House prices fell nationally in their first month-on-month decline since June 2019, with five of the eight capital cities recording price drops in May.
Nationally, house prices fell by 0.4% over the month but the most rapid decline in property values was seen in Sydney and Melbourne, according to CoreLogic's latest Home Value Index Results.
Across the capital cities, Melbourne's housing market recorded the largest falls over the month, down -0.9% in May, following a -0.3% reduction in April.
Values were also down over the month in Perth (-0.6%), Sydney (-0.4%), Brisbane (-0.1%) and Darwin (-1.6%), but rose in Adelaide (+0.4%), Hobart (+0.8%) and Canberra (+0.5%).
The top end of the Sydney and Melbourne markets saw the biggest drops in house prices over the month, with Melbourne’s most expensive quartile of the market recording a 1.3% drop in values over the month, compared with a 0.6% fall across the broad ‘middle’ of the market and a 0.3% fall across the most affordable end.
Similarly, in Sydney, the top end of the market was down 0.6% while the lower end posted a 0.1% increase in values.
According to CoreLogic head of research Tim Lawless, these were also the sectors of the market that recorded the most significant rise in values during the most recent growth phase.
“Melbourne’s top quartile values are still 13.9% higher than they were a year ago, while Sydney’s top quartile is up 16.5% over the year," Mr Lawless said.
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Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) owner-occupied home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
Despite the drop in values, Mr Lawless said the damage had been far less worse than expected.
“Considering the weak economic conditions associated with the pandemic, a fall of less than half a percent in housing values over the month shows the market has remained resilient to a material correction," Mr Lawless said.
"With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected."
Over the last few months, the house price predictions have been flowing thick and fast.
Commonwealth Bank, SQM Research and NAB were all predicting house price falls of up to 30% in a worst case scenario.
NAB and ANZ believe an average 10% drop in house prices nationally is more likely. NAB believes Sydney and Melbourne house prices could fall 15% over the next 12 to 18 months, while ANZ is predicting a 13% drop for both cities.
Bank conglomerate HSBC has estimated house prices could fall anywhere between 2% and 12% nationally, with Sydney and Melbourne the worst impacted markets with falls of 15% and 17% respectively.
Mr Lawless said the longer term outlook still remains uncertain.
“Eventually government stimulus will wind back and borrower repayment holidays will expire. In the absence of these policies, housing values could come under some additional downwards pressure if economic conditions haven’t picked up towards the end of the year,” said Mr Lawless.
“Once stimulus measures start to taper and repayment holidays expire, this is where we could see a rise in mortgage arrears, and the potential for a lift in distressed sales."
Sydney, Melbourne could see 10% price falls, says AMP
AMP chief economist Shane Oliver said while it appears a crisis has been averted, further price falls are ahead.
"Further falls in prices are still likely as "true" unemployment (to become clear after September) remains high for several years, government support measures and the bank payment holiday end after September immigration falls and likely government measures boost housing construction," Mr Oliver said.
"Our base case is for national average prices to fall around 5-10% into next year. Sydney & Melbourne are likely to see 10% falls as they are more exposed to immigration and have higher debt levels whereas Adelaide, Brisbane, Perth & Hobart are only likely to see small falls and Canberra prices are likely to be flat."
Mr Oliver said a 20% to 30% drop in house prices was unlikely and would require another wave of infections.
"Our worst-case scenario for a 20% decline in prices and those of others seeing 30% plus falls are unlikely thanks to support measures and the earlier reopening of the economy.
"To get these worst-case scenarios would require a “second wave” of coronavirus cases & so a renewed shutdown or another down leg in the economy in response to a surge in bankruptcies," Mr Oliver said.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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