The slump in housing continued in September. National dwelling prices fell 1.1% in the month, marking the sixth consecutive monthly decline. Over the September quarter, dwelling prices fell 3.7%, the largest three-month decline in four years. Over the three months to end September, Cotality reported that 97% of capital city suburbs were down in value.
Annual dwelling price growth ground to a halt in September with nil growth recorded, highlighting how quickly housing market conditions have weakened since peaking earlier this year.
It was a sea of red across the capital cities. Brisbane recorded the largest decline in September with dwelling prices falling 1.5%, followed closely by Sydney (-1.4%). Housing market conditions have deepened across all the major capital cities, as the downturn broadens. Markets that were previously among the strongest performers, including Brisbane and Perth, are now recording sizeable monthly declines. Sydney remains the weakest market, with dwelling prices down 8.6% from their February peak, followed by Melbourne, which is down 7.2%.
The housing market has shifted markedly over recent months. Earlier this year, shortages of available stock and strong population growth helped support dwelling prices in many cities. But affordability constraints, higher interest rates, elevated living costs and weaker buyer sentiment are now weighing more heavily on demand.
Other housing indicators continue to point to further weakness ahead. Auction clearance rates remain subdued and homes are taking longer to sell. Other data shows that more sellers are turning to private treaty. Housing turnover has also softened noticeably, while the increase in available listings is giving buyers more choice and greater bargaining power.
The recent rate hike from the Reserve Bank (RBA) is likely to deepen the downturn. Higher mortgage rates reduce borrowing capacity, making it harder for prospective buyers to enter the market while also increasing repayment burdens for existing borrowers. While we continue to favour no further rate hikes from the RBA, there remains a meaningful risk that another increase could come in November. It will be a close call. Swap markets are not ruling out the possibility of up to 2 more rate rises (currently priced for 1.6 rate hikes).
The housing market is also facing structural headwinds. Changes to investor taxation announced in the Federal Budget have reduced some of the support that investors have historically provided during housing downturns. As a result, the next upswing may look different from previous cycles. Even when interest rates eventually begin to fall, there is less certainty that dwelling prices will rebound as strongly as they have in the past.
To be sure, there are factors that should help prevent a more severe correction. The labour market remains relatively resilient, unemployment is still low and underlying housing supply remains constrained. These factors should provide some support to dwelling prices over time. However, they are unlikely to offset the significant headwinds from high interest rates, stretched affordability and weak sentiment in the near term.
Overall, the balance of risks remains tilted to the downside. We expect housing market conditions to remain weak over the coming year and continue to forecast a 5% decline in national dwelling prices this year. We expect Sydney to experience the biggest decline with an 11% fall for this year. Unlike the consensus forecasts, we are not expecting a meaningful rebound in 2027.
We do not expect dwelling prices to bottom out until rate cuts come into view. With markets still entertaining the prospect of further tightening, it remains too early to call a turning point.
Disclaimer
This report has been prepared for general informational purposes only and does not constitute personal financial advice. It does not take into account your specific objectives, financial situation, or needs. Before acting on any information in this report, you should consider its appropriateness in light of your circumstances and seek independent financial advice. The author holds, or may hold, positions in some of the securities mentioned in this report. These holdings may represent a potential conflict of interest. No representation or warranty is made as to the accuracy, completeness, or reliability of the information contained herein. Past performance is not a reliable indicator of future performance.
