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

Sydney's housing market witnessed a seventh consecutive month of decline in October, with prices plunging 1.2 percent compared to September's revised 1.3 percent drop. This severe downturn leaves homes 6.7 percent below their all-time high and 2.8 percent lower than a year ago, marking the steepest decline in four decades. Capital city properties are falling at their fastest pace in four decades, with Sydney's values down 8.1 percent in just seven months, surpassing the 7.0 percent decline witnessed in 2022-2023 following the central bank's aggressive rate hikes to combat post-pandemic inflation.

Mid-sized cities, including Brisbane and Perth, experienced significant drops in October, with Brisbane's home values falling 2.0 percent and Perth's down 1.7 percent. While Sydney's prices fell 1.6 percent, they remain 1.5 percent below their levels five years ago. Research director Tim Lawless of the property data firm Cotality noted the abundance of inventory, increased buyer leverage, and reduced urgency in the market compared to a year ago, when home values were rapidly rising.

However, this buyer's market is experiencing low confidence and serviceability barriers, with property sales plummeting 23 percent year-over-year and 18 percent below the five-year average, particularly in Sydney, where transaction volumes have dropped 30 percent compared to a year ago.

The Reserve Bank of Australia is widely anticipated to raise interest rates for the fifth time in a row during their meeting next Tuesday, potentially pushing the rate to a 18-year high of 4.85 percent, an 18-year high, to curb inflation. Markets suggest a near 90 percent probability of this hike, with a 20 percent chance of it reaching 5.1 percent.

Policymakers have acknowledged the housing market as a potential downside risk to the economy but remain optimistic about any financial stability risks resulting from a property downturn. Most Australian mortgage holders would still possess positive equity even if house prices declined by 20 percent, according to the RBA.