Melbourne recorded a peak-to-trough drop in values of 7.9 per cent after a high in March 2022 and bottom in January 2023. Melbourne home values have recovered 4.3 per cent and are 4 per cent below last year’s peak.
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CoreLogic head of research Tim Lawless said the rate of decline began to moderate in September last year as the number of sellers began to dry up.
“The key factor that kept a floor on the market was the supply side. Vendors retreated to the sidelines,” Lawless said. “Households were able to save a huge buffer and sellers didn’t need to sell on most occasions,and nobody wanted to test the market.”
He said while the recovery looked “entrenched” a double dip was possible if total listings continue to rise and outstrip demand.
Jonathan McMenamin,senior economist at Barrenjoey,a group that forecast a 25 per cent fall in Sydney home values and 16 per cent nationally,said they expected in highly mortgaged markets like Sydney and Melbourne borrowing capacities would take a hit.
“We were expecting the higher interest rates to take about 30 to 35 per cent out of borrowing capacity. But when the supply side responded as it did,the stock on the market nationally fell 30 per cent below its 10 year average,” McMenamin said. “It did have an effect of providing a floor to house prices. We’ve never seen the supply side respond as quickly as it did which is what caught us off guard.”
This forced a build-up of buyers,especially ones largely unaffected by rising rates,to compete and pay a premium for the declining number of homes for sale.
Carlos Cacho,chief economist at Jarden Australia,which forecast national house price falls of 20 to 25 per cent,said historically interest rates were a good guide on where the market would land,but that was not the case this time as cash buyers led the recovery.
“There is a huge gulf between where house prices are and the borrowing power of the average household,” Cacho said.
“People are baking into the decisions and assumptions that we’re going to have rate cuts and are willing to pay more for housing than they otherwise would,” he said. “Alongside that is fewer buyers who have been constrained by borrowing capacity. Essentially,we’ve seen more buyers buying with cash.”
Cacho said there were still headwinds as higher rates for longer posed a serious risk to the housing recovery and broader economy. The RBA may raise the cash rate once more in November,and his base case is a double dip for property prices.
AMP chief economist Dr Shane Oliver,who had forecast 15 per cent to 20 per cent price falls,said despite the strength of the recovery,the risk of a double dip remains high.
“This environment we’re facing is probably the messiest we’ve seen,” Oliver said,noting it was a push and pull between higher rates and low supply levels. “Ultimately,it depends on which of those dominates.
“It wouldn’t surprise me if the negative influence of interest rates takes an upper hand again.”