Australia’s real estate market downturn could worsen amid fears of another super-large interest rate hike – with much more to come.
Home prices in each capital fell in October after six consecutive monthly rate hikes from the Reserve Bank, new CoreLogic data showed.
Another rate hike on Tuesday afternoon, the seventh monthly rise in a row, is expected to amplify this downturn, with previously strong markets now experiencing the sharpest declines.
With the worst inflation in 32 years, another rate hike is almost certain shortly before the Melbourne Cup race, while the big banks are only debating the size.
Some economists fear even greater interest rate hikes than the banks predict.
Tim Lawless, CoreLogic’s research director, said the real estate market downturn is likely to worsen “with Australian borrowers facing the double blow of further rate hikes along with continued high and rising inflation.”
“There is a real risk that we could see the rate of decline accelerate again as interest rates continue to rise and household balance sheets thin,” he said.
Australia’s real estate market downturn could be exacerbated by fears of another super-large interest rate hike. House prices in each capital’s market (houses in Oran Park in Sydney’s far southwest) fell in October after six consecutive monthly rate hikes from the Reserve Bank, new CoreLogic data showed.
The average house and unit price in Australia fell 1.2 percent to $721,018 in October, marking the sixth consecutive monthly decline.
House prices fell in EVERY capital in October
BRISBANE: 2.2 percent down to $817,684
SYDNEY: Down 1.5 percent to $1,257,625
CANBERRAE: 1.1 percent down to $990.851
HOBART: 1 percent down to $754,640
MELBOURNE: 0.9 percent down to $924.492
DARWIN: 0.9 percent down to $588,053
ADELAIDE: 0.5 percent down to $706,154
PERTH: 0.2 percent down to $584,232
Source: CoreLogic data on median home prices in October 2022
Brisbane underperformed in Australia, with the median house price falling a record 2.2 percent to $817,684 in October.
The Queensland capital’s quarterly or quarterly decline of 6.2 percent was also the worst of the capitals, despite Brisbane continuing to grow earlier this year as Sydney and Melbourne plummeted.
Sydney, Australia’s most unaffordable housing market, suffered a 1.5 percent drop in October, pushing prices back to $1,257,625.
Mid-term home prices have fallen 6.1 percent in the three months to October, with home values falling 10.6 percent since early 2022.
Melbourne’s median home price fell 0.9 percent to $924,492, down 3.6 percent in the quarter and 7.1 percent in 2022 so far.
Adelaide, another strong market until recently, saw house prices fall 0.5 percent to $706,154 in the middle of the month, but prices were still up 10.6 percent since the start of the year.
Perth prices fell 0.2 percent last month to $584,232.
Hobart home prices fell 1 percent to $754,640, but apartments fared even worse, falling 1.4 percent to $556,100.
Darwin was the only capital market to see an increase in September, but in October the median house price fell 0.9 percent to $588,053.
Brisbane underperformed in Australia, with average house prices dropping a record 2.2 percent in October to $817,684 (pictured is the Story Bridge, seen from a New Farm bike path
Shane Oliver, chief economist at AMP Capital Markets, said a 15 to 20 percent decline in real estate prices, compared to peaks in 2022, was likely.
“Price drops have now spread from Sydney and Melbourne to all other capitals and regional areas,” he said.
‘Real estate prices in Brisbane are now falling faster than prices in Sydney.
“Just as Brisbane continued to accelerate long after Sydney slowed as it caught up with Sydney’s earlier boom, it is now declining faster than Sydney as it now appears to be catching up.”
Inflation rose 7.3 percent in the year to September, the fastest pace since 1990.
The consumer price index, also known as headline inflation, is also more than double the Reserve Bank’s target of two to three percent.
Westpac expects a larger 0.5 percentage point rate hike on Tuesday, pushing the RBA cash rate to 3.1 percent in ten years, compared to an existing nine-year high of 2.6 percent.
The Commonwealth, NAB and ANZ expect a 0.25 percentage point increase that would bring the spot interest rate to 2.85 percent, the highest level since May 2013.
Shane Oliver, chief economist at AMP Capital Markets, said a 15 to 20 percent decline in property prices, compared to 2022 peaks, was likely (pictured is an auction at Glen Iris in Melbourne’s southeast)
A quarter of a percentage point rate increase would add $90 to the monthly repayments for an average $600,000 mortgage.
What an interest rate hike of 0.25 percentage point in November would mean?
$500,000: $75 up to $2,621 from $2,546
$600,000: $90 up to $3,145 from $3,055
$700,000: $105 up to $3,669 from $3,564
$800,000: $120 up to $4,193 from $4,073
$900,000: $135 up to $4,717 from $4,582
$1,000,000: $150 up to $5,241 from $5,091
Monthly repayment increases based on a Commonwealth Bank variable loan, rising to 4.79 percent from 4.54 percent to reflect the Reserve Bank of Australia’s cash interest rate rising to 2.85 percent from 2.6 percent
A larger increase of half a percentage point would cause the monthly repayments on this loan to increase by $181.
Australian lenders have been required since November last year to assess a borrower’s ability to cope with a three percentage point increase in floating interest rates.
This has severely limited the borrowing capacity of the banks, leading to real estate prices falling, with home values falling faster than units.
“Rising mortgage rates are the biggest cause of the slump, as the rise in fixed mortgage rates and subsequently variable rates has significantly reduced the amount new home buyers can borrow and thereby their ability to afford a home,” said Dr. Oliver.
Banks offered 2 percent mortgage interest in May, but since then a typical Commonwealth Bank variable rate has more than doubled to 4.54 percent.
Another 0.25 percentage point rate hike would bring it to 4.79 percent.
The value of apartments in the capital fell 0.7 percent to $619,396 in October, while house prices fell 1.2 percent to $882,396.
“House prices continue to fall faster than unit prices, due to the much stronger increase in house prices and because unit prices are relatively supported by better affordability and tight rental markets,” said Dr. Oliver.
Economists forecast this month’s rate hike to be far from the last.
Tomasz Wozniak, a senior lecturer in economics at the University of Melbourne, is even more aggressive, forecasting a 4 percent spot rate in 2023, a level slightly above the futures market’s predictions (pictured) of a level of 3, 9 percent in July
Westpac expects a cash interest rate of 3.85 percent by March, while ANZ predicts that level will be reached in May.
NAB forecasts a cash interest rate of 3.6 percent by March, while the Commonwealth Bank, Australia’s largest mortgage lender, is eyeing a cash interest rate of 3.1 percent.
But Tomasz Wozniak, an associate professor of economics at the University of Melbourne, is even more aggressive, forecasting a 4 percent spot rate in 2023, a level slightly higher than the futures market’s forecast of 3.9 percent in July.
“The forecasts from the bond yield curve models that I estimated consistently point to an increase in the value of the cash rate through mid-2023, after which it should flatten out,” he says. Dynamic company.
“By then, the cash rate will almost certainly be above 3.6 percent, most likely reach 4 percent, and probably won’t exceed 4.4 percent.”
The Reserve Bank’s spot interest rate has not been more than 4 percent since May 2012.
What the big banks expect
WESTPAC: Up 0.5 percentage point in November with the spot rate peaking at 3.85 percent in March
ANZ: An increase of 0.25 percentage point in November (out of chance of a 0.5 percentage point increase) with the spot rate peaking at 3.85 percent in May
COMMONWEALTH: An increase of 0.25 percentage point in November with a peak of 3.1 percent in December
NAB: An increase of 0.25 percentage point in November (out of chance of a 0.5 percentage point increase) with the spot rate peaking at 3.6 percent in March 2023