The worst might already behind us.
Property prices have fallen. They’re still falling. But it’s possible the worst is already behind us.
What we’re potentially looking at is a sharp, but short, correction.
Corelogic’s price data recorded a fall of 1.4% in September. That’s substantial.
Over the past three months, prices have fallen 4.4%, which is the biggest quarterly contraction since January 1983!
Told you it was sharp.
The combined capitals are now down 5.5% (or about $46,100) on their recent peak, (although since they were up 25.5% across the last growth cycle, I think you’d still chalk that up as a win.)
House prices falls are particularly pronounced in Sydney and Melbourne, but no city has been spared (apart from Adelaide, but is Adelaide really a “city”?)
Median prices in Sydney are now down 9.0%, leaving prices $104,300 below their peak in January 2022.
That kind of pace is not as bad as the 1982-83 downturn, but it’s still one for the record books.
Probably the surprise in this downturn is Brisbane. Brisbane remained buoyant long after Sydney and Melbourne turned, but is now catching up with a vengeance. Prices are down just 4.3% (or $33,600) on the June 2022 peak, but that’s still enough to make it the fastest downturn in that city on record.
So while all of that sounds dramatic and makes for good headlines, it’s worth keeping it in perspective.
A 5.5% fall nation-wide is pretty modest in the scheme of things. It’s not that much more than a rounding error really.
There’s also some evidence that the pace of falls might be slowing.
While prices were down 1.4% in September, it was worse in August when prices fell 1.6%. So possibly the rate of decline is easing.
Corelogic’s Tim Lawless has some hope of this too:
“It’s possible we have seen the initial shock of a rapid rise in interest rates pass through the market and most borrowers and prospective home buyers have now ‘priced in’ further rate hikes. However, if interest rates continue to rise as rapidly as they have since May, we could see the rate of decline in housing values accelerate once again.”
Remember he wrote this before the RBA’s surprise move last week, where they decided to NOT let rates ‘continue to rise rapidly’.
And so it may be the case that the aggressive and sudden burst of rate hikes may already be priced into the market.
Particularly given we have seen a rush of new stock to the market, or any sign of panic selling at all. Lawless again:
“It seems prospective vendors are prepared to wait out the housing downturn, rather than try to sell under more challenging market conditions,” Mr Lawless said. “We haven’t seeing any evidence of distressed sales or panicked selling through the downturn to date; in fact, it has been the opposite, with the trend in newly listed properties continuing to diminish at a time when freshly advertised stock levels would normally be moving through a seasonal ramp up.”
And what does Economics 101 teach us? That when supply is tight, prices rise.
So in that context, it’s entirely reasonable that the worst of the price declines are already behind.
The market may already be turning.
JG.