Australia Sees Biggest Drop in House Prices Since 2008

Last year, Australia experienced its most significant drop in the housing market since 2008 due to the high interest rates that reduced the ability to purchase and discouraged investors.

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CoreLogic Inc. reported on Tuesday that the national Home Value Index had decreased by 5.3% in 2022, the first time it had dropped since 2018. Sydney experienced the most significant annual decrease, with a 12.1% fall, while Melbourne saw a 8.1% decrease. The report also revealed that national values had declined by 1.1% in December.

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Tim Lawless, research director at CoreLogic, predicts that home values may decline further in the beginning of 2023 before stabilizing after interest rates reach their peak. Despite the downturn in many parts of the country, CoreLogic's report states that housing values are still higher than before the pandemic, indicating that the sector is managing the most intense monetary tightening cycle in recent history.

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Since May, the Reserve Bank has increased interest rates to 3.1%, and it is anticipated that they will raise them one or two more times in 2021. RBA representatives have expressed assurance in Australia's housing market, noting that prices are still higher than when the pandemic began. Furthermore, with unemployment at its lowest rate in almost 50 years, borrowers are in a good position to meet their obligations, and loan delinquencies are likely to be minimal.

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According to CoreLogic, Australia's housing market, which is worth A $9.4 trillion ($6.4 trillion), has dropped 8% from its April peak, following a 28.6% increase from the low point caused by the pandemic. Lawless pointed out that 2023 could be a difficult year for the housing market, as many fixed-rate mortgages that are currently at record-low levels will expire, requiring borrowers to switch to variable rates that are much higher.

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According to a report from the Reserve Bank of Australia (RBA) in the previous month, approximately 30% of Australian mortgage holders with fixed-rate loans will experience a 40% or greater increase in their payments when their loans come up for renewal in 2023.

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CoreLogic's report suggested that, as interest rates reach their highest point and inflation slows, housing values should become more stable. However, a more widespread increase in housing values would require either a decrease in interest rates or some other form of stimulus.