Australia’s housing market has been on a roller coaster ride since the pandemic first arrived in early 2020. In the beginning, it fell significantly as a result of the uncertainty surrounding how the pandemic would affect society generally and the economy.
Towards the end of 2020, the market’s course changed dramatically. The RBA provided $188 billion in extremely cheap funding to banks in order to stimulate housing demand with superannuation withdrawals, the lowest interest rates in Australian history, and cheap fixed-rate loans.
During the first few months of 2021, Australia was experiencing its largest and broadest housing price boom in history.
However, as with all roller-coasters, there was another big drop ahead. By March of 2022, house prices in Sydney and Melbourne had begun dropping moderately.
Since the Reserve Bank of Australia started raising interest rates in May of last year, home prices have fallen at the fastest pace since the early 1980s, according to some data providers.
Falling prices: how fast are they?
The answer to this question may seems simply at first glance, but it really depends on who you talk to.
PropTrack data shows capital city housing prices have dropped by 5.49 percent from their peaks, with Sydney down 7.23 percent and Darwin at its peak.
In contrast, other housing price data providers have a very different perspective.
Data from Corelogic shows that home prices have declined in the capital cities. The aggregate price of homes in Sydney, Melbourne, Adelaide, Brisbane and Perth has decreased by over 10 percent from their peak. With a price drop of 13.3% in Sydney, Perth is proving to be the most resilient with a price drop of just 1.0%.
The evolution of Australian real estate
The Australian property market has experienced various market cycles over the decades, and there have been vast differences from today’s conditions or those during the boom times in the pandemic.
Late in 2021, housing turnover surged to 6.2%, its highest level since the Rudd government offered the First Home Buyer Grant in late 2000s.
Even though this turnover level is quite high, and it has been driven by lower interest rates in Australian history, pandemic-driven demand, and a variety of government interventions at the state and federal levels, it is still well below the highs of early 2000.
Now that interest rates are rising and pandemic demand is fading, the market is headed for very different conditions, with much lower turnover and new listings.
The number of listings has fallen
During the spring selling season of last year, Corelogic recorded the lowest number of new listings since at least 2010. It has always been the case for over a decade that new listing volumes have been greater during spring than in winter, but not in 2022. Due to falling home prices, more and more homeowners refused to put their homes on the market, resulting in a decline in listing volumes.
The low listing volume is actually supporting housing prices despite the fact that it may not seem so. As of today, capital city homes for sale are 19 percent fewer than the 5 year average and 40 percent fewer than during the last housing price slump in 2018.
Since the level of stock on the market has already been lowered by Covid related factors and low levels of new listings, the impact of higher interest rates on demand has been less significant than if the level of stock on the market wasn’t already depressed.
Looking forward
It is unclear for how long lower levels of demand will persist if significantly lower listing volumes balance them out.
In the coming months, households dealing with higher interest rates could be under increased pressure to reconsider their positions and explore the possibility of selling their homes, even though a large number of borrowers are unlikely to experience truly dire straits for quite some time.
In contrast, the longer low listing volumes persist, the longer the market will receive this strong amount of support in balancing out the large drop in demand caused by higher rates.