The great Australian property crash continues to break new records with CoreLogic’s 5 Capital City Index shedding more than 1.44% in the first 29 days of August, which is the biggest monthly drop in 39 years (or since 1983) according to data from CoreLogic. August’s drop has just surpassed the 1.44% loss suffered in the previous month of July 2022. And the worst is yet to come as we have another two days of index data to collect before the end of the month.
The news is worse in Australia’s third-largest city, Brisbane, which has actually capitulated with the biggest monthly drop in home values since CoreLogic’s records began in 1980 (that is, over the last 42 years). According to the latest results from the CoreLogic Index, the Brisbane market has lost more than 1.7% during the first 29 days of August. In the previous 42 years of Brisbane housing history, the worst monthly loss was 1.5%.
Sydney is also breaking records, posting the biggest monthly drop in house prices in the month of August to date, which is a 2.1% loss, since 1985 if we exclude the record set in the previous month of July. With two days to go, August’s losses may still exceed July’s drawdown.
The big Australian housing market crash has been uniquely triggered by the RBA’s rate hike cycle, which should lead to another 50 basis point hike in rates in September, hitting dumb borrowers.
In Sydney, house prices are falling at an annualized rate of 19-20% based on data from the last three months. Nationwide, home values are shrinking at an annual rate of around 12.4%, although this has accelerated in more recent times.
Our housing forecasts for October 2021 remain unchanged. That is, after the RBA implements its first 100 basis points of rate hikes, which it has already done, national home values will fall between 15% and 25%. This forecast range was designed quite explicitly to capture the rates of increase in RBA by plus of 100 basis points. Most banks have adopted this projection in recent months.
Using the RBA’s own internal housing model, we have previously shown (see here) that if the central bank raises to a very extreme cash rate, 4.25%, the RBA research implies that house prices in Australia would have to decline by 30-40%. However, this is not our central forecast.
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