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Falling Property prices


Australian house prices have declined for the second month in a row in June – and the pace of losses is accelerating sharply. According to CoreLogic’s market-leading index, house prices across the five largest cities fell by more than 0.8% (on average) in June following on from a 0.4% loss in May. 


The steepest losses were in Sydney, where values dropped 1.5% in June (vs 1.0% in May), and Melbourne, where values fell by 1.0% (vs 0.7% in May). Since their peak earlier this year, Sydney house values have now lost 3.1% while homes in Melbourne have declined by 1.9%.


Whilst Adelaide house prices are “steady,” the pace of increase has slowed considerably and therefore, a decline in prices may follow in the coming months. The main causes of the declines in Sydney/Melbourne are:


  • poor affordability – with prices up 30% from June 2020 (post COVID) – March 2022.
  • rising mortgage rates.
  • a decline in home buyer confidence.


Property specialists are suggesting a 10-15% fall in home prices, on average, across Australia. However, seen in the context of the huge 30% surge in prices since their 2020 low, this will just take average prices back to the levels of around March last year, so a big rise in negative equity is unlikely. Those who purchased in the last 12 – 18 months on low deposits, may be at risk of negative equity.


While the Reserve Bank of Australia (RBA) is set to continue raising interest rates, the negative wealth effect from falling home prices will limit how much it ends up raising rates by, as it does not want to crash house prices and the economy. So, if house prices start to fall rapidly, with significant evidence of rising mortgage stress, then the RBA will be able to ease up on the interest rate rises.


The fact that prices are already falling, indicates that rate increases are gaining traction and therefore, the RBA may not have to raise rates as much as would otherwise be the case. Some economists expect the peak in the RBA cash rate to be 2.75% – 3.25%, rather than the 3.75% – 4.25% that the money market is predicting.


Sharp house price declines are a particularly important signal for the RBA, which has stated that it will be watching housing conditions and their impact on household spending like a hawk.

CFP® | BSc(Ma) | Authorised Representative No. 301739

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