Global House Prices Steam Ahead as Australia Corrects

Global house prices are steadily increasing while house prices in Australia’s major capital cities are falling at their fastest monthly pace since records began in the early 1980s.

According to Knight Frank’s latest Global Residential Cities Index, which tracks the movement of average house prices across 150 cities globally, 90 per cent have continued to register an increase in house prices. 

The average house price across the combined cities worldwide increased by 11.7 per cent in the year to June 2022. At 0.8 per cent, Australia saw the third largest decline in prices for the three-month period, while New Zealand recorded the biggest decline with prices down 3 per cent.

Economists and property forecasters are tipping national house prices could fall by between 15 per cent and 25 per cent over the next couple of years, with the biggest losses expected in high-priced Sydney and Melbourne where values surged during the pandemic.

Accelerating the property market correction has been five consecutive months of cash rate increases to now be at 2.35 per cent. While the pace of rate rises could soon slow, the cash rate is expected to exceed 3 per cent by the end of the year and to approach 4 per cent by mid next year.

So far, national house prices have eased a modest 3.5 per cent since peaking early this year and the correction is relatively minor compared to prices soaring more than 30 per cent during the pandemic.

Global residential cities Index, second quarter 2022

Knight Frank head of residential Erin van Tuil said further upward adjustments to the cash rate and higher costs of living in the coming months would continue to place downward pressure on property prices over the next 18 months.

“Our research shows that by the end of 2023, the overall Australian residential property market could experience price declines of 3 per cent,” van Tuil said.

“We anticipate trends will move back towards positive territory in 2024 given the undersupply of new properties being built across the country.”

Two Australian cities had continued to buck the national trend with Adelaide and Brisbane recording house price growth.

Ranked in the top 10 residential city globally for annual growth, house prices in Adelaide grew 25.6 per cent on the previous year. Brisbane also saw strong growth, ranked as the top 20 city with house prices increasing 20.4 per cent. Sydney and Melbourne ranked 104 and 109, respectively.

“Australia’s best performing cities for annual price growth, Brisbane and Adelaide, also saw elevated population growth in 2021 against the Australian average,” van Tuil said.

“The main factors continuing to drive smaller cities and regional residential markets include the relocation of digital nomads to more affordable locations.

“Investors returning to the market are seeking a higher rental yield than they could achieve in the larger capital cities and holiday homes purchased to incorporate retirement plans in the coming years.”

Overall, the global index is still rising at 10 per cent per annum with 51 of the 56 tracked countries continuing to register an increase in house prices. 

This is despite expectations of a notable slowdown in the second quarter given recessionary fears, energy prices, rate rises and geopolitical concerns. 

More realistically, when taking inflation into account, global house prices in real terms are averaging just 1.6 per cent growth in the year to Q2, down from 6.2 per cent a year earlier according to Knight Frank.

The strongest property market over the past 12 months has been Istanbul which has seen 184.9 per cent growth in property prices.

Top performed US cities include Miami, Dallas and Phoenix. While the worst performed major capital city was Wellington, which has fallen 12.2 per cent in the past 12 months.