Australia’s housing market is navigating a modest downturn, with home values easing in December by 0.1% following a flat November, according to a report by CoreLogic. The decline reflects broader economic pressures, including affordability constraints and sustained high interest rates, though experts suggest the dip will be both shallow and short-lived.
Interest Rates and Affordability Gaps Driving the Decline
Eliza Owen, CoreLogic Australia’s head of research, highlights that a combination of economic challenges has intensified the housing market slowdown. Persistent high interest rates, coupled with rising cost-of-living pressures, have significantly widened the gap between household incomes, borrowing capacities, and home values.
For instance, while a median income household with a 20% deposit can afford a home valued at $513,000, the national median dwelling value remains substantially higher at $815,000. This disparity underscores the hurdles many Australians face in entering the housing market.
“After almost two years, the housing market appears to finally be buckling to these pressures,” Owen said. She added that many buyers, particularly those relying on resale profits or high incomes, have supported the market in the past but may now be pulling back as expected rate reductions fail to materialize.
Regional Variations: Sydney and Melbourne Lead the Declines
The December data shows that only five of Australia’s 15 capital city and regional markets recorded declines, with Sydney and Melbourne bearing the brunt. Melbourne experienced the largest drop at -0.7%, followed by Sydney (-0.6%), Canberra and Hobart (-0.5%), and regional Victoria (-0.3%).
Despite these declines, some areas showed resilience, with regional South Australia posting a 1.2% increase. Adelaide stood out among the capitals with the highest quarterly growth in Q4 2024, though its 2.1% growth marked a slowdown from previous quarters.
At the suburb level, 38% of markets fell in the December quarter, with Sydney and Melbourne accounting for over half of these declines.
A Temporary Setback for First-Home Buyers
While the downturn may offer a slight reprieve for first-home buyers, Owen cautioned against viewing it as a long-term solution to Australia’s affordability challenges. “It won’t be a very long or large downturn because there’s still such a powder keg of fundamental demand for housing,” she said.
Historical Context: Comparisons to Past Downturns
Australia’s current housing dip is relatively modest compared to historical downturns. The largest recorded decline in the national home value index was 7.7%, occurring from October 1982 to March 1983. By contrast, the current easing appears more restrained, underscoring the market’s underlying resilience.
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