Australian House Prices Fall From Extremely Unaffordable to Just Unaffordable

House prices in Australia have fallen at the fastest rate in more than a decade, as rents continue to rise in the face of worsening economic conditions.

On Monday, data released by the property market analysts at CoreLogic showed that Australia’s median house price dropped about 2 percent over the last three months to just under $750,000, led by a steep 2.2 percent slide in Sydney, the nation’s most expensive city. 

While house prices remain high, the speed at which they are falling hasn’t been seen since the 2008 Global Financial Crisis, or the 1980s, which is often looked back upon by policy experts as a period of sheer carnage, provoked by interest rates that hovered around 18 percent and an unemployment rate above 11 percent. At the outset of the 80s, the median house price was only a little more than $75,000—but the cost of getting a loan made the idea a fantasy for most. When rates eventually fell in the 90s, the median house price doubled. 

But we aren’t there yet. 

The Australian unemployment rate is currently far less at 3.5 percent, while the interest rate is still only 1.35 percent. But it’s rising, and other indicators are suffocating feelings of hope. 

Economists say the cost of getting a loan is already showing itself as a serious deterrent to would-be homeowners, who are now showing a preference to stay away from the market altogether rather than brace themselves for the flurry of monthly rate rises forecast, or the worst-case scenario seen through the 80s.

CoreLogic’s director of research, Tim Lawless, said as much was made clear when the Reserve Bank of Australia lifted the interest rate (the premium paid to borrow money, set by the central bank) on May 5, from the record low 0.1 percent seen through the better part of the COVID-19 pandemic, for the first time in more than 18 months. 

“The rate of growth in housing values was slowing well before interest rates started to rise, however, it’s abundantly clear markets have weakened quite sharply since the first rate rise on May 5,” Lawless said.

“Although the housing market is only three months into a decline, the national Home Value Index shows that the rate of decline is comparable with the onset of the global financial crisis (GFC) in 2008, and the sharp downswing of the early 1980s. In Sydney, where the downturn has been particularly accelerated, we are seeing the sharpest value falls in almost 40 years,” he said.

Lawless is of the mind that this current downturn, like the GFC back in 2008, will be “short and sharp”. As the broader market would have it, house prices in capital cities like Sydney and Melbourne could fall as much as 20 percent. Even then, however, it wouldn’t make much of a difference, and only cool the market to levels seen in April last year, when the median Australian house price was still well above $600,000. 

To anyone (most people) who aren’t liquid enough to consider buying a property, even as prices begin to taper, things are only predicted to get more challenging. According to that same CoreLogic dataset, rental prices have surged 9.8 percent over the last year. 

Most of that hike, analysts suggest, also comes as a result of incremental hikes to the interest rate, which have put collective pressure on landlords, who are now paying a higher premium on their mortgage repayments.

Lawless thinks a bump in demand, thanks to the return of foreign workers and international students, could also be putting added pressure on the very limited housing stock available around the country, and jacking up rents as a result. 

“Rental markets are extremely tight, with vacancy rates around 1 percent or lower across many parts of Australia. If you consider the history of rents, it’s very rare to see dwelling rents [as opposed to commercial or retail leases]  rising at more than say 3–4 percent per annum,” Lawless said. 

Rents are rising at double that rate, nationwide. The signs, for those otherwise uninitiated, have been lingering for quite some time. One of them was the rebound seen among inner-city apartments. 

For years a symbol of pandemic-induced abandonment, where tenants couldn’t be lured even at bottom dollar prices, these apartments—with city views and close proximity to slowly reopening CBDs—are now seeing runaway rent hikes. In April, apartments in inner-city Melbourne recorded their largest median weekly rent rise in 12 months, up 22.2 percent. 

The same was true in Sydney suburbs like Ultimo, Pyrmont, and Haymarket, which were each seeing increases around 15 percent, prompting analysts to call “business as usual” on for-profit housing meddlers who sought to make the most of little to no housing stock and widespread demand. In part, Lawless and his colleagues said this was driven by a mass migration of “knowledge workers” from metropolitan areas to the regions, with the arrival of the working-from-home era.

Back in April, Lawless said rental supply remained well below average in most areas of Australia, and that rental demand wasn’t likely to ease with higher overseas migration. Just three months later, much of that holds true. After years without public investment in housing stock, he said at the time, vacancy rates are at some of the lowest levels in recent memory. 

Now, he said, it could be contributing to inflation. 

For landlords, though, the news means higher profits and stronger buying conditions—even if a broader appetite for it withers away, and countless Australians struggle to put roofs over their heads.

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