House values tumble in Sydney, Melbourne as economy struggles

Sydney and Melbourne house values are showing a downturn and other capitals face similar patterns as high interest rates and an increase in properties for sale combine to take the heat out of the housing market.

Amid signs the economy continues to face headwinds, CoreLogic data to be released on Monday shows Sydney house values fell by 0.4 per cent in November while they dropped by 0.5 per cent in Melbourne.

Over the past three months, Sydney house values have fallen by 0.8 per cent. Since the start of the year, they are up by 3.3 per cent compared to a 12.5 per cent jump through 2023.

Melbourne’s market is slower, with values falling by 1.2 per cent over the past three months and by 2 per cent since January 1. The median value in Melbourne is at $923,422, having fallen by more than $20,000 over the past 11 months.

While the Sydney and Melbourne markets are shedding value, a slowdown is starting to take hold in Brisbane and Perth.

The median house value in Perth rose by another 1 per cent to be 2.9 per cent up over the past three months. This was the softest increase in Perth, the nation’s hottest property market, since early last year.

Brisbane values rose by 0.6 per cent last month to be 1.6 per cent up over the quarter, the city’s lowest quarterly increase since March 2023.

CoreLogic research director Tim Lawless said the slowdown was being driven by an increase in the number of homes going to market while purchases were falling, partly due to the high cost of housing facing many potential buyers.

“The downturn is gathering momentum in Melbourne and Sydney, while the mid-sized capitals, which have dominated the growth cycle of late, are also losing steam,” he said.

There is also evidence that pressure on the rental market is easing. CoreLogic’s measure of rentals rose by 0.2 per cent in November to be 5.3 per cent up over the past year.

The annual change in rents was the lowest since April 2021. A year ago, rents were climbing at 8.1 per cent.

Financial markets are not expecting the Reserve Bank to cut interest rates until at least May.

Lawless said house values could continue falling until the RBA moves.

“A couple of rate cuts might be enough to shore up a declining trend in home values, but it is hard to see any material upward pressure returning until interest rates reduce more substantially and affordability barriers are less formidable,” he said.

The RBA may have to bring forward interest rate cuts if it continues seeing signs of the economy struggling.

The September quarter national accounts, to be released on Wednesday, are expected to show economic growth of 0.4 per cent after a lower-than-expected 0.2 per cent increase through the June quarter.

While it would be the strongest quarter since the start of 2023, it would take annual growth to a modest 1.2 per cent.

The June quarter figures were a surprise to the Reserve Bank and many analysts as they showed household spending falling for the first time since the depths of the pandemic. The September quarter figures are expected to be a little better due to the start of the federal government’s stage 3 tax cuts, a slowdown in inflation and a lift in wages.

AMP chief economist Shane Oliver said the figures would confirm Australia was still in a per capita recession as the figures had fallen in eight of the past nine quarters.

“This is one indicator of slumping living standards in Australia on the back of the cost-of-living crisis,” he said.

Treasurer Jim Chalmers said the figures would show higher interest rates, global economic uncertainty and cost-of-living pressures continuing to weigh on households.

He said this was likely to continue in the short term.

“We’ve been planning and preparing for a soft landing, and with the economy still growing, inflation back in the band, and unemployment with a 4 in front of it, we are on track for one,” he said.

“We acknowledge that even with the remarkable progress we’ve made in the national data, that doesn’t always translate to how people are faring and feeling in the economy.”