Home values fall for seventh consecutive month as interest rates dent demand

Australian home values have dropped for a seventh consecutive month, with prices in capital cities falling at the fastest pace in 40 years. This downturn is shifting from Sydney and Melbourne to mid-sized state capital cities, with Brisbane and Perth leading in declines. Combined property values in these cities fell 1.4% in October.

Research director Tim Lawless from Cotality says the downturn is now broad-based, with mid-sized capitals experiencing extreme growth correction. Virtually every suburb in Brisbane, Perth, and Adelaide has recorded a value drop over the past three months. Most economists predict double-digit falls in property prices due to interest rate hikes, with Morgan Stanley forecasting up to 15% drops.

High interest rates are the main downside influence, while affordability issues and reduced investor demand due to tax changes have also affected the market. Although the decline pace is at four-decade highs, it reflects the market's strength over the period. Australian home prices have doubled in Adelaide, Brisbane, Perth, and Hobart, and are up more than 50% in Canberra, 30% in Sydney, and 20% in Melbourne.

Most homeowners still have sizeable gains despite the recent weakness. A 20% drop in Perth prices would only bring the market back to mid-2025 levels. Economists Peter Esho from 13x believe Sydney and Melbourne are near the market bottom, while mid-sized capitals are earlier in the downturn. He doesn't expect the price falls to become systemic unless borrowing becomes difficult or unemployment surges.

Rental pressures have eased, with national vacancy rates rising and rent growth slowing. Rising vacancy rates are partly linked to changing household dynamics, with more renters sharing homes or moving in with family.