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Australia’s house prices fall for first time since September 2020

Sydney and Melbourne lead ease in market as analysts point to high inflation, raised interest rates and tightening lending conditions

An auction sign in front of a house in Canberra, where the CoreLogic home value index declined 0.1% in May.
An auction sign in front of a house in Canberra, where the CoreLogic home value index declined 0.1% in May. Prices around Australia have declined. Photograph: Lukas Coch/AAP
An auction sign in front of a house in Canberra, where the CoreLogic home value index declined 0.1% in May. Prices around Australia have declined. Photograph: Lukas Coch/AAP

House prices nationally recorded their first decline since September 2020 in May, led by monthly losses in Sydney and Melbourne, the country’s two largest real estate markets.

The CoreLogic home value index declined 0.1% in May, with Sydney dropping 1.0% and Melbourne off 0.7% .

Canberra, Australia’s second-most expensive property market behind Sydney, also eased 0.1%, its first monthly decline since July 2019.

CoreLogic research director Tim Lawless said there had been significant speculation around the impact of rising interest rates on the property market.

But he said last month’s increase to the cash rate by the Reserve Bank of Australia was only one factor causing growth in housing prices to slow.

“It is important to remember housing market conditions have been weakening over the past year,” he said.

He said since a peak in May 2021, consumer sentiment had soured and fixed mortgage rates had trended higher.

“Housing has been getting more unaffordable, households have become increasingly sensitive to higher interest rates as debt levels increased, savings have reduced and lending conditions have tightened,” he said.

“Now we are also seeing high inflation and a higher cost of debt flowing through to less housing demand.”

Change in dwelling values

Since peaking in January, Sydney housing values are down 1.5%, but remain 22.7% above pre-Covid levels.

In comparison, Melbourne, which experienced a softer growth phase, has recorded a smaller 0.8% decline, but housing values remain 9.8% higher compared with the pre-Covid level.

While combined capitals index declined 0.3% in May, CoreLogic’s combined regional index rose 0.5% .

But Lawless said most regional markets were likely to soften in line with higher interest rates and worsening affordability pressures.

“Arguably some regional markets will be somewhat insulated from a material downturn in housing values due to an ongoing imbalance between supply and demand as we continue to see advertised stock levels remain extraordinarily low across regional Australia,” he said.