Australia’s housing market suffered its biggest annual decline since 2008 last year as sharp interest rate hikes sapped buying power and put off investors.
(Bloomberg) — Australia’s housing market suffered its biggest annual decline since 2008 last year as sharp interest rate hikes sapped buying power and put off investors.
The national Home Value Index fell 5.3% in 2022, the first decline since 2018, CoreLogic Inc. said in a report Tuesday. Annual falls were the biggest in the bellwether market of Sydney, which slid 12.1%, followed by an 8.1% drop in Melbourne. National values declined 1.1% in December, according to the report.
Home values could fall further in the early months of 2023 before stabilizing after interest rates peak, according to Tim Lawless, research director at CoreLogic. Despite the downturn across many areas of the country, “housing values generally remain well above pre-Covid levels,” CoreLogic said in the report, suggesting the sector is weathering the sharpest monetary tightening cycle in a generation.
The Reserve Bank has raised interest rates by 3 percentage points since May to 3.1% and is widely expected to hike one or two more times this year. RBA officials have generally expressed confidence in Australia’s housing market, highlighting that prices are still higher than at the onset of the pandemic. In addition, with unemployment at the lowest level in almost 50 years, borrowers are well placed to meet their commitments and loan arrears are likely to be limited.
What Bloomberg Economics Says…
“The lagged effect of rate hikes — including the one we expect in February — should continue to weigh on the market. We expect house prices to trough in mid-2023, once the RBA pauses its tightening cycle”
— James McIntyre, Economist. Click here for the full report
Australia’s A$9.4 trillion ($6.4 trillion) housing market has declined 8% from the recent peak reached in April, after surging 28.6% from a pandemic-induced trough, CoreLogic said.
Lawless highlighted that 2023 was likely to test the housing market as record-low fixed-rate mortgages start to expire and such borrowers are forced to shift to much higher variable rates.
An RBA document last month showed some 30% of Australian borrowers on fixed-rate mortgages will see repayments climb by more than 40% when their loans roll over in 2023.
“As interest rates peak and inflation eases, housing values are likely to stabilize, however a broad based rise in housing values would be dependent on interest rates coming down, or on other forms of stimulus,” CoreLogic said in the report.
(Updates with economist comment in 5th paragraph)
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