Australian housing prices fall as interest rates rise

SYDNEY (BLOOMBERG) – Australia’s two biggest housing markets, Sydney and Melbourne, led a fall in home values during June as rising interest rates further choked buyer demand.

Sydney prices slid 1.6 per cent in the city’s fifth straight monthly fall, while Melbourne dropped 1.1 per cent, CoreLogic said in a report on Friday (July 1). They were the main drivers behind a 0.8 per cent month-on-month decline in the country’s combined capital cities index.

“Since the initial cash rate hike on May 5, most housing markets around the country have seen a sharper reduction in the rate of growth,” said CoreLogic research director Tim Lawless.

The Reserve Bank of Australia began its tightening cycle earlier than expected in May and has since raised rates by a total 75 basis points, in back-to-back moves, to 0.85 per cent. It is widely expected to hike again next week, with money market bets implying the cash rate at 3.2 per cent by December.

“Considering inflation is likely to remain stubbornly high for some time, and interest rates are expected to rise substantially in response, it’s likely the rate of decline in housing values will continue to gather steam and become more widespread,” Mr Lawless said.

Friday’s report showed annual growth in capital city home values slowed to 8.7 per cent over the 12 months to the end of June, from a recent peak of 21.3 per cent for the year through January.

Values in Sydney are still up 5.9 per cent from a year ago. In the relatively cheaper Melbourne market, they have risen 3.1 per cent.

The house price-to-income ratio in Australia, of nearly 120, is among the highest in the developed world – making it one of the most expensive markets globally.

Mr Lawless said that there were no signs of “panicked selling” yet, while adding it was “highly uncertain” how far housing values would fall through the downturn.