House prices reaching possible peak in Sydney and Melbourne

New figures from CoreLogic show that the red-hot property markets of Sydney and Melbourne may have hit their highest prices, though the other capitals still have room to grow.

According to the CoreLogic national Home Value Index (HVI), Melbourne’s housing values remained unchanged over the month of February 2022, while Sydney recorded a fall of -0.1%; Sydney’s first fall in dwelling values since September 2020. While Sydney’s house values remained flat at 0.0% change, unit values declined by -0.3%, resulting in a fall of -0.1% for all dwellings in Sydney.

Dwelling prices were still found to be increasing in other capitals, with Brisbane, Adelaide and Hobart all seeing housing values rise by more than 1% in February 2022.

At a national level, CoreLogic found that housing values are generally rising, though the pace has been slowing since April 2021. National dwelling values grew by 0.6% in February 2022; the lowest monthly growth reading since October 2020, and down from 1.1% in January.

CoreLogic director of research, Tim Lawless, said that the slowdown in housing value growth “goes well beyond the rising expectation of interest rate hikes later this year.”

“The pace of growth in housing values started to ease in April last year, when fixed-term mortgage rates began to face upwards pressure, fiscal support was expiring and housing affordability was becoming more stretched. With rising global uncertainty and the potential for weaker consumer sentiment amidst tighter monetary policy settings, the downside risk for housing markets has become more pronounced in recent months.”

What do the banks say?

Westpac senior economist, Matthew Hassan, said that CoreLogic’s findings are consistent with housing affordability becoming more of an issue, thanks in part to rising fixed interest rates on home loans, as well as higher buffer rates.

Both Westpac and the Commonwealth Bank of Australia (CBA) forecast that dwelling values may start to decline at a national level once the Reserve Bank of Australia (RBA) raises the national cash rate – something that Westpac believes will take place in August 2022, and CBA believes will occur as soon as June 2022.

CBA head of Australian economics, Gareth Aird, updated CBA’s forecast to reflect the new information from CoreLogic, with the bank now forecasting an overall 8% decline in dwelling values in 2023 – a shift from the previous forecast of a 10% decline.

“On the surface, this may appear counterintuitive given we are now looking for a slightly smaller decline in 2023 compared to our previous call. But this expected contraction is only lower in percentage terms. In levels terms prices are forecast to end 2023 a little lower than previously, given we are looking for a flat outcome nationally now in 2022.”

What does this all mean for you?

Whenever property values do start to decline, this could affect the equity of current home owners and investors. This could affect your ability to refinance your loans or use your equity to access other financial products and services, such as lines of credit.

First home buyers may start to see house prices ease slightly, which could make it easier to afford a house. Of course, after years of rising prices, you may still need to have a substantial deposit already saved up, and if interest rates are also rising, that could make mortgage harder to afford and successfully apply for.

There is no crystal ball that can forecast Australia’s financial future with 100% accuracy. Home owners, investors, and borrowers wanting to buy their first home may want to consider the market as well as their own financial situation before making any decisions. A home loan expert such as a mortgage broker may be able to provide more personal assistance in working out the best choices for you to reach your goals.

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