Home prices in Australia’s capital cities have slowed at a pace not seen since 1989, following the exceptional price growth experienced during the pandemic, PropTrack analysis of home price growth in Australia has found.
“Home price growth has slowed down quickly in 2022,” Paul Ryan, PropTrack economist and report author, said. “The PropTrack Home Price Index showed that home prices fell in May, the first decline since the start of the pandemic. In the last six months, home price growth has experienced the most rapid slowdown in more than 30 years. Perhaps this is not surprising, 2021 was the third fastest period of home growth in Australia’s history.”
Ryan clarified though that 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,” he said. “Interest rate expectations have been the key 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 moderate, sitting 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 almost 25%.”
The slowdown has not been evenly distributed across the country and there continues to be a two-speed market, PropTrack reported.
“The largest cities of Sydney, Melbourne, and Brisbane have led the slowdown,” Ryan said. “By contrast, the smaller capitals of Adelaide and Perth have not experienced anywhere near the same reduction in growth this year. “Regardless of the slowing across the board, it’s important to remember that price growth was unprecedented throughout the pandemic. Prices are still up 35% 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.”
Looking ahead, Ryan said the rapid slowdown in price growth “signals the housing market is likely to continue to see slow growth over the rest of 2022.”
“Many buyers and sellers anchor their expectations from recent sales momentum, which can embed these trends in market results,” he said. “Buyers will also be hesitant to bid as aggressively as we saw last year, since there is much uncertainty about how high mortgage repayments will be before the end of this year. 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. Resolving this uncertainty about the path of interest rates will be the key element buyers look for over the rest of the year.”
