The View | Why Sydney’s sharp housing slowdown is the canary in the coal mine
- Home prices in Sydney have been dropping at their fastest pace since the early 1980s, largely because of the sudden about-turn in Australian monetary policy
- While some cities, such as Adelaide and Perth, are still enjoying price gains on a monthly and quarterly basis, the trend in Sydney should have alarm bells ringing
In Australia’s increasingly vulnerable residential real estate market, the downgrades are coming fast and furious. As recently as the end of April, National Australia Bank, which compiles a quarterly property survey, expected home values in Sydney – Australia’s largest and priciest housing market – to rise 0.4 per cent this year.
By the end of June, when it published the findings of its second quarter survey, it had revised its estimate to a contraction of 8.8 per cent, followed by an even steeper decline of 13.4 per cent in 2023. Yet, even after the dramatic downgrade, the bank still forecast prices would not drop in a disorderly fashion.
For homeowners in Sydney, such predictions are no longer credible. Since May, the slowdown in the city’s frothy property market has accelerated sharply. In some of the most affluent areas, such as northern beaches and eastern suburbs, home values fell 7.5-8 per cent between May and July compared with the previous three months, data from CoreLogic shows.
While several other capital cities in Australia, in particular Melbourne, are experiencing falls in prices on a monthly and quarterly basis, the declines in Sydney are the steepest, dropping at their fastest pace since the early 1980s. Indeed, in some parts of the city, prices are now falling on an annualised basis.
The rapid acceleration in the rate of the declines is almost entirely attributable to the sudden about-turn in Australian monetary policy. Having indicated it would keep interest rates close to zero until 2024, the Reserve Bank of Australia (RBA) stunned markets in early May by raising rates to counter the sharper-than-expected surge in inflation.
The central bank subsequently tightened policy more aggressively in the last three months, bringing the increase in rates to 1.75 percentage points in the space of just 12 weeks, one of the most drastic rises in borrowing costs by a leading central bank in recent memory.
