Home prices decline at fastest pace in 30 years

The long boom in Australian capital city home prices is coming to an abrupt halt.

A PropTrack analysis of home price growth has found that home prices in the country’s capital cities had slowed down at the most rapid pace since 1989.

The long boom in Australian capital city home prices is coming to an abrupt halt with a fresh analysis showing that they had slowed at their most rapid pace in more than 30 years.

The heady cocktail of cheap debt, government stimulus and willing buyers have crashed into a new reality of higher rates, tougher lenders and rising building costs.

A PropTrack analysis of home price growth in Australia released on Wednesday found that home prices in the country’s capital cities had slowed down at the most rapid pace since 1989, when the market screeched to a halt ahead of the 1990s recession.

The slowdown follows the exceptional price growth experienced during the pandemic when prices rose at the third fastest rate in Australia’s history.

PropTrack economist and report author, Paul Ryan, said home price growth had slowed down quickly in 2022. The PropTrack Home Price Index showed that home prices fell in May, in the first decline since the start of the pandemic. In the last six months, home price growth experienced its most rapid slowdown in more than 30 years.

Federal Treasurer Jim Chalmers on Tuesday. Picture: NCA NewsWire / Dan Peled

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

He pointed to the rising global bond yields which have run ahead of central bank actions.

“Interest rate expectations have been the key driver of this 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.

Mr Ryan said this had made buyers more cautious in 2022 as a two percentage point increase in interest rates would increase average mortgage repayments by almost 25 per cent.

“The slowdown has not been evenly distributed across the country and we continue to see a two speed market. The largest cities of Sydney, Melbourne and Brisbane have led the slowdown. By contrast, the smaller capitals of Adelaide and Perth have not experienced anywhere near the same reduction in growth this year,“ Mr Ryan said

The PropTrack economist said that regardless of the slowing across the board, prices were still up 35 per cent since the start of the pandemic. This equity increase continues to drive a lot of selling and the slower price growth over this year could aid many first home buyers.

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

He expects that buyers will also be hesitant to bid as aggressively as 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,” he said.