Australian capital city home values fall for seventh straight month

Home values in Australian state and territory capital cities have fallen for the seventh consecutive month. The decline accelerated in October, with combined capital city prices dropping 1.4% over the period.

Data from Cotality indicates that the center of the market downturn has shifted away from Sydney and Melbourne. Mid-sized capitals, specifically Brisbane and Perth, now record the steepest price reductions. This trend marks the fastest pace of decline in capital city values in forty years.

Tim Lawless, research director at Cotality, described the current market conditions as broad-based. He noted that capital city home values have decreased by 8.1% since March. Lawless stated that mid-sized capitals, which experienced extreme growth over the previous six years, are now in a full correction. He added that virtually every suburb in Brisbane, Perth, and Adelaide has seen a drop in value over the past three months.

Rising borrowing costs are the primary driver of the slowdown. The Reserve Bank implemented four interest rate hikes this year. A fifth increase is widely expected when the central bank announces its decision on Tuesday. These rate climbs have reduced buyer demand and weighed heavily on the property market.

Economists anticipate that double-digit price falls will become common as interest rates continue to rise. Morgan Stanley forecasts peak-to-trough drops of up to 15% in Australian property prices. Lawless identified high interest rates as the most significant downside influence. He also pointed to affordability challenges and a pullback in investors, prompted by government tax changes, as additional factors denting demand.

The current rapid decline reflects the strength of the market in preceding years. Australian home prices began to separate from wage growth in the late 1980s. A subsequent surge in the 1990s and early 2000s created a long period of unaffordable housing, a situation exacerbated by investor-friendly tax settings that were recently revised. Over the past decade, property prices in Adelaide, Brisbane, Perth, and Hobart have doubled or come close to doubling. Prices in Canberra rose by more than 50%, while Sydney and Darwin saw increases of more than 30%. Melbourne recorded a gain of just over 20%.

Despite recent weakness, most homeowners still hold sizeable equity. Cotality analysis shows that even a 20% drop in Perth prices from their record high would only return the market to mid-2025 levels. Peter Esho, chief executive at 13x, assessed that the major housing markets in Sydney and Melbourne are close to bottoming. He observed that mid-sized capitals are at an earlier stage of the downturn. Esho described the decline as a normal part of the housing cycle, driven by interest rates that create a negative wealth effect. He noted that these rates are denting sentiment, a key factor in real estate.

Esho does not expect the price falls to become systemic. He defined a systemic issue as one where prospective buyers face difficulty borrowing, similar to the US during the global financial crisis, or where unemployment surges. Rental market pressures have eased slightly in the interim. National vacancy rates have risen, and rent growth has slowed according to Cotality. However, rents remain up more than 50% over six years. This increase adds approximately $245 to the median weekly rental rate, outpacing wage growth. Analysts link the rising vacancy rate to changing household dynamics. More renters are sharing homes or moving in with family due to affordability, reversing the pandemic-era trend toward smaller households with home offices.