Price growth stalls as Sydney and Melbourne values fall
Price growth in the national real estate market has ground to a halt; Sharp declines were seen in Melbourne and Sydney as high interest rates, strained affordability and the federal government’s overhaul of tax incentives combined to suppress values.
Figures published by property data firm Cotality on Monday show capital property values were static until May, when the Reserve Bank raised official interest rates to 4.35 per cent and Chancellor of the Exchequer Jim Chalmers touched on negative gearing and changes to capital gains tax.
However, overall values in Sydney fell by 0.9 per cent in the last three months to 2.1 per cent. The reason for the decline was housing; values have fallen by 2.5 percent, down 1.1 percent since the beginning of the year. The average value of a home in Sydney exceeded $1.6 million in February. It is now down to $1.58 million.
In Melbourne, total house values fell by a further 0.8 per cent in the quarter, falling by 2.3 per cent. Home values fell further again, dropping 1 percent to an average of $958,000; On the other hand, there was a 0.4 percent decrease in unit value.
Loose prices in the country’s two largest markets contrast with most other capitals. Perth home values rose a further 1.4 per cent, with the median value now well below $1.1 million. Last year, values in the city increased by 25.6 percent.
House values in Brisbane increased by 0.8 per cent last month, up 18.6 per cent on last year, with the average value now standing at $1.23 million. Values also rose in Hobart, Darwin and Adelaide, but fell in Canberra, where the average house value remained just over $1 million.
Cotality research director Tim Lawless said headwinds were increasing across the entire national property market, partly due to affordability issues, as incomes failed to keep up with price growth.
He said tightening monetary policy and the federal government’s new tax policies would also put pressure on the market, which would ultimately give potential buyers more options for their money.
“The biggest decline in estimated sales can be seen in Sydney and Melbourne, with declines of 17 per cent and 14.2 per cent on the previous year,” he said.
“These are also cities where advertised supply is above average, giving buyers more choice and better leverage.”
Regional markets are doing better than capital cities, with an increase of 0.6 percent in May. Every region grew last month, although it was the smallest increase in a year.
Lawless said new rents rose a further 0.6 percent in May, returning annual growth to 5.9 percent. The vacancy rate decreased to 1.5 percent.
The rental market will also likely improve, he said.
“Given rent costs around $204 per week over the past five years, tenants are likely to reach or approach a ceiling on what they can pay, potentially leading to structural changes in rent demand,” he said.
Asked about predictions that house prices could fall by as much as 10 per cent, Housing Minister Clare O’Neil said the government’s policy changes on negative gearing and capital gains were not the “main driver” of any price decline.
Interest rate increases are playing a more important role, he said, adding that Treasury modeling predicts a 2 percent drop in house prices as a result of the government’s changes.
“I’m not speculating on what will happen to property prices in this country. What I can tell you is that our government is committed to building more homes and finding more first-time buyers,” O’Neil told the ABC. insider Sunday program.
