Home Insights Putting Australia’s property price falls into perspective

Putting Australia’s property price falls into perspective

by admin
0 comment

Falling real estate prices may be dominating the news headlines these days, but it’s important for buyers, sellers and owners to put these drops in the background.

Let’s start by looking at what really happened to the price.

Rising interest rates and the accompanying decline in borrowing capacity are actually putting pressure on home prices. Nationwide, house prices have been falling since March 2022, dropping another 0.1% in January. PropTrack Home Price Index.

Nationwide, that means prices have fallen 4.5% from their peak.

Sydney has led these price drops, with the price drops coming a little earlier and even further. Prices in Sydney are currently down 7.5% from their February 2022 peak.

Melbourne isn’t far behind, with prices down 6.4% from their peak. Other cities, notably Adelaide, have fallen just 0.2% since they began falling in November.

These declines are not insignificant and represent a sharp recovery from the 2021 situation. But when it comes to real estate prices, the historical context is important.

First, these price declines came after a very strong year for prices in 2021, with house prices still many higher than before the pandemic.

To explain how unusual 2021 has been, the 23% increase in prices over the course of 2021 is due to Third-fastest year for inflation nationally 140 years.

This strong growth in 2021 means that across the country prices are almost 30% higher than they were three years ago, despite the recent recession.

Both Brisbane and Adelaide have been favorite cities for buyers during the pandemic, with prices up 43% over three years ago. Even so, prices are up 14%.

If you bought a home near the 2022 peak, you’ve likely experienced a home that’s worth less than when you bought it, but most homeowners haven’t. This is because the majority of Australians bought before its peak.

The reality of this is that not many households buy homes in any given year. In one context, around 140,000 homes across Australia changed owners between January and March 2022, when prices peaked.

This represents just 1.3% of Australia’s over 10.7 million homes. Even between October and December 2021, only about 1.6% of homes changed owners, even when the market was very busy and prices were higher than they are now.

A second important context for understanding the current recession is that price declines are not all that uncommon.

So how does the current recession compare to previous recessions?

The current recession was initially very hard, with prices falling as much as 1% in a month. These sharp declines coincided with a sudden change in outlook by the RBA, which resulted in interest rates being raised by his 0.5 percentage point. However, the pace of decline has recently begun to moderate.

In short, the current recession is still a bit shorter and shallower than both the 2008-09 and 2018-19 recessions. It’s also off a much higher base than previous declines given the rapid price rise in recent years.

That said, prices are likely to continue to fall this year.Nationwide prices are expected to fall further 7% to 10% more By the end of 2023.

As a result, some households, especially those who bought near the peak, may find their homes worth less than they paid for. But much depends on how quickly the RBA raises interest rates to keep inflation in check.

We expect the RBA to have one or two rate hikes left in the tank. This means that we are seeing a peak in the cache rate.

You may also like