Australian home prices fall for seventh month, looming rate hike adds to pain

Australian home prices continued to decline for a seventh consecutive month in October, marking the steepest downturn in four decades, according to new data released on Monday. Property data firm Cotality reported that national home prices dropped by 1.2% in October from the previous month, with values now 6.7% below their peak and 2.8% lower than a year ago.

Capital city home values, particularly in Sydney, were falling at their fastest rate in 40 years, with prices down 8.1% in just seven months. Mid-sized capitals, including Brisbane and Perth, also experienced significant declines in October. The slow-down in demand for homes has put more stock on the market, giving buyers increased leverage and reducing urgency to purchase.

Despite this, research director Tim Lawless noted that buyers' confidence remains low due to ongoing serviceability concerns. Property sales have plummeted, dropping 23% from a year earlier and falling 18% below the five-year average, with Sydney experiencing the most severe decline at 30% fewer transactions compared to last year.

The Reserve Bank of Australia is expected to raise interest rates for the fifth time next Tuesday to 4.85%, which is the highest level in 18 years, to combat inflation. Markets indicate a near 90% probability of a hike, with a 20% chance of rates reaching 5.1%. Policymakers have acknowledged the housing market as a potential downside risk to the economy but are confident that financial stability risks from a property downturn are limited.