Major reversal for real estate in Sydney, Melbourne, Brisbane

There’s been a major reversal in the property market, with prices stagnant following the massive real estate boom during the pandemic.

House prices have slumped in a major reversal after the value of Aussie homes surged 25 per cent during the pandemic.

Sydney and Hobart have been worst hit by the fear of rising interest rates with house prices falling in April for both capital cities, a new report has revealed.

In Sydney, prices were down 0.1 per cent marking the first fall since early in the pandemic, while Hobart saw an even bigger drop decreasing by 0.44 per cent, which is the first fall for the capital city time since early 2018, the PropTrack Home Price Index report showed.

Property prices stalled nationally in April, rising just 0.13 per cent month-on-month and growing at the slowest pace nationally since May 2020.

Price momentum in Sydney has slowed dramatically since mid-2021, with the annual price growth now half the pace seen only six months ago, as affordability continues to bite with the median house in Sydney estimated to now be worth over $1.2 million, the report said.

Sydney house prices dropped by 0.1 per cent. Picture: NCA NewsWire / David Swift

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PropTrack economist Paul Ryan said there were two factors currently influencing Australian house prices.

“Firstly we just have seen such extraordinary growth over the past two years, it just couldn’t continue and it’s finally caught up with the increase in borrowing costs,” he told news.com.au.

“There’s also a sharper inflation increase than expected which means interest rate hikes. Six months ago we were still debating if interest rates would go up in 2023 and 2024 and now expectations are that interest rates will increase by between one and two percentage points by the end of the year.”

Consumer prices have risen by an incredible 5.1 per cent, data released this week showed, a record not seen in 22 years.

Paul Ryan, PropTrack economist, said uncertainty around interest rates is impacting house prices. Picture: Supplied

Interest rate rises could also trigger a 15 per cent fall in housing prices, Reserve Bank of Australia (RBA) analysis showed, which Mr Ryan said was a "reasonable” assessment although he noted it didn’t tell the full story.

“The RBA is responding to strong economic conditions with the lowest unemployment rate in 50 years and everyone is expecting wage growth, which means we will likely see a balance. While borrowing costs will be going up with rising interest rates, people wages are actually going up and getting higher to balance that out,” he said.

“The last time we saw that happen was between 2002 and 2008, where interest rates increased quickly but wages also increased so we saw housing prices grow. But I’m not saying that is going to happen here as it was one in 30 year event.

“But it shows that its not simple enough to look at just the effect of interest rates on housing prices. Strong economic conditions generally have a positive effect on housing prices.”

Will house prices drop by 15 per cent as per the RBA prediction? Picture: NCA NewsWire / Gaye Gerard

House prices grew by just 0.05 per cent in Melbourne in April and 0.04 per cent in the ACT.

The strongest performers in April were Darwin with an 0.53 per cent jump in house prices and Perth, which grew by 0.45 per cent.

Brisbane prices rose by 0.22 per cent and Adelaide saw an increase of 0.34 per cent.

Buyers are worried about paying too much. Picture: NCA NewsWire / Gaye Gerard

Mr Ryan added there was “big tension” in the property market for buyers, which was also influencing prices.

“There is a lot of uncertainty among buyers about where borrowing costs will be and they don’t have the certainty of people who entered the market this time last year,” he explained.

“Those people were fairly certain that interest rates wouldn’t rise for a couple of years and they would have a few years to pay down the mortgage even if they stretched themselves a bit.

“Now buyers wouldn’t want to overload themselves as repayments are going to be substantially higher in as a little as six months time.”

Nationally house prices were up 16.05 per cent year-on-year to reach a median value of $691,000, the report also found.