House price decline ‘accelerates’

Recent data from realestate.com.au shows a decline in auction clearance rates, a trend expected to continue in the coming weeks and months.

Over the past two years, Australia has seen very high clearance rates across the country, with PropTrack economic research director Cameron Kusher saying lower rates are a typical sign of a slowing property market.

“From here, especially considering we’ve had 85 basis points of increase to the spot rate and the expectation of further rate hikes throughout the yearwe would expect the percentage of auctions to fall further,” he told news.com.au.

For Sydney and Melbourne, which have shown consistently strong auction numbers, clearance rates have fallen to 81 and 75 percent respectively from the previous week, according to REA data.

Brisbane had the lowest cleanup rate for any capital city, at 66 percent, just below Perth at 67 percent.

The ACT was next at 78 percent, then to Adelaide at 88 percent.

According to the records, Darwin had a 100 percent clearance rate, although only two auction results were listed.

Mr Kusher said property price declines are likely to continue to “accelerate”, impacting Sydney and Melbourne in particular.

“We have already seen a very rapid rise in cash interest rates over the past two months. We thought the Reserve Bank would be slower and more methodical, but it’s clear that they are aggressively raising rates to tackle inflation, and since we expect interest rates to be much higher by the end of the year, we probably think somewhere from a cash rate of about 2 percent,” he said.

“So you go from zero to 2 percent spot interest in less than 12 months. And that means price declines are likely to accelerate for the rest of this year. Especially in Sydney and Melbourne.”

On Tuesdays the RBA has decided to raise official cash interest rate by 50 basis pointsto 0.85 percent, returning it to its highest level since September 2019 and marking the first consecutive rate hike in 12 years.

The flip side of falling real estate prices is that homeowners may be less likely to auction a home, preferring to choose other sales methods.

“For most of this year it has been steadily going down every week,” said Mr Kusher.

“As the heat comes out of the market, we are seeing slow price growth and now we are clearly at a point where we have started to see some price declines in the last few months. We would expect that to flow into the clearance rates that will continue to fall.”

A recent report from PropTrack confirmed the fact that the real estate boom in Australia is finally coming to an end with national house prices fall by 0.11 percent in May and by 0.15 percent in all capitals.

Annual price growth has fallen from 24 percent six months ago to 14 percent now.

Several banks are now forecasting price declines of 5 to 15 percent until the end of 2023.

A 15 percent drop in the median real estate price would drop the average real estate value by $150,000.

The last time house prices slowed this down fast was over 30 years ago – at a time when Australia was heading for a recession.

It doesn’t bode well for the current situation, with PropTrack economist and report author Paul Ryan saying monthly prices have slowed just about everywhere, while growth has stalled in regional areas as well.

“Prices were stable in regional areas in May, marking a sharp slowdown and the slowest monthly outturn in regional Australia since May 2019,” Ryan said in the report.

“Nevertheless, regional areas continue to outperform capital cities and have benefited from relative affordability and preference shifts to lifestyle locations and larger homes after the pandemic.

“Prices have risen 21 percent in regional areas over the past year, but only 12 percent in capital cities,” he said.

Prices have fallen further in Sydney and Melbourne, by 0.29 and 0.27 percent respectively.

The only capitals that managed to buck the trend were Brisbane and Adelaide, which continued to benefit from affordability and pandemic-induced preference shifts.

Brisbane saw a monthly growth of 0.35 percent, while prices in Adelaide rose 0.58 percent.

Mr Ryan noted that a clear “two-speed housing market” persists.

Affordable, lifestyle regions of Brisbane, Adelaide, regional NSW, Queensland and Tasmania are showing solid growth, while prices everywhere else are either flat or falling.

“As inflation picked up in early 2022, expectations are that interest rates would be weighted higher on price growth,” Ryan said.

“The RBA began raising official interest rates for the first time in more than a decade in early May, with significantly higher borrowing costs expected by year-end.

“Buyers now expect affordability of current prices to decline further.”