More rate hikes to accelerate Australian housing market decline: CoreLogic

CoreLogic national research director Tim Lawless said home prices are more likely to find a floor once interest rates stabilise.

However, with 225 basis points worth of rate hikes since May and more expected through to early 2023, "the coming months are likely to feature further declines in home values."

CoreLogic's September home value index posted a -1.4% decline in national home values to $730,000, led by declines in Sydney, Brisbane and Canberra. Sydney recorded the steepest declines, with housing values now down -9.0% or $104,300 since its January 2020 peak.

Source: CoreLogic

Erasing gains

"Most cities continue to see a substantial buffer between current housing values and where they were at the onset of COVID in March 2020," observed CoreLogic.

At the combined capital city level, another -13.5% decline is needed to wipe out the gains of the recent cycle. However, with more declines expected, is the buffer enough?

No panic

Seasonal 'spring selling' is off to a slow start with new listings in capital cities over the four weeks ending 25 September down -12% compared to a year ago. Although CoreLogic interprets this as a rather positive sign.

"It seems prospective vendors are prepared to wait out the housing downturn, rather than try to sell under more challenging market conditions," said Lawless.

"We haven’t seeing any evidence of distressed sales or panicked selling through the downturn to date; in fact, it has been the opposite," he added.

A turning point

"The most important factor influencing housing markets will be the trajectory of interest rates, which remains highly uncertain," the CoreLogic report said.

"The good news is that inflation may be moving through a peak. With the recent release of a monthly CPI indicator, it looks like headline inflationary pressures may have eased a little through the September quarter."

The ABS reported a slight easing of consumer prices in August to 6.8% from 7.0% in July. However, core inflation, which excludes volatile items such as food and energy, accelerated to 6.2% from 5.5% in June.

The RBA is widely expected to hike interest rates by another 50 bps on Tuesday, taking the cash rate to 2.85%. Looking ahead, Westpac expects the RBA terminal rate to hit 3.6%, which should see a slower pace of increases after the October meeting. Bond markets on the other hand, a pricing in rates a little over 4.0% by May 2023.

"If interest rates continue to rise as rapidly as they have since May, we could see the rate of decline in housing values accelerate once again,” warned CoreLogic.