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Growth across capital cities slowing at
record pace

The annual rate of price growth across Australia’s capital cities is slowing at the fastest rate since 1989.

According to data from PropTrack, annual home price growth in the capital cities has slowed from a rapid 24 per cent six months ago to 14 per cent now.

This is the sharpest slowdown in price growth since 1989 over a six-month period, faster than both 2004 and during the Global Financial Crisis in 2008.

The largest capital cities are currently leading the decline with Sydney’s price growth slowing at the fastest pace since 1989, Melbourne seeing the quickest slowdown since 2010, and Brisbane since 2008, while Hobart price growth has fallen the fastest of any period since 1986.

PropTrack Economist and report author, Paul Ryan said despite the slowdown, prices are still up 35 per cent since the start of the pandemic.

“Perhaps this is not surprising, 2021 was the third fastest period of home price growth in Australia’s history,” Mr Ryan said.

“However, it is not necessarily the case that growth falls rapidly after a run-up.

“In general, the market moves more gradually, indicating there are other factors involved.”

Mr Ryan said interest rate expectations have been the key driver of the current slowdown.

“Financial markets expect the RBA cash rate to be close to 2.75 per cent at the end of the year, while other expectations are more moderate, sitting around 1.5 to 1.75 per cent,” he said.

“As a result, buyers have been more cautious in 2022. A two percentage point increase in interest rates would increase average mortgage repayments by almost 25 per cent.”

At this stage, the slowdown has not been evenly distributed across the country and there is a two-speed market, according to Mr Ryan.

“The largest cities of Sydney, Melbourne and Brisbane have led the slowdown,” he said.

“By contrast, the smaller capitals of Adelaide and Perth have not experienced anywhere near the same reduction in growth this year.”

Mr Ryan said regardless of the current market softness, homeowners have still experienced a period of record growth.

“Regardless of the slowing across the board, it’s important to remember that price growth was unprecedented throughout the pandemic,” he said.

“Prices are still up 35 per cent since the start of the pandemic.

“This equity increase continues to drive a lot of selling by upgraders and no doubt, the slower price growth over 2022 will be welcome news for many first home buyers who have found it challenging to save a deposit during this run-up in prices.”

Looking ahead, the rapid slowdown in price growth signals the housing market is likely to continue to see slow growth over the rest of 2022, according to Mr Ryan.

“Many buyers and sellers anchor their expectations from recent sales momentum, which can embed these trends in market results,” he said.

“Buyers will also be hesitant to bid as aggressively as we saw last year, since there is much uncertainty about how high mortgage repayments will be before the end of this year.

“How inflation, growth and wages evolve will be key inputs into how much tightening the RBA implements throughout 2022 and how the housing market performs.

“Resolving this uncertainty about the path of interest rates will be the key element buyers look for over the rest of the year.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.

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