State of the market property report for November 2022

The Australian property market continued to struggle in October, ratcheting up its sixth consecutive month of home price declines. The Reserve Bank of Australia’s (RBA) monetary policy is the key factor behind ailing property prices, with governor Philip Lowe signaling at least another rate hike to come.

The current state of the market

CoreLogic’s national Home Value Index (HVI) notched up its sixth consecutive month of decline in October with a 1.2 percent fall.

Brisbane led the pace decline amongst Australia’s capital cities, with a 2.0 percent fall compared to the previous month. Sydney came second with a 1.3 percent decline, followed by Hobart with a 1.1 percent fall on the month. Melbourne’s HVI decline was 0.8 percent, while in Adelaide it was 0.3 percent and in Perth a fall of 0.2 percent.

The pace of decline in the housing prices of Australia’s capital cities has eased over the past three months, from a drop of 1.6 percent in August to 1.4 percent in September, and 1.1 percent in October.

Housing values remain well above pre-Covid levels in most parts of Australia despite six straight months of decline in the CoreLogic HVI. This means that the property values of most home owners likely remains above their original price at the time of purchase.

When examined in aggregate, home values in Australia’s capital cities have fallen 6.5 percent after posting a 25.5 percent leap during the Covid-era housing boom.

RBA’s commitment to curbing inflation extends property decline

The Australian central bank’s firm determination to defeat inflation is a key driver of the ongoing spate of home price declines.

The RBA lifted the cash rate target - its benchmark for determining interest rates, by 25 basis points on 2 November. November marks the seventh consecutive month that the RBA has hiked rates, lifting the cash rate target by a cumulative 2.75 percentage points, from 0.10 percent to 2.85 percent.

While the scale of the hikes narrowed back to 25 basis points in October after four straight months of 50 basis point increases, the overall trajectory for the RBA’s monetary policy is still for interest rates to keep rising. This is especially the case given that Australia’s official inflation print accelerated to a 32-year high of 7.3 percent in October, already above the 7 percent increase that the RBA and Treasury had previously forecast for the end of 2022.

Buying opportunities lie in wait

Tim Lawless, CoreLogic’s Research Director, said there remains the potential for housing price declines to worsen as the RBA continues to grapple with inflation.

“With Australian borrowers facing the double whammy of further interest rate hikes along with persistently high and rising inflation, there is a genuine risk we could see the rate of decline re-accelerate as interest rates rise further and household balance sheets become more thinly stretched,” he said.

CrowdProperty Australia Property Director Daniel He said confidence could return to the small-scale property development sector if the right conditions occur early in 2023.

“If interest rate rises start to level out, we may begin to see confidence return to the market,” Daniel said.

“In NSW, the trigger for this may be the stamp duty/property tax changes to legislation passed last week for first home buyers.

“Vendor expectations, at least anecdotally, are lowering. Good buys are happening on an individual deal basis — we’re seeing bargains being picked up across the country in the finance applications we are receiving and our application volume has never been higher.”

Rob Flux, developer and educator from the Property Developer Network, said that the pressure of the RBA’s interest rate hikes will create more opportunities to find bargains for property investors and developers.

“It’s going to put a lot of pressure on people who bought at the peak,” Flux said. “Those people potentially stretched themselves and are now starting to feel financial stress.”

“We’re going to see some bargains hit in January and February - we are already seeing changes to negotiations right now in the lead up to Christmas.”

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Rob Flux is the owner and founder of Property Developer Network, the largest national network of novice developers and renovators in Australia with a combined community of over 15,000 people.