Housing markets lost more steam in May as a combination of higher interest rates, rising inventory levels and lower sentiment dampened conditions.
CoreLogic’s Home Value Index (HVI) showed Sydney (-1.0%) and Melbourne (-0.7%) dwelling values continued to record the most significant month-on-month falls, while Canberra (-0.1%) recorded its first monthly decline since July 2019.
Although housing values continued to rise across the remaining capitals, the growth was not enough to offset the depreciation in Sydney, Melbourne and Canberra, which pushed the combined capitals index -0.3% lower over the month.
Growth continues everywhere but Sydney, Melbourne & Canberra
Sydney has been recording progressively larger monthly value declines since February, while Melbourne has fallen across four of the past six months.
Since peaking in January, Sydney housing values are down -1.5%, but remain 22.7% above pre-COVID levels. Comparatively, Melbourne, which experienced a softer growth phase, has recorded a smaller peak-to-date decline of -0.8%, with housing values now 9.8% higher compared to the pre-COVID level.
Canberra, Australia’s second most expensive property market behind Sydney, has experienced nearly three years of consistent positive growth and although dwelling values increased 2.2% in the three months to May, softer house values and affordability constraints are likely to have had an impact. Accounting for the marginal decline evident in May, Canberra housing values remain 37.9% higher vs. pre-pandemic levels.
Outside of Sydney, Melbourne and Canberra, growth trends remained positive in May, albeit with less momentum in most markets. Perth and Adelaide were the exceptions, where the quarterly growth trend lifted in May, although both regions remain below the peak quarterly rate of growth.
High inflation and cost of debt drive market shift
CoreLogic’s Research Director Tim Lawless said despite the 0.5% rise in housing values across Australia’s combined regional areas, it was not enough to keep the national index in positive monthly territory, with the national HVI down -0.1% in May, the first monthly decline in the national index since September 2020.
“There’s been significant speculation around the impact of rising interest rates on the property market and last month’s increase to the cash rate is only one factor causing growth in housing prices to slow or reverse,” he said. “It is important to remember housing market conditions have been weakening over the past year, at least at a macro level.”
Mr Lawless noted the quarterly rate of growth in national dwelling values peaked in May 2021, shortly after a peak in consumer sentiment and a trend towards higher fixed mortgage rates. “Since then, housing has been getting more unaffordable, households have become increasingly sensitive to higher interest rates as debt levels increased, savings have reduced and lending conditions have tightened,” he said.
“Now we are also seeing high inflation and a higher cost of debt flowing through to less housing demand.”