‘Distressed sellers’: House prices dive

House prices have tumbled for the ninth month in a row as interest rate increases take a bite out of the property market.

The cost of purchasing a home has deepened by 0.21 per cent in December, bringing values to 2.29 per cent below where they were 12 months ago, according to the latest Home Price Index from PropTrack.

The largest declines in December were seen in Canberra (-0.43 per cent) and Melbourne (-0.34 per cent).

Sydney has seen the greatest change in the past year, with prices dropping by a whopping 6.99 per cent to a median value of $989,000.

House prices are expected to continue to drop until at least halfway through 2023 with interest rate rises being the “key reason” behind the shift according to PropTrack economist and report author Anne Flaherty.

“There‘s often a bit of a lag effect between interest rates rising and then the flow on effects to property prices, so, we’re still continuing to feel the impact of interest rates rises we’ve already have,” she said.

The cash rate currently sits at 3.10 per cent after eight consecutive rises, with the major banks expecting further increases in 2023.

“If we do see one or two more interest rate rises this year. Again, that‘s going to further restrict what buyers can borrow,” she said.

There are concerns about an upcoming mortgage cliff when consumers reach the end of their fixed-term loan and are forced to pay a higher variable rate.

“I think that a lot of people are quite anxious about the coming mortgage cliff, we do have a lot of people who are on fixed-rate mortgages from when interest rates were so incredibly low, back in 2021,” Ms Flaherty said.

“A lot of people fixed and we‘re now in a situation where a lot of people who will be coming off those fixed mortgage rates onto much, much higher rates now, and that’s going to significantly impact their monthly budgets with more being spent on interest repayments.

“If you look at the position that most borrowers are in the majority of people are well placed, but there‘s definitely a proportion of borrowers out there who are going to really struggle once they come off those fixed rates.”

If consumers are unable to handle the rise in cost, it could cause house prices to fall further as a proportion of homeowners default on their mortgages.

“Certainly in any situation in which you‘re seeing more distressed sellers that will have an impact on prices…having said that, I don’t think we’re staring down the barrel of huge numbers of people defaulting,” she said.

Despite the ninth consecutive month of falls on the housing market, prices nationally remain 29.0 per cent higher than their pre-pandemic levels.

“Our forecasts are that property prices are going to remain above where they were pre-Covid and prices are still well above where they were back in March 2020,” Ms Flaherty said.

“We‘ve had the majority of those interest rate rises that we’re going to see so with only one maybe two more interest rate rises on the cards, the expectation is that we’re not going to see prices fall back below where they were pre-Covid.”

The largest falls were seen in high-demand inner city areas in each of the capitals as to-be homeowners aren‘t able to borrow as much.

“If you think about the suburbs in Sydney and Melbourne that have seen the sharpest declines, they tend to be the suburbs that have the highest median prices,” Ms Flaherty said.

“For the average buyer, the interest rate rises have reduced borrowing capacities by about 25 per cent, so that‘s a substantial dent in a lot of buyers’ budgets and that’s really flowing through onto prices.”

While the capital cities have seen a drop in prices, their regional counterparts haven‘t received as much of a hit, outperforming the big cities in every state.

“Property prices are more affordable in regional areas, so buyers need to borrow less, which means that the relative impact of interest rates is not as great,

“But the second piece of the story with regional areas is that in many of these regions, we‘re continuing to see demand far outweigh supply.”

Here‘s how each state stacks up.

NSW:

Sydney has seen a 6.99 per cent drop in prices in the last year, with the median cost of a house now sitting at $989,000.

However, that‘s still 21.4 per cent higher than it was in March 2020.

The rest of NSW has gone in the opposite direction to Sydney, growing 1.15 per cent to have a median value of $715,000.

VICTORIA

Melburnians have had house prices fall by 5.16 per cent in the past year and 14.0 per cent since March 2020.

The average home in Melbourne costs $802,000 while a home in regional Victoria sits at $595,000 after a small 0.02 per cent drop in the past year.

QUEENSLAND

The median house price in Brisbane has reached $716,000 after a rise of 2.18 per cent in the past year.

The cost of a home in Brisbane exploded during the pandemic, with prices now 43.1 per cent higher than they were in March 2020.

That‘s similar in regional Queensland, with 3.86 per cent growth in the past year and 47.2 per cent growth since March 2020, with the median price now $612,000.

WESTERN AUSTRALIA

Western Australians have seen prices go up in Perth and in the regions, rising 3.61 per cent and 5.18 per cent in the past year respectively.

The average Perth home costs $560,000 while a regional WA home comes in at $444,000.

SOUTH AUSTRALIA

December was the first time in months that Adelaide saw prices fall after months of growth, with the average home now coming in at $646,000.

Adelaideans have seen house prices rise by 9.63 per cent in the past year while those in regional SA are seeing prices peak at 14.24 per cent higher than they were a year ago.