Australian home values slump a seventh straight month as rate hikes squeeze buyers

Australian home values are down for the seventh month running, and the drop is accelerating. Combined values across state and territory capitals fell 1.4% in October, according to Cotality data, marking the sharpest monthly pace in 40 years. Since March, capital city values have slid 8.1%.

The epicenter has moved. Brisbane and Perth, not Sydney and Melbourne, led October's declines, and the pain is spreading fast. Cotality research director Tim Lawless said the mid-sized capitals that ran hot over the past six years are now deep in a correction, with virtually every suburb in Brisbane, Perth and Adelaide posting three-month losses.

The culprit is the cost of money. Four interest rate hikes this year have hammered demand, and economists broadly expect a fifth when the Reserve Bank hands down its decision on Tuesday. Morgan Stanley sees peak-to-trough drops of up to 15%. Lawless called high rates the market's most significant downside force, adding that affordability headaches and investors pulling back after the government's tax changes have also chilled demand.

One quirk worth noting: the four-decade record pace mostly reflects how spectacular the boom was. Home prices decoupled from wages in the late 1980s, then surged through the 90s and early 2000s. Over the past decade they doubled or nearly doubled in Adelaide, Brisbane, Perth and Hobart, rose more than 50% in Canberra, and climbed just over 20% in Melbourne.

Not everyone is bracing for a crash. Economist Peter Esho, chief executive at 13x, told the Guardian that Sydney and Melbourne are close to bottoming, while the mid-sized capitals are earlier in the cycle. He called it a normal housing cycle denting sentiment rather than something systemic, and said that would only change if borrowing became genuinely difficult or unemployment spiked.

Renters are catching a sliver of relief. National vacancy rates are ticking up and rent growth is slowing, though rents are still up more than 50% over six years, adding about $245 a week to the median asking rate and outrunning wage growth. Analysts partly credit the shift to households doubling up or moving back in with family as affordability bites, unwinding the pandemic-era rush toward smaller homes.