Property prices sink in January as market awaits interest rates peak
Australian property prices fell again in January, but the pace of the downturn continued to ease ahead of a forecast peak in interest rates later this year, new data shows.
CoreLogic figures show home values fell 1 per cent nationwide in January, slightly less than the 1.1 per cent recorded over December – now down 8.9 per cent from earlier peaks.
January saw the smallest national decline in national property prices since June, although Tim Lawless, director of research at CoreLogic, said the downturn was still moving “quite quickly”.
He does not expect property prices to stop falling until the RBA stops raising interest rates.
“Once interest rates do find a ceiling, there will be a move to housing markets flattening out,” Mr Lawless told TND.
“This does not mean that we are moving back to [a] growth trajectory.
“It must be off for a while.”
Sydney property price declines eased slightly to 1.2 per cent in January, pushing the median value below $1 million for the first time since the March 2021 COVID-19 housing boom.
Price falls also eased in Melbourne (down 1.1 per cent) and in Brisbane (down 1.4 per cent).
In January, house prices fell by 0.8 per cent in Adelaide and by 0.3 per cent in Perth.
PropTrack, a separate housing market analysis firm, also released its January home value data on Wednesday, estimating that national values fell just 0.09 percent — 4.5 percent below the peak.
Property prices in context
Both sets of data found that the downturn in housing continues to slow nationally, although at different rates in capital cities.
Mr Lawless stressed the importance of seeing the fall in house prices in context, especially after the massive rise in prices during the pandemic.
Therefore, while home price declines have been sharp over the past year, every capital and regional area continues to post home values above pre-pandemic levels.
This is particularly the case in many regional areas such as the Richmond Tweed and Sunshine Coast, where house prices rose by around 50 per cent in the COVID years and have so far only lost around half of that rise in the downturn.
In fact, homes in most regional areas are still selling at a premium compared to their pre-pandemic values, with combined regional prices falling just 7.4 percent after rising 41.6 percent.
Medium term outlook
Mr Lawless, like many other economists, predicts two further rate hikes in 2023 before the RBA stops its record bid.
House price declines should stop once they do, but that doesn’t mean prices will start rising again.
“The medium-term outlook is probably more of a flattening once interest rates stabilize than the market returning to some growth,” Mr Lawless said.
What the housing market may need to reignite price growth is some form of stimulus, which could be a future interest rate cut, a relaxation in lending standards or grants for new first home buyers.
“It depends on what catalysts can be deployed to cause another improvement in prices,” Mr Lawless said.
The trajectory for interest rates remains unclear, with inflation reaching 7.8 per cent over the December quarter, fueling fresh fears that an even bigger response from the RBA will be needed during 2023.
However, a sharper-than-expected fall in retail sales over the Christmas rush is now reinforcing hopes that the economy is slowing, which could temper any further policy response.
The RBA’s first meeting for 2023 is on Tuesday, 7 February.