There has been a major turnaround in the real estate market, with prices stagnating after the massive real estate boom during the pandemic.
Home prices have plunged into a major reversal after Aussie home values surged 25 percent during the pandemic.
Sydney and Hobart have been hardest hit by fears of rising interest rates, with house prices falling for both capitals in April, a new report shows.
In Sydney, prices fell 0.1 percent, marking the first drop since the start of the pandemic, while Hobart saw an even bigger drop of 0.44 percent, marking the first drop for the capital since early 2018, the PropTrack Home Price Index report showed.
Property prices stalled nationally in April, at just 0.13% month-on-month and the slowest nationally since May 2020.
Price momentum in Sydney has slowed dramatically since mid-2021, with annual price growth now half the pace it was just six months ago as affordability continues to bite with the average Sydney home now estimated to be over $1.2 million. worth, the report said.
PropTrack economist Paul Ryan said there are currently two factors influencing Australian house prices.
“First, we’ve seen such extraordinary growth in the last two years, it just couldn’t go on and it has finally been overtaken by the rise in borrowing costs,” he told news.com.au.
“There is also a stronger rise in inflation than expected, leading to interest rate hikes. Six months ago, we were still unsure whether interest rates would rise in 2023 and 2024, and now interest rates are expected to rise by one to two percentage points by the end of the year.”
Consumer prices are up a whopping 5.1 percent, data released this week shows, a record not seen in 22 years.
Interest rate hikes could also lead to a 15 percent drop in home prices, according to an analysis by the Reserve Bank of Australia (RBA), which Ryan said was a “reasonable” assessment, though he noted it didn’t tell the full story.
“The RBA is responding to strong economic conditions with the lowest unemployment rate in 50 years and everyone is expecting wage growth, meaning we’re likely to see an equilibrium. While borrowing costs will rise with rising interest rates, people’s wages will actually go up and get higher to balance that,” he said.
“The last time we saw that happen was between 2002 and 2008, when interest rates rose rapidly, but wages also rose, so we saw house prices rise. But I’m not saying that’s going to happen here, because it was an event in 30 years.
“But it shows that it is not easy enough to just look at the effect of interest rates on house prices. Strong economic conditions generally have a positive effect on house prices.”
House prices rose just 0.05 percent in Melbourne in April and 0.04 percent in the ACT.
The strongest performers in April were Darwin with a 0.53 percent increase in house prices and Perth, which grew 0.45 percent.
Prices in Brisbane rose 0.22 percent and Adelaide saw a 0.34 percent increase.
Mr Ryan added that there was “great tension” in the real estate market for buyers, which also affected prices.
“There’s a lot of uncertainty among buyers about where the borrowing costs will be and they don’t have the assurance of people who entered the market around this time last year,” he explained.
“These people were pretty sure that the interest rate wouldn’t rise in a few years and that they would have a few years to pay off the mortgage, even if they stretched a bit.
“Now buyers don’t want to overburden themselves as refunds will be significantly higher in just six months.”
Nationally, home prices rose 16.05 percent year-on-year to a median value of $691,000, the report also found.