Sydney Housing Boom May Be Over
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Sydney Housing Boom May Be Over

Sydney house values fell in February for the first time since October 2020.

By Terry Christodoulou
Wed, Mar 2, 2022 11:08amGrey Clock < 1 min

Sydney house values fell 0.1% in February, marking the first monthly decline since September 2020 according to the latest data from CoreLogic.

Melbourne’s values also stagnated over the month following on from similarly dour results in December and January with mortgage rate hikes, rising listings and poor affordability takings its toll on the market.

According to Time Lawless, CoreLogic’s director of research, the February home value index showed capital city and broad regions recorded a slowing trend in price growth.

“Sydney’s price drop is a pretty stark reminder that the boom in Sydney is over, and potentially we are looking at a marketplace now that is levelling out, potentially even moving into its downward phase earlier than what we expected,” he said.

“This could be the start of price falls,” Mr Lawless added.

Across the nation, housing values rose by 0.6% — the lowest monthly growth rate since October 2020 and is down from 1.1% in January and a cyclical peak of 2.8% in March 2021.

While smaller capitals continued to power ahead with Brisbane and Adelaide marking 1.8% growth and 1.5% respectively their growth rates have also been tempered.

In February, Brisbane recorded a 2.3% lift while Adelaide added 2.2%. Elsewhere, Canberra slowed to 0.45 and Hobart by 1.2%, Perth by 0.3% and Darwin by 0.4%.

According to Mr Lawless, the smaller markets have been resilient to the slowing conditions but now we’re seeing it affect the market.

“I’m quite certain that Brisbane and Adelaide will continue to be the standout performers across the capitals, but they’re not immune to a slowdown on the back of higher mortgage rates and worsening sentiment.”

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Mortgage holders should brace themselves for more pain as the Reserve Bank of Australia board prepares to meet tomorrow for the first time this year.

Most economists and the major banks are predicting a rise of 25 basis points will be announced, although the Commonwealth Bank suggests that the RBA may take the unusual step of a 40 basis point rise to bring the interest rate up to a more conventional 3.5 percent. This would allow the RBA to step back from further rate rises for the next few months as it assesses the impact of tightening monetary policy on the economy.

The decision by the RBA board to make consecutive rate rises since April last year is an attempt to wrestle inflation down to a more manageable 3 or 4 percent. The Australian Bureau of Statistics reports that the inflation rate rose to 7.8 percent over the December quarter, the highest it has been since 1990, reflected in higher prices for food, fuel and construction.

Higher interest rates have coincided with falling home values, which Ray White chief economist Nerida Conisbee says are down 6.1 percent in capital cities since peaking in March 2022. The pain has been greatest in Sydney, where prices have dropped 10.8 percent since February last year. Melbourne and Canberra recorded similar, albeit smaller falls, while capitals like Adelaide, which saw property prices fall 1.8 percent, are less affected.

Although prices may continue to decline, Ms Conisbee (below) said there are signs the pace is slowing and that inflation has peaked.

“December inflation came in at 7.8 per cent with construction, travel and electricity costs being the biggest drivers. It is likely that we are now at peak,” Ms Conisbee said. 

“Many of the drivers of high prices are starting to be resolved. Shipping costs are now down almost 90 per cent from their October 2021 peak (as measured by the Baltic Dry Index), while crude oil prices have almost halved from March 2022. China is back open and international migration has started up again. 

“Even construction costs look like they are close to plateau. Importantly, US inflation has pulled back from its peak of 9.1 per cent in June to 6.5 per cent in December, with many of the drivers of inflation in this country similar to Australia.”

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