Worst house price declines in 42 years, with more to come...
Aussie house prices fell in 2022 by their largest margin since records began in 1980...
In 2022, Aussie home values slumped by their largest margin since CoreLogic started collecting data on the 5 biggest capital cities in 1980. On a peak-to-trough basis, the 5 capital city index lost 8.8% in 2022. In calendar year terms, it fell 7.1%, pipping the previous calendar year record set during the GFC in 2008 (thanks to Leith van Onselen for pointing this out).
This has been driven by a record increase in the cost of borrowing to buy a home, which has leapt from about 2.4% pa in April 2022 prior to the first rate hike in May to around 5.3% pa today. Since May 2022, the RBA has lifted its target cash rate by 300 basis points, which is unprecedented in the modern inflation-targeting period that began in the early 1990s. As a result of the huge jump in mortgage rates, the purchasing power of new home buyers has been slashed by roughly one-third.
As we have previously explained, other influences on house prices, such as robust population growth, brisk wage growth, and a striking fall in new building approvals, will have very little impact on residential valuations in the short-term as the enormous shifts in interest rates and purchasing power absolutely dominate the price discovery process. And this has indeed been the way things have played out since the great Aussie housing correction commenced at exactly the same time Martin Place started lifting rates in May 2022.
The monthly pace of house price depreciation remained extremely rapid in December 2022 with the 5 city index losing another 1.2%, led by Sydney (-1.4%), Brisbane (-1.4%), and Melbourne (-1.2%). We don't have data yet on Canberra, but it is safe to assume it is faring just as badly as the other east coast capitals. The most resilient conurbations remain, unsurprisingly, relatively cheap areas like Adelaide, which lost only 0.4% in December, and Perth, which actually ground-out a small capital gain (0.1%) in the month.
On a peak-to-trough basis, dwelling values in Sydney declined the most (-12.8%) in 2022, followed by Brisbane (-9.5%), the 5 capital city index (-8.8%), and Melbourne (-8.3%). In comparison, Adelaide (-1.6%) and Perth (-0.7%) have suffered only very modest moves.
With the RBA signalling that it wants to lift its 3.1% cash rate further in 2023 to around 3.5%, Aussie housing is on track to cheapen by a total of 15-25% from its peak, which is consistent with our original forecast outlined in October 2021. We have had no reason to adjust our views since that time.
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Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha Managers” based on his risk-adjusted performance throughout his career across. He previously worked for Goldman Sachs in London and Sydney, the Reserve Bank of Australia, and founded the award‐winning research/investment group, Rismark. He has regularly advised governments, developing unique policy proposals. Chris graduated with the University Medal (Economics & Finance) from Sydney University. He studied in the PhD program at Cambridge University in 2002/03, leaving to set up his funds business.
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Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...
Expertise
Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...
Expertise
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