A Broad-Based Correction Takes Hold
Australian home values have now fallen for seven months running, and prices across the capital cities are declining at the quickest rate seen in 40 years as higher mortgage costs deter buyers. According to Cotality, the epicentre of the slump is moving away from Sydney and Melbourne and toward the mid-sized state capitals, with Brisbane and Perth posting the steepest October declines. Combined values across the state and territory capitals slipped 1.4% over the month.[S1][S2][S3][S4][S5][S6]
Cotality research director Tim Lawless described the downturn as broad-based, noting that capital city home values are down 8.1% since March. He said the mid-sized capitals, which saw extreme growth over the past six years, are now firmly in a correction, and that nearly every suburb in Brisbane, Perth and Adelaide has lost value over the past three months.[S1]
Rate Hikes and Tax Changes Weigh on Demand
Four interest rate increases this year have pressed on the property market, and a fifth is widely anticipated when the Reserve Bank announces its decision on Tuesday. Most economists expect double-digit declines in Australian property prices as rates rise, with Morgan Stanley projecting peak-to-trough falls of as much as 15%.[S1][S4]
Lawless identified high interest rates as the most significant downward force, while affordability constraints and a retreat by investors following the government's tax changes have also weakened demand. He said the four-decade pace of decline largely reflects how strong the market had been beforehand. Australian home prices began decoupling from wages in the late 1980s, and a surge in the 90s and early 2000s left the country with unaffordable housing, worsened by investor-friendly tax settings that were only recently unwound.[S1]
In Adelaide, Brisbane, Perth and Hobart, values have roughly doubled over the last ten years. Canberra has gained more than 50% and Sydney and Darwin more than 30%, whereas Melbourne's increase is only a little above 20%. Despite the recent weakening, the majority of owners remain well ahead; Cotality's analysis suggests that even if Perth prices dropped 20% from their peak, the market would merely be back where it stood in mid-2025.[S1]
Sydney and Melbourne Near a Bottom, Economist Says
Peter Esho, an economist and chief executive of 13x, said the big Sydney and Melbourne markets appear near a trough, while the medium-sized capitals are earlier in the downturn. In his view the slide fits an ordinary housing cycle shaped by interest rates, which are creating a negative wealth effect and dragging heavily on sentiment; property, he noted, is an asset whose value is driven by sentiment.[S1]
Esho said he does not see the declines turning systemic, since that would need buyers to face difficulty borrowing, as occurred in the US during the global financial crisis, or a steep jump in unemployment. Cotality data meanwhile shows rental pressure easing a little, with national vacancy rates up and rent growth moderating. Even so, rents have climbed more than 50% in six years, lifting the median rent by roughly $245 a week and greatly exceeding wage growth. Analysts link part of the higher vacancy rate to shifting household arrangements, as more tenants share dwellings or return to family homes to manage affordability, reversing the pandemic trend toward smaller households with room for a home office.[S1]
