Australia House Prices Record Steepest Drop in Four Decades

(Bloomberg) — Australian home prices recorded their largest monthly decline in almost four decades in August, with rapidly rising interest rates expected to drive further falls in the period ahead.

Most Read from Bloomberg

Sydney, Australia’s largest market and its bellwether, slid 2.3%, Melbourne dropped 1.2% and Brisbane fell 1.8%, CoreLogic Inc. said in a report Thursday. They were the main drivers behind a 1.6% decline in major cities.

The national index, which includes regional markets, also dropped 1.6% in its worst monthly result since 1983.

The Reserve Bank of Australia began an earlier-than-expected tightening cycle in May and has since hiked by a total of 175 basis points to take the cash rate to 1.85%. It’s widely expected to raise again next week, with money markets implying a rate of 3.3% by December.

“It’s hard to see housing prices stabilizing until interest rates find a ceiling and consumer sentiment starts to improve,” said Tim Lawless, research director at CoreLogic.

Hours after the release, lending data showed the value of new loan commitments for housing fell 8.5% in July, exceeding economists’ estimates for a 3.5% drop. Within that, the value of new owner-occupier loan commitments fell 7%, while new investor loan commitments tumbled by 11.2%.

What Bloomberg Economics Says

“Worsening housing sentiment is likely to contribute to a pivot by the RBA to a slower pace of tightening over coming months — particularly as lower home prices and turnover spill over into broader demand.”

— James McIntyre, economist

For full note, click here

Still, RBA officials have signaled confidence in mortgage holders’ ability to absorb rising borrowing costs, saying households are in a “fairly good position” to cope with them.

Story continues

Lawless expects the RBA’s cash rate to rise by at least another 75 basis points from current levels, while adding that more housing stock is likely to come onto the market during the spring selling season.

That will add “further downwards pressure on housing values,” he said.

(Updates with lending data, comment from Bloomberg Economics.)

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.