House prices in Australia’s capital cities have undergone their most rapid slowdown since 1989, new analysis from REA Group’s PropTrack has revealed.
Over the past six months, the annual pace of growth has dropped from 24 per cent to 14 per cent, faster than the declines seen in 2004 and the Global Financial Crisis of 2008.
“Perhaps this is not surprising, 2021 was the third fastest period of home price growth in Australia’s history,” commented PropTrack economist Paul Ryan.
“However, it is not necessarily the case that growth falls rapidly after a run-up. In general, the market moves more gradually, indicating there are other factors involved.”
Mr Ryan said that expectations surrounding interest rates were the main cause of the slowdown, with the Reserve Bank (RBA) delivering its first rate hike in over a decade in May.
This was followed up by a higher than expected lift of 50 basis points earlier this week and economists anticipate additional rate hikes will take place in the coming months.
“Financial markets expect the RBA cash rate to be close to 2.75 per cent at the end of the year, while other expectations are more moderate, sitting around 1.5 to 1.75 per cent,” said Mr Ryan.
“As a result, buyers have been more cautious in 2022. A two-percentage point increase in interest rates would increase average mortgage repayments by almost 25 per cent.”
As also indicated by CoreLogic’s latest Home Value Index, PropTrack noted that some cities and regions around the country have continued to experience growth even as the largest capital cities began to suffer falls.
Adelaide and Perth are among the areas that have yet to record a slowdown like what has been seen in Sydney and Melbourne.
“Regardless of the slowing across the board, it’s important to remember that price growth was unprecedented throughout the pandemic,” Mr Ryan said.
“Prices are still up 35 per cent since the start of the pandemic. This equity increase continues to drive a lot of selling by upgraders and no doubt, the slower price growth over 2022 will be welcome news for many first home buyers who have found it challenging to save a deposit during this run-up in prices.”
PropTrack also echoed expectations for a continued slowing of growth in the property market throughout the rest of this year.
The firm said that buyers would be hesitant to bid as aggressively as they did last year due to uncertainty about higher mortgage repayments.
“How inflation, growth and wages evolve will be key inputs into how much tightening the RBA implements throughout 2022 and how the housing market performs,” concluded Mr Ryan.
“Resolving this uncertainty about the path of interest rates will be the key element buyers look for over the rest of the year.”
