The first decline in national house prices in almost two years is a sign of things to come as rising interest rates take their toll, economists say.

The CoreLogic home value index slipped by 0.1 per cent in May, its first reverse since September 2020, led by monthly losses in Sydney and Melbourne, the country’s two largest real estate markets.

Nationally, prices were still up 14.1 per cent compared to a year ago.

AMP chief economist Shane Oliver expects after the strong performance over the past couple of years house prices will decline between 10 and 15 per cent as the Reserve Bank of Australia lifts interest rates.

“While the RBA is set to continue raising interest rates, the negative wealth effect from falling home prices will limit how much it ends up raising rates by, as it does not want to crash house prices and the economy,” he said.

In May, Sydney prices dropped 1.0 per cent and in Melbourne they declined 0.7 per cent.

Canberra, Australia’s second most expensive property market behind Sydney, also eased 0.1 per cent, its first monthly decline since July 2019.

CoreLogic research director Tim Lawless said rising RBA interest rates are only one factor causing growth in housing prices to slow.

“It is important to remember housing market conditions have been weakening over the past year,” he said.

He said since a peak in May 2021, consumer sentiment has soured and fixed mortgage rates have trended higher.

“Housing has been getting more unaffordable, households have become increasingly sensitive to higher interest rates as debt levels increased, savings have reduced and lending conditions have tightened,” he said.

“Now we are also seeing high inflation and a higher cost of debt flowing through to less housing demand.”

Since peaking in January, Sydney housing values are down 1.5 per cent, but remain 22.7 per cent above pre-COVID levels.

In comparison, Melbourne, which experienced a softer growth phase, has recorded a smaller 0.8 per cent decline, but housing values remain 9.8 per cent higher compared to the pre-COVID level.

While its combined capitals index declined 0.3 per cent in May, CoreLogic’s combined regional index rose 0.5 per cent.

But Mr Lawless said most regional markets are likely to soften in line with higher interest rates and worsening affordability pressures.

“Arguably some regional markets will be somewhat insulated from a material downturn in housing values due to an ongoing imbalance between supply and demand as we continue to see advertised stock levels remain extraordinarily low across regional Australia,” he said.


(month, annual)

  • National – down 0.1 per cent, up 14.1 per cent
  • Sydney – down 1.0 per cent, up 10.3 per cent
  • Melbourne – down 0.7 per cent, up 5.8 per cent
  • Brisbane – up 0.8 per cent, up 27.8 per cent
  • Adelaide – up 1.8 per cent, up 26.1 per cent
  • Perth – up 0.6 per cent, up 5.6 per cent
  • Hobart – up 0.3 per cent, up 17.3 per cent
  • Darwin – up 0.5 per cent, up 6.4 per cent
  • Canberra – down 0.1 per cent, up 18.7 per cent
  • Combined capitals – down 0.3 per cent, up 11.7 per cent
  • Combined regional – up 0.5 per cent, up 22.1 per cent.

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

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