{"id":187466,"date":"2025-01-09T19:30:41","date_gmt":"2025-01-09T08:30:41","guid":{"rendered":"https:\/\/propertyupdate.com.au\/?p=187466"},"modified":"2025-01-10T09:09:26","modified_gmt":"2025-01-09T22:09:26","slug":"australias-housing-market-has-just-entered-a-downturn-whats-behind-the-shift","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/australias-housing-market-has-just-entered-a-downturn-whats-behind-the-shift\/","title":{"rendered":"Australia\u2019s housing market has just entered a downturn \u2013 what\u2019s behind the shift?"},"content":{"rendered":"

After 21 months of growth that pushed values up 14.3%, CoreLogic\u2019s national Home Value Index (HVI) has finally recorded declines.<\/p>\n

After peaking in October, the national index steadied in November (-0.01%) and recorded a -0.1% decline in December.<\/p>\n

The start of a cyclical downturn is unsurprising, as monthly home value growth has slowed since June 2024.<\/p>\n

\"Monthly<\/p>\n

The slowdown has been accompanied by other market shifts.<\/p>\n

Total listings levels across the country finished 2024 5.0% higher than a year ago.<\/p>\n

Selling times rose through the December quarter, up to 33 days from 28 days a year ago.<\/p>\n

But is this a cause for celebration among buyers?<\/p>\n

Should sellers be worried?<\/p>\n

Here\u2019s what we\u00a0know about the downturn so far.<\/p>\n

Home values and interest rates are too high for buyers<\/span><\/h2>\n

Housing demand has slowed amid a growing gap between income, borrowing capacity, and home values, exacerbated by slowing economic growth and \u2018higher-for-longer\u2019 interest rates.<\/p>\n

One way to look at this divergence is to consider an 'affordable' purchase price for the median income household in Australia, based on 30% of before-tax income spent on a mortgage, assuming current interest rates and a 20% deposit.<\/p>\n

This derived affordable price would be $513,000, while the national median dwelling value is $815,000 (Figure 2).<\/p>\n

\"Median<\/p>\n

Historically, these gaps converge as housing values drop or purchasing capacity improves through higher incomes or lower interest rates.<\/p>\n

For nearly two years, this gap may have been sustained by buyers less affected by interest rates, such as those using resale profits or higher-income buyers. Some buyers may have been willing to accept higher housing costs in the short term on the expectation that interest rates would fall.<\/p>\n

However, as lower interest rates have not materialised, housing demand from these buyers may also be waning.<\/p>\n

\"Monthly<\/p>\n

Seasonality at play, but housing values are still on the way down<\/span><\/h2>\n

The first notable decline in home values has coincided with a seasonally slow period for the property market when value changes are usually a little bit weaker.\r\n

<\/div><\/p>\n

The seasonally adjusted <\/em>HVI did not actually fall in December, instead rising 0.1%.<\/p>\n

Australia\u2019s housing market still looks weaker when accounting for seasonal effects though, and Sydney, Melbourne and Canberra still saw price falls.<\/p>\n

The national seasonally adjusted HVI has seen monthly growth slow to just 0.1% for the past three months, down from an average growth rate of 0.6% through the first three months of 2024.<\/p>\n

The downturn is being driven by a relatively small number of markets, but that will change<\/span><\/h2>\n

In December, only five of Australia's 15 capital city and regional \u2018rest of state\u2019 markets saw declines.\r\n

<\/div><\/p>\n

Melbourne had the largest drop at -0.7%, followed by Sydney (-0.6%), Canberra and Hobart (-0.5%), and regional Victoria (-0.3%).<\/p>\n

Other regions saw increases ranging from 0.03% in regional NSW to 1.2% in regional South Australia.<\/p>\n

At a suburb level, only 38% of markets fell in the December quarter, causing a 0.1% drag on the national index, and Sydney and Melbourne accounted for 55.8% of these suburbs.<\/p>\n

The national value decline is mainly due to Sydney and Melbourne, which account for roughly 40% of Australian housing stock, and 50% of Australian housing value.<\/p>\n

The HVI measures total value change without adjusting for market size, so movements in Sydney and Melbourne have a relatively large impact on the headline figure.<\/p>\n

While the downturn is largely driven by Sydney and Melbourne so far, the general market trend is still experiencing a slowdown in most regions.<\/p>\n

Adelaide had the highest quarterly growth of the capital cities at 2.1% in Q4 2024, but this was down from 3.6% in Q3 2024, and a high of 4.1% in the three months to May.<\/p>\n

Declines are also spreading at the suburb level, with quarterly price falls up from around 20% of suburbs at the end of 2023 (Figure 4).<\/p>\n

\"Portion<\/p>\n

Will this downturn be large?<\/span><\/h2>\n

A cyclical downswing is likely for early 2025 but it may not be large.<\/p>\n

The largest recorded decline in the national HVI was only -7.7% from October 1982 to March 1983.\r\n

<\/div><\/p>\n

At the national level, home value declines tend to be shorter and smaller than periods of increase.<\/p>\n

Part of this is because sellers may be able to withhold their property from sale until values are rising, effectively restricting available supply during periods of price falls.<\/p>\n

This is dependent on the urgency of a sale, but labour markets remain tight and most mortgaged households appear to be coping with current interest rate settings, making a rise in forced sales unlikely.<\/p>\n

Another reason this could be a relatively small market downturn is the tailwinds for property demand in 2025.<\/p>\n

Growth in real incomes may support more buyer demand as inflation moderates, and a reduction in interest rates would boost borrowing capacity.<\/p>\n

Underlying these economic factors is also a fundamental shortage of homes relative to the population, and the squeeze on the delivery of new housing amid weak capacity in the construction sector.<\/p>\n

Given these factors, the downturn in housing values is likely to be shallow and short-lived, but in the same sense, it's hard to see any material growth returning to housing values, at least at a macro level, until housing affordability and loan serviceability improve more substantially.<\/p>\n