The market has peaked: When and where will the trough cease?

A majority of Australians have now shifted their attention away from how high prices fly to how low they will drop.

The duration of property price upturns historically trumps that of downturns. Australia’s latest growth cycle saw CoreLogic’s Home Value Index (HVI) surge approximately 29 per cent; however, the tide has well and truly turned since the HVI peaked in April.

As part of a price loss cycle that drew comparisons to the global financial crisis, dwelling values have plummeted 4.8 per cent nationally, led by Sydney’s 9 per cent drop, leading many households to question whether recent capital gains will become obsolete, and if so, by how much.

While the risk of housing values correcting back to pre-pandemic levels varies, research from CoreLogic reads well for property owners across the country. It suggests that Australian markets might be more resistant to price falls than expected. 

Should prices decrease by 15 per cent from their April peak, CoreLogic’s combined capital cities index would return to March 2021 levels. A 20 per cent drop would take the index to 2.2 per cent lower than in March 2020 — when the pandemic began. While a 25 per cent drop would take the index back to similarly reported levels from August 2016.

A closer look at individual pockets of the country would reveal Australia’s second-largest city, Melbourne, has the smallest portion of wiggle room in the current downturn. A 4.3 per cent reduction in the Victorian capital’s prices would dip them below the report levels of March 2020.

This is not due to the acceleration of Melbourne’s downturn occurring at a quicker pace than its counterparts — the September quarter saw the city register the fifth-slowest rate of decline (3.7 per cent) among the smaller capitals — but rather because of the comparatively modest surge in prices that occurred over the previous two years. 

Despite 80 per cent of Australian markets currently experiencing the downturn, CoreLogic analysis of Australia’s 86 SA4 regions — the largest sub-state regions — found only two areas nationwide, Melbourne’s inner and inner east, where housing values presently track below pre-COVID levels.  

Similarly, Sydney, the city next closest to undoing its capital gains of the past two years, requires prices to fall a further 11.8 per cent before they return to pre-COVID levels. 

Elsewhere, in good news for Adelaide home owners, the city of churches is the Australian capital with the furthest to go before dwelling prices revert back to pre-pandemic levels, needing the market to fall a further 30.7 per cent for this to happen.

Outside of Perth (19.1 per cent), Australia’s other capital cities all need at least 20 per cent more to fall of prices for them to reach March 2020 levels, ranging from 23.7 per cent in the recently peaked Darwin to 26.3 per cent in Brisbane.

Turning our attention regionally, Tasmania possesses the strongest possession, needing prices to fall 31 per cent to return to the days before mask mandates and lockdowns, while Western Australia’s regional centres have the lowest buffer of 20.9 per cent. 

On average, Australia’s combined regions would need an additional 26.8 per cent to be trimmed of house prices for them to hit pre-COVID levels. 

CoreLogic also found that 77 per cent (66) of the country’s SA4 regions remain at least 20 per cent above pre-COVID values, with the highest concentration of the downturn-resistant areas residing in regional NSW (12), followed by regional Queensland (nine) and regional Victoria (eight).

Despite this data, predicting the floor upon which Australian house prices will eventually rest upon is difficult due to the influence interest rates have on the market. The final resting place of Australia’s cash rate — currently at 2.60 per cent — will have the greatest impact on the final outcome of the housing downturn.

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