Home Values Decline Across Quarter of Australian Markets

Nearly a quarter of Australia’s housing markets have dropped in value this year with strong evidence Melbourne and Sydney are shifting into the downswing phase of the cycle.

The latest update for property values in 3111 suburbs by Corelogic revealed 23.6 per cent of suburbs were losing value and high-end and inner city markets are the first to feel the shift.

Higher fixed mortgage rates, affordability issues and increased buyer choice impacted values at a granular level after a record year for dwelling price growth. 

In Sydney, 354 of the 917 markets analysed for the three months to March declined in value. The majority were for houses, and ranged from -7.2 per cent in Beaconsfield to -0.01 per cent in Gladesville.

Almost half of the 648 house and unit markets in Melbourne recorded a slip in values, from -6.4 per cent for houses in Cremorne to a -0.01 per cent fall for houses in Boronia.

If falls in property values continue, the Reserve Bank of Australia has indicated it could lead to losses for financial institutions, significantly impacting the economy.

However, for the 651 house markets analysed across Brisbane and Adelaide, not one saw a quarterly or annual decline in values, while unit falls in values was less than -1 per cent.

Corelogic head of research Eliza Owen said Melbourne had recorded two monthly market declines in four months and suburb movements confirmed the city was shifting into the downswing phase in its cycle.

“Quarterly declines have been more skewed towards the inner and inner-east of Melbourne as higher fixed mortgage rates and affordability constraints may be seeing demand slip from the very top end of the market,” she said.

“This pattern is mirrored across Sydney, and it’s a pattern that has been observed through previous cycles.”

Owen said it was likely that slightly tighter lending conditions and higher average fixed rates were hitting the very top of housing markets first. 

“These same areas are seeing some of the bigger jumps in advertised stock levels too, so as we see new demand for housing in these areas decline buyers have more choice, more time for decision-making, and more power at the negotiating table,” Owen said.

The RBA’s Review of Financial Stability for April revealed its concerns that large falls in property or financial asset prices would be disruptive for financial markets and the economy.

“Many financial asset prices remain at high levels, notwithstanding some recent declines. The prices of most types of commercial and residential property are also elevated,” the RBA said.

“Where the assets are leveraged, which is common for residential and commercial property, large price falls could lead to significant losses for financial institutions if borrowers are unable to repay their loans or maintain loan covenants. 

“Volatility in asset prices can also be disruptive to financial markets, particularly where leverage is high or there are liquidity mismatches. Increases in global interest rates have in the past triggered crises in emerging market economies with weaker economic fundamentals.”