Fall in house prices stalls but reprieve may be short-lived

The slide in home prices looks to be turning, with home values rising in Sydney in February and the pace of falls elsewhere slowing, driven by low numbers of homes on the market and rising auction clearance rates.

Australian home values eased by 0.14 per cent in February, according to CoreLogic’s home value index, the smallest national fall since the Reserve Bank started lifting interest rates in May last year.

Australian home values fell just 0.14 per cent in February.Credit:Jason South

Since then, the board of the RBA has raised the cash rate another eight times, taking it to 3.35 per cent as it fights to ensure that inflation – currently at 7.8 per cent – does not remain high for too long.

CoreLogic research director Tim Lawless said the easing of falls in home values might not last long as the economy slowed and the full effect of those interest rate rises started to hit.

“Considering the RBA’s move to a more hawkish stance at the February board meeting, along with an expectation for a weaker economic performance and a loosening in labour markets, there is a good chance this reprieve in the housing downturn could be short-lived,” Lawless said.

“We also have the fixed-rate cliff ahead of us; arguably the full impact of the aggressive rate hiking cycle is yet to play out.”

Hundreds of thousands of homeowners face a repayment cliff this year as the record-low fixed rates they secured in 2020 and 2021 are reset at the current higher rates.

Across the country, home values have fallen 9.1 per cent from their peak in April last year, but remain above pre-pandemic levels.

Sydney home values have fallen 13.4 per cent from their January 2022 peak, but the pace of that fall has been slowing. In February, values rose 0.3 per cent, the report shows, and all other capitals besides Hobart had values fall by less than half a per cent over the month.

Lawless said the apparent plateauing of home-value movement had coincided with consistently low numbers of advertised properties and an increase in auction clearance rates.

“So far, it seems prospective vendors are prepared to wait this downturn out. The flow of new listings is well below average for this time of the year across each of the major capitals,” he said.

“This trend towards a below-average flow of new listings has been evident since September last year.”

There have been concerns among economists that the fall in house prices over the past year, coupled with high inflation and falling real wages, would translate to more people falling behind on their mortgage repayments.

But analysis from Moody’s Investor Service released on Tuesday suggests the overall property market is still in relatively strong shape.

Moody’s vice president Irene Kleyman said risky lending across the Australian banking sector had declined since the global financial crisis in 2008.

Risky high loan-to-value ratio mortgages, interest-only mortgages and loans to people with adverse credit histories had all fallen over recent years.

Kleyman said tighter macroprudential regulations, such as the 3 per cent interest rate buffer on mortgages, had also improved mortgage quality.

She said this was an important development given the likely slowdown in the economy.

“We expect mortgage delinquency rates will increase over 2023 because rising interest rates, high cost-of-living pressures and the slowing economy will weigh on borrowers’ capacities to repay debt,” she said.

“However, the risk of mortgage delinquencies would have been far greater if loan quality, underwriting standards and lenders’ propensity to support borrowers had not improved since the financial crisis.”

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