Housing Value Decline Comparable To 2008 Financial Crisis

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Otto Dargan

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CoreLogic’s Home Value Index recorded a third straight monthly decline in July 2022, falling 1.3%. Five of the eight capital cities experienced a decline during the month. Sydney and Melbourne’s home values fell 2.2% and 1.5%, respectively. Home values in Brisbane were 0.8% lower, the first decline there since August 2020. Canberra and Hobart also experienced a decline, at -1.1% and -1.5%, respectively. Perth, Adelaide and Darwin remained in positive growth territory. However, these markets have experienced a sharp slowdown in the pace of capital gains since the rate hike in May 2022. Corelogic Home Value Index July 2022 CoreLogic research director Tim Lawless said, “Although the housing market is only three months into a decline, the national Home Value Index shows that the rate of decline is comparable with the onset of the global financial crisis (GFC) in 2008 and the sharp downswing of the early 1980s. In Sydney, where the downturn has been particularly accelerated, we are seeing the sharpest value falls in almost 40 years.”

Regional Australia Experiences Decline

The combined regional index experienced its first decline since August 2020. Values were down 0.8%. Dwelling values across regional New South Wales, regional Victoria, regional Queensland and regional Tasmania fell 1.1%, 0.7%, 0.7% and 0.6%, respectively. Regional centres like Geelong, Ballarat, Illawarra, Newcastle and Lake Macquarie, the Southern Highlands & Shoalhaven, the Gold Coast and Sunshine Coast experienced a decline over the three months to July 2022. This marked the end of nearly two years of capital gains. Even with the decline, regional markets still outperformed their capital city counterparts. “Dwelling values across CoreLogic’s combined regionals index were up 41.1% from the pandemic trough to the June peak, compared with a 25.5% rise across the combined capitals index. The stronger growth reflects a significant demographic shift towards commutable regional markets, which is likely to have some permanency as more workers take advantage of formalised hybrid employment arrangements,” Lawless said.

Property Market Highlights

Here’s what happened to the housing market in July 2022:
  • Unit values across combined capitals fell 1%, compared with 1.5% for house values. Housing affordability challenges might have shifted demand towards the medium- to high-density sectors.
  • Freshly advertised stock fell 21.4% from the mid-March peak, which helped keep inventory levels low.
  • Total listings in Sydney and Melbourne were already 8-10% above their five-year averages. Brisbane, Adelaide and Perth recorded advertised supply levels 30% below their five-year average, suggesting those markets are absorbing supply faster through the cycle to date.
  • The trend of rising rents was evident in each capital city and the rest of the state. Rents rose 0.9% nationally over the month, to be 2.8% higher over the rolling quarter and 9.8% higher over the past 12 months.
  • Rent markets were tight, with vacancy rates 1% or lower. Rental supply was tight, as rental listings dropped by a third compared with their five-year average. Demand will probably increase as more potential tenants arrive from overseas.
  • Rental yields improved. Across the combined capital cities, the gross yield increased from 2.96% in Feb 2022 to 3.20% in July 2022. Sydney and Melbourne’s unit markets experienced the most repaid yield recoveries, where gross yields increased by 45 and 40 basis points, respectively.
Lawless explained, “Logically, we will probably see a reversal of the pandemic trend towards smaller rental households as tenants look to maximise their occupancy and spread rental costs across a larger household. To this end, rental values are rising fastest in the more affordable unit sector as tenants seek out cheaper rental options.”

What Will Happen To The Housing Market In 2022?

Cash Rate Hike Impact

With forecasts of cash rates ranging from 2-3%, CoreLogic estimates variable mortgages would double their current level. Lawless expects a continued loss of momentum in housing demand, as borrowing power is affected by higher interest rates and rising household expenses due to inflation. However, with expectations of interest rates stabilising or reducing in 2023, this could be a cue for housing values to find a floor. The downswing phase could be short and sharp, depending on how high and fast interest rates go, Lawless explained.

Eyes On Spring Market

The upcoming spring listing season could test the depth of housing demand. Lawless commented that advertised stock levels could trend higher than normal by late spring or early summer. Vendors are likely to be more competitive across a smaller pool of active buyers, which would lower clearance rates across auction markets, resulting in longer selling times and larger discounting rates for private treaty sales, Lawless explained.

Borrowers On Fixed Mortgages Could Feel The Pinch

Borrowers on a fixed-rate mortgage that ends soon would need to refinance to a new rate in an environment where interest rates are rising. The RBA forecasts a surge in expiring fixed mortgages throughout the second half of next year. These borrowers could be moving from mortgage rates of 1% to 2% to a rate closer to 6% or higher.

Income Growth

Income growth will be an important factor in how well the housing market performs amid rate hikes. ABS data revealed the wage price index was 2.4% in the year to March, below the series average growth of 3%. But the growth rate was an increase from a low of 1.2% over the year to September 2020. With incomes at least slightly on the rise and housing values trending lower, there could be improvements in housing accessibility. “We could see the housing affordability discussion evolve from one that has been focused on accessibility to a discussion more focused on serviceability. With household debt already at record highs, prospective homebuyers are likely to be cognisant of higher borrowing costs, while lenders will probably remain cautious around high debt-to-income or low-deposit borrowing,” Lawless said.

About the Author

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Otto Dargan

Otto Dargan is the Founder of Home Loan Experts. He is involved in strategic and operational matters. He utilises his time in seeking... [Read More]

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