Property prices fall for the first time since early 2020

Key takeaways

The PropTrack report shows that prices were flat in regional areas in May, representing a sharp slowdown and the lowest month-on-month increase since May 2019.

National property price growth has now dropped for the first time since the Covid-19 pandemic began back in early 2022. 

While Australia’s property market started strongly in 2022, an increasing cash rate and concerns about inflation saw property price growth drop across capital cities for May for the first time since the Covid-19 pandemic began in early 2022.

Nationwide, property prices dropped 0.11% in May to a new median of $691,000, according to the latest PropTrack Home Price Indicator report.

Prices continued to decline in Sydney (-0.29%) and Melbourne (-0.27%), while prices in Canberra were down for the first time in 3 years.

And monthly price growth has slowed almost everywhere across the country, with regional areas seeing a flat result in May with a mere 0.01% increase for the month.

“This fall follows the first interest rate increase by the Reserve Bank of Australia (RBA) in early May, but home price growth has slowed considerably throughout 2022,” the report’s author, REA economist Paul Ryan, said.

“It follows expectations of sharply higher interest rates later in 2022 as the RBA acts to dampen inflationary pressures.”

But while the data may be alarming for some, Ryan also adds that this fall follows the third-fastest episode of property price increases in Australia’s history.

Prices were up 14% in the year to May, and up 35% since March 2020.

“Prices adjusted quickly to the reduction in borrowing costs as the pandemic shocked the economy and interest rates fell to their lowest level on record,” he said.

Regional areas outperform

The PropTrack report shows that prices were flat in regional areas in May, representing a sharp slowdown and the lowest month-on-month increase since May 2019.

But what is interesting is that despite the flat result, the data shows that regional areas still outperform capital cities thanks to relative affordability and the sea- and tree-change trend which exploded during the pandemic as owners and would-be buyers shifted their preference to lifestyle locations.

And this is evident in the data too.

Prices have increased 21% in the 12 months to May in regional areas, but only 12% in the capitals.

Ryan adds that the strength in regional areas has been particularly evident in NSW, Queensland, and Tasmania, where growth has been around 23% outside the capitals over the past year - but the smaller capitals of Brisbane and Adelaide have also seen strong growth off the back of the same trends.

Highest growth regions

Parts of Brisbane - particularly peripheral parts of the city - feature prominently in the highest growth regions over the past year across the nation.

And regional parts of NSW have also seen exceptional growth.

In fact, this trend appears across most of Australia’s capitals.

The trend is perhaps unsurprising however given that the pandemic, lockdowns, and work-from-home rule made people reevaluate what they wanted in a home.

Many moved to larger homes further away from the city centres.

“It will be interesting to see if this balance swings back to inner cities as workers return to offices and immigration returns in 2022 and 2023,” Ryan said.

What next for property price growth?

National property price growth has now dropped for the first time since the Covid-19 pandemic began back in early 2022.

Not only that but the drop in price growth has happened quickly.

The report shows that annual price growth has fallen from 24% 6 months ago to 14% now - that’s a significant decline over such a short window of time.

The RBA moved to increase official interest rates for the first time in more than a decade in early May, followed by a second and larger increase in June.

And interest rates are expected to rise much further, taking borrowing costs even higher by the end of the year.

Could this begin to erode property prices?

What is clear, according to Ryan, is that price growth in regional markets, Brisbane and Adelaide will continue to remain robust throughout the remainder of the year thanks to the appeal of lifestyle areas and lower prices.

“The continued increase in investor activity, as well as immigration, is likely to benefit the major cities over the rest of the year,” Ryan said.

“Preference shifts since the pandemic have also made both inner-city locations and apartments relatively cheap, which comprise the types of homes investors and recent immigrants often prefer.”

He also expects to see a period where strong labour market conditions and wage growth are traded against higher borrowing costs.

And he expects that these conditions are unlikely to see strong home price growth.

“The speed of official interest rate hikes and wages growth remains the key unknowns for price growth moving forward,” Ryan concluded.

About Kate Forbes Kate Forbes is a National Director at Metropole assisting our high net worth clients safely grow, protect and pass on their wealth. She has 25 years of investment experience in financial markets on two continents, is qualified in multiple disciplines, and is also a Chartered Financial Analyst (CFA).