Australia Housing Market Loses Momentum as Home Sales Drop 4.1% Below Five-Year Average
Synopsis
Australia’s housing market stalled in May as rising interest rates, affordability pressures and weak buyer confidence slowed demand across major cities. Sydney and Melbourne recorded the sharpest declines, while Perth and Darwin continued outperforming other housing markets despite broader weakness.
The Australian housing market was flat in May, with ongoing pressure from higher interest rates and affordability problems.
Key Highlights
- May saw Australian home values holding steady
- The largest falls were in Sydney and Melbourne
- Perth and Darwin kept a foothold as the hottest housing markets
- High interest rates and a change in taxes hurt buyer confidence
- Economists: More weakness to come, but no major housing crash
National Prices Lowered by Sydney and Melbourne
Cotality data showed home values across the nation were flat in May after months of slowing growth. The broader market weakened with Sydney home values down 0.9% and Melbourne slipping 0.8%, while Canberra fell 0.2%.
The median dwelling value in Sydney is now $1.28 million, and in Melbourne it is $812,621. National combined capital city values were down 0.1% and annual national growth moderated to 8.8%.
Demand is Impacted by Rising Rates and Weak Confidence
Cotality research director Tim Lawless said, Multiple pressures are simultaneously weighing on the housing sector with affordability constraints, higher borrowing costs and declining consumer confidence driving poor outcomes in many regions.
It will be pretty clear that these are affordability struggles, interest rate increases, weak confidence, and a disincentive to invest, Mr Lawless said. Meanwhile, national home sales over the last three months were 2.2% lower than this same time last year and also 4.1% below the five-year average.
Perth and Darwin Keep Leading The Pack
Perth and Darwin were the best-performing Capitals in May, with 1.5% monthly growth in both directions. Smaller positive price movements were seen in Brisbane, Adelaide and Hobart over the month.
Perth is still benefiting from years of underperformance after the mining downturn, according to AMP chief economist Shane Oliver. Dr Oliver said: "I suspect Perth will hold reasonably well.”
Investors Are Uncertain on Tax Changes
The cash rate stands at 4.35 per cent after Australia's central bank increased interest rates three times through the year. Economists said investors have reduced their appetite due to higher borrowing costs and proposed changes in negative gearing and capital gains tax. Morgan Stanley cautioned that national home prices could tumble 5% to 10% if investor demand weakened markedly.
Analysts Look for More Weakness, Not a Crash
Most economists expect Australian home prices to weaken further over the next 12 months as higher interest rates, persistent affordability pressures, and declining confidence will affect buyers and investors.
Westpac believes housing turnover and investor activity will decline over the proposed tax changes. Analysts aren't expecting a housing market crash larger than an unexpected spike in the unemployment rate.
FAQs
- Why did Australian home values stall in May?
Due to national economic changes of high interest rates and poor buyer confidence, housing demand slowed.
- What areas saw the largest drop in house prices?
Annual data highlights largest monthly falls for Sydney and Melbourne
- Which housing markets remain positive?
It was once again Perth and Darwin that topped the city growth returns.
- How the Housing Market is Affected by Interest Rates?
Buyer and investor activity has been affected by the increased cost of borrowing.
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