4 September 2022

Canberra's housing market cools as interest rates bite

| Ian Bushnell
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Housing Coombs

The Canberra fundamentals remain strong, but the big swing in interest rates is having an impact. Photo: Ian Bushnell.

The correction in Canberra’s housing market appears to be well in train, with prices down 1.7 per cent in August, the third straight monthly decline after the long boom fuelled by ultra-low interest rates.

The latest data from CoreLogic shows that even in an economy as stable as Canberra, prices are coming back as the Reserve Bank’s program of rate rises bites, with another possible hike on Tuesday (6 September).

Detached house prices, which have benefited the most from the low rates regime, fell 2 per cent in August, although CoreLogic’s median is still above the million dollar mark ($1,033,377).

Units dropped back too, but only -0.9 per cent, for a median of $615, 560.6.

Both medians are still the second highest in the country after Sydney, and house prices, in particular since March 2020, have grown a massive 34 per cent.

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For the year to date, houses are still ahead 0.7 per cent, while units are at 5.5 per cent.

But CoreLogic Head of Research Eliza Owen said the market was firmly on the downswing.

“It’s very recent buyers who would be affected by price changes, and even then, buyers are typically still putting down a 20 per cent deposit or more when they go to purchase,” she said.

“So the overall stability of the market is fairly strong, but it has definitely started to be impacted by higher rates.”

August 2022 home prices

Home Value Index Table. Image: CoreLogic.

Ms Owen said rent rises, which were making it harder for potential buyers to save what is still a hefty deposit, cost-of-living increases and falling consumer sentiment were also taking the steam out of the market.

She said these factors were also contributing to a dramatic drop-off in Canberra sales compared to the same time last year.

In the three months to August, the number of sales fell 18.9 per cent compared with the same period in 2021.

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Ms Owen said both buyers and sellers would be holding off until things settled down.

“We’ve seen fewer new listings hit the market over the past few weeks, which is both a reflection of the kind of usual winter low that we see but also the fact that it’s not an ideal time to sell, so I imagine vendors will be waiting for some steadying in the market or even a bit of a market recovery down the line,” she said.

Auction clearance rates of 50 to 60 per cent have reflected the lower interest, and Ms Owen said sellers would have to adjust their expectations and accept offers less than they hoped if they want a result.

“The market is probably going to change pretty dramatically,” she said. “As you know, that 34 per cent increase in value can’t really be justified for a very long time when mortgage rates are going up.”

Eliza Owen

Eliza Owen says cost-of-living increases and falling consumer sentiment were helping take some steam out of the market. Photo: CoreLogic.

Ms Owen said that while the long-term fundamentals of Canberra were strong, extremes in interest rate settings had induced this price cycle, and that was going to create a bit more volatility, even in the most stable market.

Nationally, CoreLogic’s national Home Value Index (HVI) recorded a fourth consecutive fall in August, with the downturn accelerating and becoming more geographically broad-based.

Down 1.6 per cent over the month, the national index recorded the largest month-on-month decline since 1983.

Every capital city apart from Darwin is now in a housing downturn, with a similar scenario playing out across the rest-of-state regions.

CoreLogic said that although prices were on track to record a significant drop, the risk of widespread negative equity remained low, given the big increases between September 2020 and April 2022.

Nationally home values rose by 28.6 per cent, so even a 20 per cent fall would result in levels remaining above their pre-COVID levels.

Original Article published by Ian Bushnell on Riotact.

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