Domain’s June quarter figures show Australia’s housing boom has entered a downturn for the first time in more than three years, with national capital city house prices falling 1.4 per cent and unit prices dropping 1.2 per cent from record highs.
Who Pays When the Market Turns
The people at the bottom of the property pile are already getting the message. Domain’s chief of research and economics, Nicola Powell, said the shift was being driven by higher interest rates, affordability constraints and waning confidence among buyers, while listings were rising and homes were taking longer to sell. That’s the machinery of the market at work: prices set at the top, pressure pushed downward, and ordinary buyers left to scramble for whatever’s left.
Powell said, “After three years of uninterrupted price growth, we’ve got house and unit prices declining over the quarter, so that does indicate that we are now in a downturn.” She said the change was a “decisive shift in market conditions.” The numbers back her up. Annual growth is still positive nationally for both houses and units, but it has slowed to its lowest level in nine months.
The downturn isn’t hitting every capital city the same way, because the housing market never treats people equally. Powell said declines in Sydney, Melbourne and Canberra were “really leading the downturn.” Adelaide was the only city where house prices accelerated in the June quarter, and even there prices remained at record highs. Brisbane, Perth and Hobart also stayed at record highs. The system can wobble and still keep its winners well padded.
Investors Pull Back, First Buyers Wait
Powell said the sharpest sign of strain was in unit prices, where all capital cities except Darwin recorded a fall. “That was a surprise to us, and I think that really shows that investors have become nervous,” she said. “They are shying away from the housing market, but it may be having a ripple effect on first home buyers as well.”
She added that first home buyers were also hesitating. “I think there would absolutely be nervousness out there amongst first home buyers, that cautious approach, but I also think that behavioural response from first home buyers, thinking if they wait a little bit longer and prices pull back even further, they may get actually more for their money.” That’s what happens when access to shelter gets turned into a waiting game for people who can’t afford to lose.
Before Domain released its data, property economist Cameron Kusher said he expected national dwelling values to decline. He wrote, “I think this downturn is set to be one of the largest we’ve seen in many years … [and] will turn out to be larger than the 7.5 per cent downturn seen a few years back.” He pointed to “low affordability, low sentiment toward housing, a weakening economy with productivity growth terrible, reduced incentives to invest in housing, relatively high interest rates and high inflation that looks set to continue for some time.”
Kusher, who said his views were independent of his employer, also said the falls were unlikely to fix housing affordability. “With these declines in housing values, they won’t improve affordability greatly because I expect that interest rates won’t be reduced for some time and because dwelling values have increased by so much and so quickly over recent years,” he said. The market can fall and still keep its walls up.
What the Banks and Committees Call Stability
On Monday, Barrenjoey banks analyst Jonathan Mott told a Senate committee hearing into productivity that a housing slowdown would help the sustainability of Australia’s housing market. He said, “If we could have a situation where house prices were flat for 10 to 15 years in nominal terms and fell in real terms, improving affordability, that would be a great outcome for all Australians.”
Mott said demand for mortgages had already been slowing for some months, citing data showing home loan applications had declined by about 23 per cent since the start of February. He said mortgage applications for first home buyers were down 19 per cent, owner-occupiers to upgraders were down 15 per cent, and investors were down 35 per cent, all seasonally adjusted. “It should be noticed that this is mainly as a result of a reduction in demand,” he said.
Powell said consumer confidence had been hit, especially after the federal budget. “Australians didn’t really take the budget very well, and I think that’s coming out,” she said. “Investors are pulling back, and I think people are just becoming much more nervous about the housing market.” She added, “The housing market really is a confidence game, and people don’t transact property if they’re not feeling confident.”
Even with prices slipping, Powell said she did not expect a correction or crash. “I think that’s very unlikely because what you have is a pullback in new sellers coming to the market … people just wait, they pause their decisions until market conditions improve,” she said. “We’re not entering into a market that is in free fall.” The market may be cooling, but the structure that made it brutal in the first place is still standing.