Sydney housing slump drags Australia prices down most since 2022

[SYDNEY] Sydney’s home-price declines accelerated in June, dragging down national values by the most in three-and-a-half years, reflecting a combination of affordability and cost-of-living pressures as well as higher interest rates.

The national home value index slipped 0.4 per cent from the prior month, the biggest drop since December 2022, data from property consultancy Cotality showed on Wednesday (Jul 1). Sydney tumbled 1.2 per cent, Melbourne by 1 per cent and Adelaide flatlined, while Perth and Darwin bucked the trend, advancing 0.7 per cent and 1.4 per cent, respectively.

Even after the declines, the median value of a Sydney home is A$1.3 million (US$900,000), underscoring affordability struggles for buyers in the city. That was exacerbated by the Reserve Bank of Australia (RBA) raising interest rates at its first three meetings of the year, reducing a potential buyer’s borrowing power.

“Even before interest rates rose by 75 basis points, we were seeing affordability hurdles weighing on buyer demand,” said Tim Lawless, Cotality’s research director. “Higher cost-of-living pressures, deeply pessimistic sentiment and a further dampening of demand via property taxation changes” are contributing to weaker conditions.

Australia’s Labor government last week passed laws to limit the availability of tax breaks for investors in existing housing stock and to raise capital gains taxes. It aims to reduce incentives for investors to pour into the market, behaviour which had often come at the expense of first-time buyers.

Since the turn of the century, Australia’s property market has largely been a one-way bet, which was amplified by years of low borrowing costs. Housing has also been at the heart of rising intergenerational angst in the country: the median price of a home was almost A$1 million in June, up 74 per cent from a decade earlier.

Reinforcing the squeeze on young people, rents in major cities have risen by almost 42 per cent, or A$217 a week, over the past five years. Sydney continues to be the most expensive, with a median of A$883 a week for houses and A$783 a week for apartments.

If the current home-price declines are sustained, it will improve the prospects for young Australians to enter the market. The government says it hopes measures like these will blunt the appeal of the far-right One Nation political party.

“The great news is that this Saturday, like last Saturday, first-home buyers would have rocked up to auctions and not be competing with investors who want to negatively gear their properties and have taxpayers backing in those investments,” Prime Minister Anthony Albanese said in an interview with Australian Broadcasting Corp television on Wednesday.

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“What we’re seeing increasingly is stories right around the country of people who had almost given up on owning their first home, getting access to a roof over their own head.”

But price declines will also cut into the paper wealth of existing homeowners, which could erode their willingness to spend and weaken activity.

The RBA, in minutes of its meeting last month, highlighted the “risks associated with a potentially material weakening in housing markets, including if this were to inhibit growth in consumption”.

“Two factors that had masked the slowdown are now fading: pice declines have spread from the top end to lower and middle-market properties, while gains in the smaller capital cities have lost momentum,” said James McIntyre, economist at Bloomberg Economics.

Cotality’s data shows home prices peaked in March after it revised down previous months’ results to take account of the reversal in the market.

This “reflects a market that is changing rapidly,” Lawless said. “Most regions have seen values revise lower over recent months, with the largest downgrades occurring in Perth and Brisbane.” BLOOMBERG