Sydney and Melbourne House prices in worrying descent as mortgage rates rise

The national fall in home values was driven by sharp monthly declines in Sydney (down 1.6 per cent) and Melbourne (down 1.1 per cent).

The inevitable decline in house prices is underway and falls are expected to accelerate in the coming months as rising interest rates take their toll.

CoreLogic’s home value index has fallen for the second month in a row, after declining 0.6 per cent in June when the central bank delivered another rate hike.

“Considering inflation is likely to remain stubbornly high for some time, and interest rates are expected to rise substantially in response, it’s likely the rate of decline in housing values will continue to gather steam and become more widespread,” CoreLogic research director Tim Lawless said on Friday.

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The national fall in home values was driven by sharp monthly declines in Sydney (down 1.6 per cent) and Melbourne (down 1.1 per cent)

Market-Mantra-Stocks; Picture Source: @CANVA
Market-Mantra-Stocks; Picture Source: @CANVA

But Adelaide is defying the downward trend in other capital cities and regional areas, with home values rising by 1.3 per cent.

Since the central bank started hiking the cash rate in May for the first time in years, most housing markets around the country have seen sharp reductions in the rate of growth of home values.

The last hike in June took the cash rate to 0.85 per cent, prompting many banks to raise rates on their variable and fixed mortgage products.

“Home prices have begun their descent,” Commonwealth Bank head of Australian economics Gareth Aird said. 

Image source: Big Four OZ banks - Wikipedia.
Image source: Big Four OZ banks – Wikipedia.

In May, the CoreLogic home value index fell for the first time since September 2020, led by declines in Sydney, Melbourne and Australia’s second most expensive property market, Canberra.

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Still, the national home value index is up 11.2 per cent over the year ended June 30.

Since values peaked in May 2021, consumer sentiment has soured, hitting its lowest level since April 2020 and the early stages of the COVID-19 pandemic.

“The May and June Reserve Bank cash rate increases have put an end to an era of home loan interest rates below two per cent, something we may never see again,” financial comparison website Canstar’s Steve Mickenbecker said.

The housing boom had already pushed housing affordability to extreme levels but now would-be buyers are facing high inflation and a higher cost of debt, which is flowing through to less demand for housing.