House prices still declining, but the worst could be over

Key takeaways

Australia's house prices are seeing the fastest quarterly decline on record.

However, September quarter could be a peak quarterly decline, according to Domain's House Price Report.

In fact,  house prices across the combined capitals are now 4.9% below the March 2022 price peak, down by about $53,000.

They would need to fall by a further 21.3% to erase all the growth seen during the pandemic boom.

On the other hand, unit prices across the combined capitals are only 3.9% below the December 2021 price peak, down by about $24,000.

They would only need to fall by a further 5.2% to erase all the growth since the mid-2020 price trough.

Australia's house prices are seeing the fastest quarterly decline on record.

However, September quarter could be a peak quarterly decline, according to Domain's House Price Report.

It's not really as bad as some of the property pessimists are predicting.

In fact,  house prices across the combined capitals are now 4.9% below the March 2022 price peak, down by about $53,000.

They would need to fall by a further 21.3% to erase all the growth seen during the pandemic boom.

On the other hand, unit prices across the combined capitals are only 3.9% below the December 2021 price peak, down by about $24,000.

They would only need to fall by a further 5.2% to erase all the growth since the mid-2020 price trough.

The shifting trend towards units from buyers who had previously been focused on houses throughout the upswing continues.

Unit prices are outperforming houses across the combined capitals, Sydney, Melbourne, Brisbane, Adelaide, Canberra and Hobart.

Regional areas and the more affordable capital city of Adelaide remain Australia’s strongest housing markets.

State of the nation

The initial shock of rising interest rates and exorbitant levels of inflation has had a severe effect on Australians, with the housing market bearing the brunt of this.

However, at the same time, we’re seeing some conditions ease and supply normalising from its low, providing buyers with greater choice and opportunity to negotiate, which will impact prices.

Dr Nicola Powell, Domain's Chief of Research commented:

"We’re going through housing market conditions that many buyers and sellers have never experienced in their lifetime.

The mix of interest rate hikes, strong inflation levels and high household debt has understandably had a significant impact on consumer sentiment.

While prices are expected to continue to fall further, our data married with the current economic indicators show it is likely that the September quarter could be a peak quarterly decline.

We’ve started to see the RBA ease the pace of interest rate hikes which has helped to shift the tone of what we can expect for the rest of the year, along with rising auction clearance rates and consumer sentiment improving from its low.

With rising overseas migration and short-term visa holders returning, we should start to see an improvement in investment activity which, in time, will provide more rental opportunities.

Until we see this play out, prospective buyers will continue to stick to a more conservative approach by forward planning for any further rate hikes and being mindful of their lower borrowing capacity."

State of the states

House prices in Sydney, Melbourne, Brisbane, Canberra and the combined capitals are in the fastest quarterly decline on record.

Sydney’s housing market downturn gathered significant momentum over the September quarter with house prices falling at their fastest rate on record.

Despite the fast pace of the falls, house prices are still $326,000 higher than they were before the pandemic property boom and would need to fall by a further 22.3% to erase all the growth seen.

Unit prices have had their steepest fall in three years of 3.1% and are now 5.7% below the December 2021 price peak, down by about $46,000.

Meanwhile, Melbourne’s housing market downturn gathered significant momentum over the September quarter, with house prices now falling at the fastest pace in the city’s history (-4.3%), marking the first annual decline since 2019.

Despite this, house prices are still $147,000 higher than they were before the pandemic property boom and would need to fall by a further 14.3% to erase all the growth seen.

Dr Powell explained:

"Unit prices have had their steepest quarterly fall on record (-3.3%) reversing all the positive growth seen last quarter putting unit prices on track to be lower than they were pre-pandemic over the next quarter if they continue to slide at the current rate of decline.

That said, it follows a period of substantial underperformance of unit prices, which rose a modest 9% during the upswing compared with a 24% jump in house prices."

Brisbane’s housing market slowdown gathered momentum over the September quarter, with house prices falling 4.3%, their fastest quarterly pace in the city’s history.

Despite the fast pace of the falls this quarter, house prices remain 13.3% higher than a year ago.

Unit prices bucked the overall national downward trend and have outperformed houses for two consecutive quarters; this hasn’t happened since 2008.

Canberra’s housing market slowdown gathered significant momentum over the September quarter, with house prices now falling at their fastest rate on record.

House prices are currently 6% below the December 2021 price peak, down about $70,000.

Despite the fast pace of the falls this quarter, house prices are sitting substantially higher than what they were before the recent pandemic property boom – prices are still $320,000 higher – and would need to fall by a further 29% to erase all the growth seen.

On the other hand, Perth and Darwin are the only cities where house prices are firmer than units.

Perth’s housing market is now unanimously on the downward slide as house and unit prices both declined 1.5% and 2.4% respectively over the September quarter.

Despite the pace of the falls this quarter, house prices remain 7.9% higher than a year ago.

Dr Powell further explained:

"Unit prices are down by a further 2.4% over the September quarter – also about $10,000 lower – and their steepest fall in one year.

However, house prices have consistently outperformed units as the growth rates are now heading in opposite directions annually, bucking the national trend.

This divergence has driven a record price gap between property types – the only capital city to see this widen."

The same goes with Darwin's house and unit prices which were on the decline again over the September quarter, reversing all of the previous quarter's growth.

This is the steepest decline in prices since the onset of the pandemic.

Darwin bucks the national trend to become one of only two cities where house prices outperformed units, along with Adelaide.

On the other hand, Adelaide is the only capital city market in Australia to record positive growth in house (0.6%) and unit (2.5%) prices over the September quarter and reach new record highs.

The upswing continues to lose steam as quarterly house price growth is the slowest since prices declined in mid-2020 and it's the weakest outcome in a year for units.

Unit prices have outperformed houses for two consecutive quarters.

It’s a trend that could continue as affordability constraints, reduced borrowing capacity, an extremely tight rental market and migration flow returning are expected to continue to support unit prices.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.