Sydney’s property prices dropped 10% this year, with $450 a day lost from average home

Sydney’s property prices have fallen by more than 10% since their mid-February peak, shedding almost $450 a day in value on an average home, and leading other major markets lower, CoreLogic said.

The 10.1% decline for home values in the harbour city so far comes as documents from the Reserve Bank of Australia indicate average property values may sink as much as 20% nationally from their recent highs by the end of 2024. That decline would be the steepest since the 1980s if realised.

Other cities reporting falling home values include Melbourne, where prices are down about 6.4% after beginning their retreat in mid-January. Brisbane’s falls are 6.1% from their mid-June zenith, while Adelaide and Perth have begun edging lower, easing about 1% from their August highs, CoreLogic said.

The NSW capital’s prices rose 27.9% from the Covid trough to the peak, and would have to fall another 11.4% before sinking below pre-pandemic levels.

By contrast, the Victoria capital saw property values rose a relatively moderate 17.3% during the swing, and would only have to retreat another 4% to sink below the March 2020 pre-Covid levels, Tim Lawless, CoreLogic’s research director, said.

Six interest rate rises by the RBA in as many months have added 2.5 percentage points to the cash rate, lifting the repayment costs for existing and potential mortgage holders.

The declines for Sydney from the February peak amount to about $116,500 for an average home, CoreLogic said. For context, though, average dwelling values from the trough during the Covid pandemic to the peak added about $252,900 on average, CoreLogic said.

“Although Sydney’s housing values were already in decline when the rate-hiking cycle began, the pace of decline accelerated sharply following the first [RBA] interest rate increase in May,” Lawless said.

“Home values would need to fall a further 11.4% to get back to the levels seen at the onset of Covid,” Lawless said, adding the rate of the decline had lately moderated to about 1.3% in the most recent four-week period for Sydney.

The RBA’s documents, released under freedom on information rules, reveals economists in August had lowered their estimates for how far property prices might fall and its potential impact on the economy as households’ sense of wealth shrank, prompting them to spend less.

One scenario looked at a fall of 20% from peak to trough by the end of 2024, a rate of decline that the bank noted was “roughly twice as large as what we’ve assumed in our baseline, and sits below the range of estimates from our suite of models and most market economists”.

At the time of the discussion, the median market economist forecast was for a decline of about 15%, one economist said. “This would have an effect on both dwelling investment, especially later in the forecast horizon, and consumption.”

Ahead of next week’s federal budget and the September quarter CPI, investors have lifted their expectations of how far the RBA will hike its cash rate. Apart from 97% certainty of another 25bp on Nov 1st to 2.85%, they also predict it will peak at almost 4.4% in a year’s time.

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“A key risk is that housing prices fall by more than we expect,” the RBA notes show.

CoreLogic’s Lawless said a 10-15% decline in average home values would be “a reasonable view” for now.

With the RBA’s 25 basis-point lift in its key cash rate at the start of October, the interest rate is now at 2.6%, or the highest since mid-2013.

Most economists and investors were forecasting more interest rate rises to come, with markets all but pricing in another 25bp rise on 1 November, with a peak nearing 4.4% in about one year’s time.