Australia’s house prices tumble, with experts warning it’s just the start

Melbourne and Sydney’s property markets have taken their biggest hit since the surge in COVID-19 cases, with house prices tumbling 1.4 per cent in July in Melbourne and Sydney suffering an 0.9 per cent fall.

The fall has reignited fears that a prolonged recession may result in increased numbers of forced sales later this year.

According to CoreLogic July index, the fall in Melbourne house prices have worsened since May when they fell 1.1 per cent and another 1.3 per cent in June.

“We always knew that one of the biggest risks to the housing market and the broader economy was a second wave that would result in a deeper and longer recession and that’s clearly starting to play out in Melbourne,” said CoreLogic’s research director Tim Lawless.

“The recent concerns of a second wave of the virus and the potential for renewed border closures and stricter social distancing are likely to further push consumer sentiment down. This is likely to weigh on both home buying and selling activity more broadly,” he said.

Sydney house prices fell 0.9 per cent in July while nationally, house prices fell by a lower 0.6 per cent during the month, held up by small rises in some capital cities.

Canberra defied the price slide, with prices rising 0.7 per cent in July with Adelaide prices up a marginal 0.1 per cent.

Other capital cities followed the downward trend, with Perth house prices down 0.6 per cent, Brisbane house prices fell 0.3 per cent, Hobart by 0.4 per cent and Darwin by 0.2 per cent.

Over the last three months to July, according to CoreLogic, Melbourne house prices saw a sharp decline of 3.8 per cent while Sydney fell by 2.4 per cent.

Since the start of the year, Melbourne house prices decreased by 1.1 per cent in value, cancelling out all the gains the city recorded before the pandemic hit. Sydney prices managed to ride out the storm with a slim 2.2 per cent gain in value.

“Melbourne is leading the decline because it was slower to reopen in the first place and now it’s gone into an even harder lockdown, which points to more damage to businesses there and further loss of income and higher unemployment,” AMP Capital chief economist Dr Shane Oliver told the Australian Financial Review.

“These will continue to push prices down, which is already pulling at a rapid rate. I suspect in this environment, we’ll see prices go down by somewhere between 1 per cent to 1.5 per cent each month and then it might accelerate once we start to see a pick up in forced sales later this year.”

Dr Oliver said Sydney fared better as it had lower virus cases despite the lockdown creating uncertainty in the market.

“I think prices will continue to drop by around 0.9 per cent a month while the support measures are in place, but there will come a time when these lifelines are removed and there will be forced sales in Sydney as well, which will result in sharper falls into the middle of next year,” Dr Oliver said.

Melbourne’s tough new lockdown rules which came into effect today, including a ban on people travelling further than 5km from their homes, would further accelerate the decline of the city’s housing market, Mr Lawless said.

As JobSeeker, JobKeeper and mortgage repayment deferrals are set to taper from late September, Mr Lawless predicts house prices will continue to fall further.

“Urgent sales are likely to become more common as we approach these milestones, which will test the market’s resilience,” Mr Lawless said.