Australia's home prices tumbled for a seventh straight month and are on track for the biggest fall in 40 years, according to a private gauge, as the Reserve Bank is expected to increase borrowing costs again this week. The Home Value Index for major cities slid 1.4% in October and is down 8.1% over the past seven months, property consultancy Cotality said in a report released Monday. Brisbane led the declines with a 2% drop, followed by 1.7% in Perth, 1.6% in Sydney and 1.2% in Adelaide.
"The mid-sized capitals, where home values recorded extreme growth conditions over the past six years, are now well and truly in a correction," said Tim Lawless, Cotality's research director. "Virtually every suburb across Brisbane, Perth and Adelaide has recorded a drop in values over the past three months."
The RBA has raised interest rates four times this year to bring inflation back into its 2-3% target band, as shocks from the US-Iran war and domestic capacity pressures stoke price growth. Hotter CPI figures last week bolstered bets of another increase on Tuesday, threatening further pressure on the housing market. Curbs on tax breaks for property investors introduced in the May budget have amplified the declines. Another 25-basis-point hike would take the average variable mortgage rate to around 6.7%, underscoring growing financial stress on homeowners.
Lawless estimates borrowing capacity has dropped by around 11.5%, or more than A$105,000 ($74,000), through the rate-hiking cycle so far. Despite the drops, Cotality noted that gains in previous years provide a solid buffer. RBA Governor Michele Bullock noted prices are still up 50% since the pandemic. Cotality also pointed to persistently low levels of new housing supply and continued population growth as factors that should help contain the downturn.
Still, Cotality warned that "the balance of risks remains skewed to the downside," with the decline in home values on track to be the largest in at least forty years.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing