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Downturn: Premium properties to bear the brunt
The national downturn has spread to the premium property space, with dwellings seeing larger value declines than cost-effective homes as market momentum continues to rapidly decline.
New data has shown that upper-quartile homes have seen the biggest slowdown over the last quarter, as the national downturn widens to jurisdictions beyond Melbourne and Sydney.
According to Cotality’s latest Home Value Index, dwelling values in the upper quartile were 3.2 per cent lower over the past three months, while the lowest quartile recorded 0.3 per cent growth.
Herron Todd White chief economist, Cameron Kusher, said, while upper-quartile properties had seen larger value declines than more affordable dwellings, both markets had experienced weakening momentum.
Broadly, he said the rate of decline had accelerated in markets where values were already falling, while there was a slowdown in growth in markets where values were still rising.
“It seems unlikely that anything will change these conditions in the short term,” he said.
Nationally, home values fell by 0.7 per cent in July, the largest single-month decline since December 2022, while over the three months to July, values were down 1.9 per cent.
Sydney and Melbourne continued to lead the downturn, with home values dropping by 1.4 per cent and 1.2 per cent respectively over the month.
Cotality’s head of research, Gerard Burg, said demand had been significantly impacted by affordability pressures due to interest rate rises, federal tax reforms, and the conflict in the Middle East.
“That’s helped flow through into this very pessimistic consumer confidence that we have at the present time, and so there’s been a cumulative impact,” he told SPI.
Downturn spreads to mid-tier capitals
According to the data, Brisbane and Adelaide continued to slow down, recording their second consecutive months of falls of 0.6 per cent and 0.2 per cent respectively, after previously declining by 0.6 per cent and 0.1 per cent in June.
While the mid-tier capitals had remained tight for an extended period of time due to supply constraints and strong demand, Burg said the markets were more exposed to affordability constraints that have emerged.
“Now what we've started to see is that there's been a steady increase in the available stock to buy in both Brisbane and Adelaide in recent months.”
Meanwhile, Perth recorded only modest value growth over the month of 0.1 per cent, following a decline of 0.5 per cent in June.
Burg said the city was not at the point of downturn just yet, as at least three consecutive months of decline would be required, but the rapid growth period seemed to be over.
While listings in Perth at the start of the year were 50 per cent below the five-year average, in July, they were just 11 per cent below.
“It just highlights how that real tightness in the market is starting to unwind,” Burg said.
New listings plunge amid seller hesitancy
Additionally, Burg said that there had been a deterioration in the flow of new listings across the country in recent weeks, with vendors choosing to wait until market conditions improved.
However, total listings were still strong, sitting 1.1 per cent below the five-year average over the four weeks ending 26 July, up from 25.9 per cent below average in mid-January.
Kusher said vendors may still be reluctant to list in current conditions due to buyer hesitancy, but this would have to be carefully watched going into the spring season.
“Even if listings remain lower, there is still a significant mismatch between the prices vendors want and the prices purchasers are willing to pay.”
He said this mismatch had been seen in low auction clearance rates, rising time on market, and greater levels of price discounting among properties that sold.
“With the market expected to continue weakening, I expect both the time it takes to sell a property and the magnitude of price discounting to increase.”
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