Have we hit the bottom of the market? Economists deliberate

The latest Home Value Data from CoreLogic for the month of February 2023 showed property price declines flattened over the month, down 0.14 per cent, which marked the “smallest monthly fall” since May 2022 where prices fell 0.13 per cent.

CoreLogic’s data showed since peaking in June last year, the combined capitals had fallen 9.7 per cent, yet remained 10.4 per cent higher above levels recorded at the onset of COVID-19 in March 2020.

Meanwhile, regional house values remain 30.7 per cent above COVID-19 levels, which takes into account the 7.7 per cent fall since their peak.

Of the major capitals, Sydney has fallen the hardest in the year to February 2023, down 13.4 per cent, while the month of February was an anomaly reporting a 0.3 per cent lift, with all other capitals dropping.

Melbourne recorded a 0.4 per cent fall, alongside Brisbane, Adelaide dropped 0.2 per cent, Canberra was down 0.5 per cent, Darwin 0.3 per cent, and Perth 0.1 per cent.

Hobart recorded the largest fall of 1.4 per cent for the month of February, also marking the biggest fall over the quarter at 4.9 per cent.

However, contrary to CoreLogic’s data, PropTrack’s Home Price Index showed national home prices lifted 0.18 per cent for the month, with every capital except Hobart recording “large jumps”.

Prices bounced in every capital city, except Hobart that dropped 0.29 per cent, with Adelaide up 0.44 per cent, Sydney lifting 0.36 per cent, and Melbourne up 0.18 per cent.

Indeed, depending on whether you’re a first home buyer looking to get into the market or a relatively new home owner who bought during the peak, the sentiment on home price falls or increases will be felt differently.

Regardless, both datasets agreed prices have been influenced by the limited stock available for sale leading to a pickup in competition among potential buyers, alongside rising interest rates and serviceability buffer constraints.

CoreLogic’s research director Tim Lawless explained the stabilisation of property prices coincides with the relatively low advertised supply level and a rise in auction clearance rates. But it was uncertain whether this “improving trend” can be sustained.

“The flow of new listings has been tracking at below average levels since September last year, which has helped to support a reduction in the pace of value falls,” Mr Lawless said.

“But, it’s probably too early to call a trough in the cycle considering there are several factors which could trigger a ‘re-acceleration’ of housing value declines over the course of the year.”

For example, the combination of the fixed rates falling off, which will see 880,000 mortgages face more than a doubling in their interest bill, the increasing risk of recession with much higher unemployment, and debt servicing problems for some home owners could boost supply.

“Considering the RBA’s move to a more hawkish stance at the February board meeting, along with an expectation for a weaker economic performance and a loosening in labour markets, there is a good chance this reprieve in the housing downturn could be short-lived,” Mr Lawless said.

If the flow of new listings increases in the absence of a rise in buyer demand, there could be additional “downwards pressure” on housing values, he said.

The serviceability buffer adds pressure

In addition, given the loan servicebiltiy buffer of 3 per cent is expected to remain, according to Australian Prudential Regulation Authority (APRA), some borrowers “may be forced to sell”, Mr Lawless noted.

Senior economist at PropTrack, Paul Ryan, said reducing the buffer would increase borrowing capabilities for many borrowers.

“The 3 per cent mortgage serviceability buffer means owner-occupiers currently applying for loans with interest rates above 5 per cent must show they can make repayments if interest rates rise to over 8 per cent, [while] investors must be able to meet repayments above 9 per cent,” Mr Ryan said.

“It is constraining many buyers and making it difficult for first home buyers in particular.”

Further, with three of the big four banks expecting the cash rate to peak at 4.1 per cent between May and June, there could be a pickup in buyer demand through the second half of the year, or early in 2024, as the cash rate stabilises, he added.

Further falls to come

AMP economist Shane Oliver expects a 15–20 per cent fall from top to bottom to the September quarter, suggesting more falls were yet to come, as the full impact of rate hikes flows through to borrowers.

“We [expect] around another 8 per cent or so fall in prices ahead,” Mr Oliver said.

But he added it was possible the home price cycle was shifting, given the rapid return of immigration and the tight rental market.

“The Australian housing market does have a tendency to surprise on the upside,” Mr Oliver said.

[Related: APRA says 3% loan buffer is still appropriate]

Kate Aubrey is the senior content producer of Momentum Media's mortgages titles: The Adviser and Mortgage Business.

Prior to joining Momentum Media, Kate covered regional and breaking news for ABC Radio for more than three years.

She has a Master of Arts in Journalism from the University of Melbourne and a Bachelor of International Business and Business Management from Griffith University.

Email Kate at: This email address is being protected from spambots. You need JavaScript enabled to view it.