Aussie house prices start falling: Sydney down 1.3%, Melbourne off 0.7% - price falls to accelerate as RBA hikes
Aussie home values have started melting in concert with both the RBA and banks lifting both variable and fixed-rate borrowing costs, as we expected. According to the latest daily index data from CoreLogic, Sydney dwelling values have already contracted 1.3% while Melbourne prices are off 0.7%. There is also evidence that capital gains in Brisbane have started to decelerate sharply.
Australia's housing market correction will accelerate as the RBA lifts its cash rate. Financial markets think the RBA will increase its cash rate to more than 3.3%. We believe Martin Place will struggle to push past 1.5%.
Assuming the RBA does lift its cash rate by more than 100 basis points, we expect Aussie home values to correct in an orderly fashion by 15-25%. While this would be the largest decline in modern history (the current record is the 10-11% correction between 2017 and 2019), it will be modest payback in the scheme of things given the almost 40 percentage points worth of capital gains that home owners have captured since the RBA's cash rate was last at 150bps in mid 2019. Put differently, house prices have risen some 37% since the RBA began cutting rates in 2019.
The charts below show daily house price data for Sydney (first chart) and Melbourne (second chart).


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