really think price growth will turn around any time soon, but the catalyst will be an interest rate cut,” she said.
“Buyers in particular have pulled back, we can see it in our open for inspection data. They’re being very cautious … I think the market will be soft for a little bit.”
But she did not think the falls would be sharp as several factors would put a floor under price falls, such as population growth, high construction costs to build new homes, and owner caution about deciding to list their homes for sale.
She noted the auction results last weekend, when Sydney and Melbourne held above 50 per cent, despite Sydney three weeks ago falling to 47 per cent.
“That stabilisation over the weekend, whether it was a sign or a one-off, we don’t know,” she said. “There’s still a fair bit of weakness before things turn around.
“Now is a good time for buyers because activity is slow and you’re able to negotiate more and take your time.”
