Australian house price decline set to ‘accelerate’, expert warns

All signs are pointing to a further drop in the property markets over the next few months, with two Aussie cities to feel the brunt of the change.

It is becoming increasingly clear that the end is near for Australia’s house price boom, with new data showing this could just be the beginning for the falling property market.

Recent data from realestate.com.au shows a decline in auction clearance rates, a trend that is expected to continue over the coming weeks and months.

For the past two years, Australia has seen very strong clearance rates across the country, with PropTrack director of economic research Cameron Kusher saying lower rates is a typical sign of a slowing property market.

“From here, especially given that we’ve had 85 basis points worth of increase to the cash rate and the expectation of further interest rate increases throughout this year, we would expect that the auction clearance rate will come down further,” he told news.com.au.

For Sydney and Melbourne, which have shown consistently strong auction numbers, clearance rates have dropped to 81 and 75 per cent respectively from the previous week, according to the REA data.

Australia’s housing market is finally starting to slow. Picture: NCA NewsWire/Nikki Short

Brisbane had the lowest clearance rate for all capital cities, with 66 per cent, just under Perth at 67 per cent.

The ACT was next at 78 per cent, then up to Adelaide with 88 per cent.

Darwin had a 100 per cent clearance rate according to the data, though there were only two auction results listed.

Mr Kusher said property price declines will likely continue to “accelerate”, with Sydney and Melbourne in particular being impacted.

“We’ve already seen a really fast increase in the cash rate over the last two months. We thought that the Reserve Bank would be slower, more methodical, but it’s clear that they’re lifting rates aggressively to tackle inflation and, given that we expect interest rates to be much higher by the end of the year, we think probably somewhere of a cash rate around 2 per cent,” he said.

“So you’re going basically from zero to 2 per cent cash rate in less than 12 months. And that means that the price declines will likely accelerate over the remainder of this year. Particularly in Sydney and Melbourne.”

On Tuesday, the RBA decided to lift the official cash rate by 50 basis points, to 0.85 per cent, returning it to its highest level since September 2019 and marking the first back-to-back rate rise in 12 years.

Auction clearance rates have begun to drop across the country. Picture: Brendon Thorne/Getty Images

The other side of falling property prices is that homeowners can be less inclined to take a property to auction, preferring other methods of selling.

“Every week it’s been steadily trending lower throughout most of this year,” Mr Kusher said.

“As the heat comes out of the market, we’ve been seeing price growth slow and now we’re obviously at a point where the last few months we started to see some price falls. We would expect that flows on to clearance rates that will continue to trend lower.”

A recent report from PropTrack cemented the fact that Australia’s property boom may finally be coming to an end with national house prices falling by 0.11 per cent in May and 0.15 per cent across all capital cities.

Annual price growth has fallen from 24 per cent just six months ago to 14 per cent now.

Several banks have now forecast price drops of between 5 per cent and 15 per cent through to the end of 2023.

A 15 per cent drop in the median property price would see the value of the average property falling by $150,000.

The last time house prices slowed this quickly was more than 30 years ago – at a time when Australia was heading into a recession.

It doesn’t bode well for the current situation, with PropTrack economist and report author Paul Ryan saying monthly prices have slowed just about everywhere, with growth also stalled in regional areas.

“Prices were flat in regional areas in May which represents a sharp slowdown and the slowest monthly result in regional Australia since May 2019,” Mr Ryan said in the report.

“Nevertheless, regional areas continue to outperform capital cities and have benefited from relative affordability and preference shifts towards lifestyle locations and larger homes following the pandemic.

“Prices have increased 21 per cent in the past year in regional areas, but only 12 per cent in the capitals,” he said.

Prices have continued to decline in Sydney and Melbourne, dropping by 0.29 and 0.27 per cent respectively.

The only capital cities managing to buck the trend have been Brisbane and Adelaide, which have continued to benefit from affordability and pandemic-induced preference shifts.

Brisbane saw a monthly growth of 0.35 per cent, while Adelaide prices shot up by 0.58 per cent.

Mr Ryan noted that a clear “two-speed housing market” is continuing.

Affordable, lifestyle regions of Brisbane, Adelaide, regional NSW, Queensland and Tasmania are seeing solid growth, while prices everywhere else are either flat or falling.

“As inflation built in early 2022, expectations interest rates would move higher has weighed on price growth,” Mr Ryan said.

“The RBA moved to increase official interest rates for the first time in more than a decade in early May, with substantially higher borrowing costs expected at the end of the year.

“Buyers now expect the affordability of current prices to further erode.”

Originally published as Australian house price decline set to ‘accelerate’, expert warns