Houses are becoming cheaper, but experts warn the reprieve won’t last

After nearly two years of solid growth, Australian house prices are officially on the decline. 

The change is led by Sydney and Melbourne, which together account for around 40 per cent of national housing stock. 

In December, Australian dwelling prices recorded their first decline in 21 months according to CoreLogic’s Home Value Index. 

The decline wasn’t a massive one – just -0.1 per cent – but CoreLogic believes it’s the start of a downwards trend that will persist over the coming months. 

“Housing demand has slowed amid a growing gap between income, borrowing capacity, and home values,” says head of research Eliza Owen. 

At the moment, the average Australian household can afford a house priced at $513,000. However, the median dwelling value currently rests at $815,000, and detached houses cost significantly more. 

Owen explains that historically, the gap between median house prices and what buyers can actually afford to spend eventually converges. 

“For nearly two years, this gap may have been sustained by buyers less affected by interest rates, such as those using resale profits or higher-income buyers. Some buyers may have been willing to accept higher housing costs in the short term.

“However, as lower interest rates have not materialised, housing demand from these buyers may also be waning,” Owen says. 

The downswing can also be partially explained by seasonality, with December traditionally being a slower month for home sales. However, Owen notes that a marked slowdown has still taken place, even in seasonally adjusted terms. 

Unfortunately for hopeful buyers, the decline in home prices is not likely to last long. 

“A cyclical downswing is likely for early 2025 but it may not be large,” Owen warns. “The downturn in housing values is likely to be shallow and short lived.” 

“But in the same sense, it’s hard to see any material growth returning to housing values, at least at a macro level, until housing affordability and loan serviceability improves more substantially.”

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