Home values ​​see fastest decline in 33 years

The annual rate of house price growth has slowed from 24% six months ago to 14% now, representing a decline of 10% in six months. The current declines come after two years during the COVID-19 pandemic, where home values ​​have risen by 35% in capital cities.

PropTrack economist Paul Ryan said the decline seen over the past six months should come as no surprise after the market’s performance in 2021, one of the best years for growth on record.

“House price growth has slowed rapidly in 2022. The PropTrack house price index showed prices fell in May, the first decline since the start of the pandemic. Over the past six months, home price growth has seen the fastest slowdown in more than 30 years.

“Perhaps unsurprisingly, 2021 was the third fastest period of house price growth in Australian history,” he said. “However, it is not necessarily true that growth drops quickly after a ramp-up. In general, the market moves more gradually, indicating that other factors are involved. »

Mr Ryan said rising interest rates had been the main driver of the drop in value, and with rates expected to rise by at least 1.5% by the end of the year, we expects buyer caution to increase.

“Interest rate expectations have been the main driver of this slowdown. Financial markets expect the RBA cash rate to be close to 2.75% at the end of the year, while other expectations are more muted at around 1.5 to 1. .75%. As a result, buyers have been more cautious in 2022. A two percentage point increase in interest rates would increase average mortgage repayments by nearly 25%,” he said.

“The downturn has not been evenly distributed across the country and we continue to see a two-speed market. The biggest cities of Sydney, Melbourne and Brisbane led the slowdown. In contrast, the small capitals of Adelaide and PerthPerth, TAS Perth, WA have not experienced the same reduction in growth this year. »

Ryan also predicts that current growth trends will continue as the housing market cools slowly for the rest of the year.

“Looking ahead, the rapid slowdown in price growth signals that the housing market should continue to experience slow growth over the remainder of 2022. Many buyers and sellers are basing their expectations on recent sales momentum, which may factor these trends into market outcomes. Buyers will also be hesitant to bid as aggressively as we saw last year, as there is a lot of uncertainty about how much mortgage payments will be due before the end of this year,” did he declare.

He concluded that the evolution of inflation, growth and wages “will be key elements of the tightening implemented by the RBA throughout 2022 and the performance of the housing market. Resolving this uncertainty about the path of interest rates will be the key thing buyers will be looking for for the rest of the year. »

Home values ​​see fastest decline in 33 years

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Last update: June 13, 2022

Posted: June 14, 2022