There has been a major reversal in the housing market, with prices stagnating after the massive housing boom during the pandemic.
Home prices have fallen in a major reversal after Australian home values soared 25% during the pandemic.
Sydney and Hobart were the hardest hit by fears of rising interest rates with house prices falling in April for both capitals, a new report has revealed.
In Sydney, prices were down 0.1% marking the first drop since the start of the pandemic, while Hobart saw an even bigger drop down 0.44%, which is the first drop for the capital since the start of 2018, PropTrack Home Price Index Report showed.
Home prices stagnated nationally in April, rising just 0.13% month-on-month and growing at the slowest pace nationally since May 2020.
Pricing momentum in Sydney has slowed dramatically since mid-2021, with annual price growth now half the pace seen just six months ago as affordability continues to bite with the average home in Sydney estimated at over $1, 2 million, the report said. .
PropTrack economist Paul Ryan said there are two factors influencing Australian home prices.
“First of all, we’ve seen such extraordinary growth in the last couple of years, it just couldn’t continue and it was finally caught up with the rise in borrowing costs,” he told news.com.au.
“There is also a sharper rise in inflation than expected, which means rising interest rates. Six months ago we were still debating whether interest rates would go up in 2023 and 2024 and now expectations are that interest rates will increase between one and two percentage points by the end of the year.”
Consumer prices rose a staggering 5.1%, data released this week showed, a record not seen in 22 years.
Interest rate hikes could also trigger a 15% drop in home prices, the Reserve Bank of Australia (RBA) analysis showed, which Ryan said was a “reasonable” assessment, although he noted it doesn’t tell the full story. .
“The RBA is responding to strong economic conditions with the lowest unemployment rate in 50 years and everyone expects wage growth which means we will likely see a break even. While borrowing costs go up with rising interest rates, people’s wages are actually going up and getting higher to balance that out,” he said.
“The last time we saw this happen was between 2002 and 2008, where interest rates rose rapidly, but wages also rose, so we saw house prices rise. But I’m not saying that’s going to happen here, it’s been an event in 30 years.
“But it shows that it’s not simple enough to just look at the effect of interest rates on house prices. Strong economic conditions generally have a positive effect on house prices.”
House prices rose by just 0.05% in Melbourne in April and 0.04% in ACT.
The strongest performers in April were Darwin with a 0.53% jump in home prices and Perth, which grew 0.45%.
Brisbane prices were up 0.22% and Adelaide was up 0.34%.
Ryan added that there was “great tension” in the housing market for buyers, which also influenced prices.
“There’s a lot of uncertainty among buyers about where the borrowing costs will be and they’re not sure of the people who entered the market at this time last year,” he explained.
“These people were pretty sure that interest rates would not go up for a few years and they would have a few years to pay off the mortgage, even if they stretched a little.
“Now buyers would not want to be overwhelmed as payments will be substantially higher in less than six months.”
Nationally, home prices rose 16.05% from a year earlier, reaching an average value of $691,000, according to the report.