Australia home prices suffer steepest fall in 3½ years as rates burst bubble

[SYDNEY] Australian home prices suffered their steepest fall in three-and-a-half years in June as a record housing boom succumbed to higher borrowing costs, while a tax clampdown on investment properties rattled buyers.

Figures from Cotality showed national prices fell 0.4 per cent in June from May, the biggest monthly drop since December 2022, though they were still up 7.3 per cent this year. Downward revisions to past months also now suggest prices peaked in March and were down 0.7 per cent in the second quarter.

Sydney and Melbourne led the monthly decline with a 1.2 per cent drop and a 1 per cent fall, respectively.

The mid-sized capital cities also recorded a sharp slowdown in their growth, with Adelaide flatlining, Brisbane up 0.3 per cent and Perth 0.7 per cent higher. The slowdown came after a jump of more than 30 per cent in national property prices over the past five years, which has defied Covid-19 lockdowns and a surge in borrowing costs to tame inflation.

“Even before interest rates rose by seventy-five basis points, we were seeing affordability hurdles weighing on buyer demand,” said Cotality’s research director Tim Lawless.

“Higher cost-of-living pressures, deeply pessimistic sentiment and a further dampening of demand via property taxation changes announced in the federal budget are all contributing to weaker housing conditions.”

The Reserve Bank of Australia noted on Tuesday that the housing market had eased and housing credit growth looked set to slow, part of the expected impact as its three rate hikes from February flowed through the economy. However, it did note the risks of a potentially material weakening in the housing market, which could inhibit consumption.

Data from Equifax showed mortgage demand dropped 6.6 per cent in the five months to May from a year earlier, compared with a 0.9 per cent decline for the January-April period. Enquiry levels from first home buyers tumbled a whopping 9.1 per cent.

Auction clearance rates in capital cities fell to 47.4 per cent last week, the lowest reading since April 2020, when the Covid pandemic lockdowns paralysed the economy.

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Capital city home sales in the June quarter were 16.2 per cent lower than in the same period last year. A sustained fall in housing turnover would have wide implications for the economy given the housing sector’s extensive links to industries ranging from real estate services to construction.

Separate data from PropTrack showed on Wednesday home prices fell for a third straight month in June, down 0.3 per cent. They remained, however, 5.8 per cent higher than a year earlier. REUTERS