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Australian property values record largest decline on record

Australian property values have clocked their largest peak-to-trough decline ever, dipping 8.4 per cent between their high on May 7, 2022 and January 7, 2023, according to CoreLogic.

The steep drop in the CoreLogic Daily Home Value Index outpaced the previous record peak-to-trough decline of 8.38 per cent between October 2017 and June 2019.

Steep declines in Sydney (down 13 per cent), Melbourne (down 8.6 per cent) and Brisbane (down 10 per cent) were the biggest drag on national values, CoreLogic Head of Research Eliza Owen said.

Ms Owen pointed to rapid interest rate rises since May as the primary reason for the unprecedented declines.

“The main force behind record home value falls is the recent cycle of rate hikes that have risen at the fastest pace on record,” she said.

“A 300-basis point increase in the underlying cash rate over just eight months has resulted in a rapid reduction in borrowing capacity, lowering the amount buyers can offer for homes.

“In addition to constrained borrowing capacity, higher interest costs may be dissuading potential buyers altogether.”



High levels of household debt could also be playing a role in the declines, with mortgage holders more sensitive to increases in the cost of borrowing.

“Australians are also more indebted today than through historic periods of rate rises, with the latest Reserve Bank of Australia’s estimate of housing debt-to-income ratio sitting at 188.5 per cent,” Ms Owen said.

“A decade ago this figure was 162 per cent and in 2002 the ratio was 130.2 per cent. Higher household indebtedness may have increased the sensitivity of housing values to interest rate rises.”

Boosting the theory that high debt loads were worsening the financial impact of the current cash rate cycle was the fact that previous rate-induced downturns had not been as severe, Ms Owen said.

“In the mid-90s, Australia saw the second-highest rate lifting cycle on record, with 275 basis points added to the cash rate in the space of five months,” Ms Owen said.

“However, the associated peak-to-trough decline in the home value index was relatively low, re-iterating the possibility that higher values and debt levels in 2022 have made housing markets more sensitive to changing interest rates.”

Ms Owen said a reduction in household savings – both as a result of higher inflation and a post-lockdown spending splurge – may have eroded deposit savings, resulting in a reduction in demand for properties.

She indicated that market conditions would remain “soft” in the coming months, with further cash rate rises widely anticipated.

Despite this, some markets were faring better than others, with Perth values recording only a 1 per cent decline in values since their August, 2022 peak.

It was also important to consider the current declines in the context of the tremendous uplift in property values witnessed through the pandemic, Ms Owen said.

“For perspective, the 8.4 drop [in national values] has come off a high base,” Ms Owen said.

“The sharp decline in dwelling values follows an upswing of 28.9 per cent between September 2020 and May 2022, which was the fastest rise in home values nationally on record.

“The fall in national home values may be the largest peak-to-trough decline on record, but at the end of 2022 home values were still 16 per cent higher than they were five years ago, and 59.8 per cent higher than they were 10 years ago.”

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Jack Needham

Jack Needham is the Digital Editor at Elite Agent

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