Australian property prices have fallen for the first time in a year, with values dropping 1.9 percent in May on a month-by-month basis. However, while most capital cities recorded a decline in values
, prices are still rising in some centres and auction clearance rates remain healthy in key markets. Only time will tell if we are witnessing the start of a major correction to house prices, or simply experiencing a seasonal pause before the market regains momentum. According to the latest data from RP Data-Rismark, dwelling values dropped 1.9 percent across Australia in May after rising 0.3 percent in April. Most capital cities recorded a decline, with Melbourne the worst with a 3.6 percent reduction in values and Darwin the best with a small 1 percent increase. Values were down 1.8 percent in Adelaide, 1.7 percent in Brisbane, 1.1 percent in Sydney, 0.8 percent in Perth, and 0.6 percent in Hobart. Canberra was the only other capital to record a value increase, rising 0.08 percent over the month.
In terms of real numbers, Australia’s most expensive city is still Sydney with a median house price of $678,500, with Hobart the most affordable with a median price of $345,000. While no-one is sure how far these numbers will drop, according to RP Data Research Director Tim Lawless, the housing market may be at its peak, at least for now. If Mr Lawless is correct, lower consumer confidence may be affecting house prices along with seasonality.
"There is a very strong correlation between levels of consumer confidence and housing market activity. If we see sentiment levels remaining low it is likely that housing market activity will be more sedate,” said Mr Lawless, adding "We have been seeing signs that the housing market is at or approaching the peak of the growth cycle." As with other market peaks, high value assets are affected first, with expensive dwellings dropping in value faster than the more affordable end of the market.
CommSec chief economist Craig James is also talking up a market correction, calling the May results the single biggest monthly decline in property values in over five years. "Home prices couldn’t lift forever - at some point there had to be a correction and it seems the federal budget caused people to pause and take stock,” said Mr James. However, Mr James also went on to say "the drop in home prices may just be the pause that refreshes”, pointing to healthy auction clearance rates over recent weekends.
According to additional data from the HIA-CBA Housing Affordability Index, housing affordability is now 10.8 percent more favourable than a year ago, making it the most favourable level in 12 years. However, while affordability improved in Sydney and Perth, it was unchanged in Melbourne and down in Brisbane, Hobart, and Adelaide. According to HIA Senior Economist Shane Garrett, "The impact of lower interest rates and continued earnings growth has ensured that home purchase affordability has improved over the past year for existing homeowners and those on the cusp of entering the market in the short term."