Australia's Housing Downturn Spreads Nationally as Prices Decline

Australia's housing downturn is spreading across the country, with previously resilient property markets that had recently set record-high prices now experiencing a decline in values.

The latest figures from property data firm Cotality show national property prices in July fell 0.7 per cent, making it the largest single monthly decline in value since December 2022.

The data shows the downturn is no longer confined to Sydney and Melbourne, with property prices in Brisbane and Adelaide falling by 0.6 per cent and 0.2 per cent respectively. It is the second-consecutive month of declines for both cities after Cotality revised its data from June.

"There's been a really rapid deterioration in conditions in Brisbane, which I think has probably been the most surprising trend that we've seen over the last couple of months," Cotality's head of research Gerard Burg told The Business.

"The shift is really evident in the total stock available for sale [in Brisbane]. Going back to February, it was around 25 per cent below the five-year average. It's now sitting up around 6 per cent above that average level."

In other words, the amount of available housing supply in Brisbane has accelerated, giving buyers more choice.

Elsewhere, Perth managed a modest 0.1 per cent increase following a revised 0.5 per cent contraction in June, while Darwin recorded an increase of 0.8 per cent.

The weakening housing market is welcome news for first home buyers, with Melbourne real estate agent Shahid Khan starting to see more confident bidders.

"What we have seen lately in the last few weeks — the buyers are there, limited buyers," Mr Khan said.

Mr Burg said while property values will likely continue deteriorating across the country, he expects more vendors (or sellers of property) to start pulling back from the market as they grow increasingly hesitant to lose money on a sale.

"When vendors look out at the market, they are seeing these challenging conditions and they're probably thinking that they've missed the opportunity to sell at the market peak," he said.

Are there more declines on the horizon?

Mr Burg said changes to negative gearing and capital gains tax have contributed to the wider softening of the national housing market, as has the three interest rate hikes by the Reserve Bank of Australia this year.

"It is continuing to have an effect because these policy issues can take time for people to really process the change and consider what's happening," Mr Burg said.

"On the rate increases, these moves that we've seen so far have increased the necessary income to make a home purchase, as that borrowing capacity has been pulled back, even in markets where we have seen home values decline over the last couple of months.

"So they're both things that tend to fall over the space of a number of months."

Former chief economist for NAB, Alan Oster, believes the property market weakness is more connected with rising interest rates.

"I think it's mainly the higher interest rates," Mr Oster said.

The now-independent economist said there was a fear among investors and owner-occupiers that interest rates might climb higher, even though economists broadly expect rates will remain on hold after the RBA's meeting on August 11.

"There's a little bit of uncertainty about whether [the Reserve Bank] might even do more [rate hikes]," he said.

Coupled with a weakening economy, he warned it could result in the unemployment rate moving well above the current level of 4.4 per cent to see more falls in property prices.

"I think if there was a 5 in front of [the unemployment rate], that's getting very close to a recession," Mr Oster said.

In this scenario, Mr Oster said, he would expect a property market correction, or a fall in prices from the recent peak of 10 per cent or more.

"At the end of the day, if that did happen, the [RBA] would be cutting rates."

Despite the current "swift loss of momentum", Mr Burg argued there are a number of factors currently supporting the market that would prevent such a dramatic fall in property prices.

"Certainly, unemployment still remains very low ... we have continued population growth ... and there are some challenges on the supply side too," he said.

"New construction remains very, very difficult, and particularly as value starts to come off, the feasibility of a lot of these new construction projects becomes a lot harder.

"So you have a situation of, if unemployment remains quite low, we don't have a lot of forced sales, that could limit that degree of supply side pressure to really drive values much lower.