Australian Housing Market Forecast
The latest recession appears to have hit the Australian housing market fairly hard, and some worry the housing market might slide hard from here to May.
Some housing market experts forecast a dim outlook. Adelaide Timbrell, senior economist at ANZ. believes Australian housing prices are on a steep decline and will likely fall more in 2023, to a peak-to-trough drop of 16%, which is more than double the the 2008 financial crisis’ home price plummet.
A Reuters News housing market poll predicted average home prices would decline 7.3% this year and a further 9.0% in 2023.
Yet other experts remain confident in the 2023 outlook for the country. SQM Research’s managing director Louis Christopher believes the stats confirm his relatively positive outlook on housing for 2023. He cites a lack of listings and that the worst has already happened. He speaks of investors/buyers who will come forward when the market hits bottom soon.
Australian Buyer’s Hopes Not Too Strong
Rising rates, global trade downturn, rising inflation and fuel costs have ganged up to deliver bad news to Australia’s home buyer hopefuls. Australian consumers too are decided sour on the outlook as this RBA graphic shows.
Australia consumer sentiment index last 14 years. Screenshot courtesy of RBA.
Their sentiment is worse than in the 2008 market crash. And ANZ Research predicts that buying power is what will tank the market, not necessarily prices.
Will the Economy Hold Up?
Australia’s economic and trade situation is much different from the US and Canada, yet housing price dynamics are very similar. Australia’s housing price to income and housing price to rent ratios are about the same as the United States.
Australian GDP output, wage levels, consumer debt loads, and the employment rate will factor into the housing forecast for 2023. As this graphic from Statista shows, the outlook for GDP is positive.
Australia GDP Growth last two years. Screenshot courtesy of Statista.
Worker wages were on a steep rise, however rising interests are aiming to stop that growth.
Australia wage growth in past two years. Screenshot courtesy of TradingEconomics.
Household debt, and housing related expenditures are at record levels and affordability leaves many feeling gloomy about the prospects of buying a home. It supports demand for the Australian rental market however.
Australian housing prices rose 50% above affordability due to this year’s inflation and due to higher debt financing costs. Australian families must spend 40% of their income for housing.
A news release had CoreLogic’s head of research, Eliza Owen, suggesting the pace of decline has been slowing on a “broad basis since September and … While this may be seen as a positive by some, there is still risk of the decline re-accelerating in the year ahead,” she said.
What Are the Key Risks of a Steeper Downturn?
6 factors may decide market direction in 2023:
- will Australia GDP and employment stay strong?
- will interest rates continue to climb and mortgage loan qualification get even tougher?
- will oil prices rise?
- will China’s economy stagnate?
- will the price decline momentum dictate further falls by itself?
- will buyer confidence return?
- will sellers keep holding on to their properties?
- will real estate taxes rise?
- how much will rent prices rise?
- will immigration increase or stagnate?
Australian Home Prices
Corelogic’s stats do reflect a sizable downturn in sales and home prices. Their latest report shows a 3.2% drop in median prices year over year for the entire Australia continent. Also the spring rebound didn’t materialize this year leaving many to speculate sales could drop further when fall season approaches.
Australia housing prices last 14 years. Screenshot courtesy of RBA.
Home prices have dropped 5.2% in the Capital cities and South Australia has suffered price downgrades of more than 18% year over year. Western Australia had a 6.4% drop in prices.
And as RBA’s report shows, price drops in the higher priced home category have declined faster.
Australia housing price trends by home price level. Screenshot courtesy of RBA.
Home Price Trends in Neighborhoods
The number of million dollar neighborhoods in Australia have declined significantly. Those capital city neighborhoods with the biggest year over year drops in price included: Narrabeen (-26.8%), Surry Hills (25.4%), Redfern (-25.3%), Birchgrove (024.4%) and Waverly (-22.7%) where median prices are still $3.1 million.
Sydney area apartments/condos with the steepest drops in price included Centennial Park (-23,1%), Mona Vale (-20.8%), Vaucluse (-19.7%) and Bronte (-19.1%).
The city of Adelaide communities of Davoren Park (+34.7%), Elizabeth Grove/South (33%), and Elizable Vale (29.6%), and Para Hills (27.5%) have seen increasing prices year over year.
Big price increases also occurred in Bingara in NSW (+36.2%), Cleve in SA (35.3%) and Solomontown in SA (+34.9%).
Strongest losses of price occurred in NSW communities of Byron Bay (-20.5%), Suffolk Park in NSW (-18.5%), and Lismore Heights in NSW (-18.4%).
However, Sydney and Melbourne are seeing home price growth with quarterly gains of 4.4% and 2.7% respectively.
The gold coast and sunshine coast are seeing prices fall as the pandemic destination city era recedes.
Corelogic Australia Home Price Reports
Corelogic’s report shows the rolling 28-day change in the home value index fell -1.0% through November. Latest data shows even further decline which could mean it’s all downhill from here.
Sydney homes prices have receded 11.4% since the record highs of 11 months ago. Melbourne home prices are down 7.1% from last January, down .8% in November, and in the previous quarter, prices fell 2.7% which means home prices are falling faster.
In Brisbane, home prices declined 8.1% since record highs last January, and are down 5.6% in the last quarter, and are down a surprising 2% in November.
In Adelaide, home prices are only down .9% since last January’s record heights. Year over year, home prices in this city are up 13.4%, and yet in November, have fallen .3%.
In Perth, home prices are only down by .7% from record 2022 highs, and have grown 3.9% year over year.
In Hobart, housing prices dropped 7.6% vs 2022 highs, and are down 4.4% over the last quarter and down 2% during November.
In Canberra, home prices reclined 6.5% since the record highs in January, are down 3.8% over the last 3 months, and down 1.2% during November.
House prices by city in Australia. Major capitals. Screenshot courtesy of Realestate.com.au.
Home Sales in Australia in November
There was a drop in home sales in most capital cities, with the exceptions of Darwin (+16.6%), Perth (+6.1%), and Adelaide (6.9%).
Sydney suffered the biggest declines in sales with a whopping 26.1% reduction, while Melbourne’s dropped by 14.7%. Brisbane (-11.4%), Canberra (-8.6%) and Hobart (-7.9%) decline as well.
For all capitals, sales fell 12.8%, while all housing markets declined by 13.3%.
It Takes Longer to Sell a House in Australia
Country wide, days on market for homes has increased by ten to 42 days which by any standards is very high. In the capital cities, DOM rose to 32 days compared to 19 days one year ago. DOM in Sydney is 39 compared to 20 days one year ago while in Melbourne, it rose to 31 days from 23 last year. Brisbane rose from 12 days to 32 days this year, while Adelaide saw its DOM stay the same at 32 days.
New Listings in November
As the Corelogic chart below shows, new listings have taken a drastic downward turn as homeowners hold onto their properties. New listings are down 26.3% vs 12 months previous. Falling prices and higher refinancing rates may be the top factor in this situation.
New home listing trends in Australia. Screenshot courtesy of Corelogic.com.au
Total home listings dropped by 6.7% and generally fall at this time of the year right to February.
Housing for sale numbers dropped with Sydney’s stock falling 9.8% and Melbourne’s housing supply declining by 11.7%. Adelaide (-13%) and Perth (15%) also saw big drops in homes for sale.
Hobart, Darwin, Canberra and Brisbane bucked the trend in increases in homes listed for sale.
Australian Rental Market
As in most cities and countries around the world, rent prices in Australia rose. Prices overall rose 10.2% year over year, while the capital cities saw increases of 10.7%.
As more buyers moved over to the rental market, rent prices in Sydney, for all rental types, rose 11.1% while in Melbourne, they rose 9.4%.
In terms of investor yields, Darwin and Perth fared best while Sydney and Melbourne still maintained an average yield above 3%. Additionally, Sydney and Melbourne have suffered outflows of population which may have eased rent rice rises in 2022.
Average rent yields in Australian cities: Sydney, Melbourne, Brisbane, Canberra, Perth, Hobart, Adelaide, Darwin. Screenshot courtesy of Corelogic.com.au.
Home Price Forecast for 2023
According to a new home price forecast for the Australian markets, property prices in Sydney and Melbourne are forecasted to drop 6.0-6.5% in 2023. And this is after plummeting 12.0% and 8.5% in 2022. And in Brisbane, Adelaide and Perth, prices are predicted to fall 7.0%, 6.5% and 5.0%, respectively in 2023.
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