House prices are now falling across two out of every five Sydney suburbs, a five-fold increase from a year ago, and the highest level in 20 months, data from CoreLogic shows.

The share of Melbourne suburbs where house values dropped in the past three months also blew out to 76.3 per cent, six times higher than last year.

Tim Lawless, CoreLogic’s research director, said the downturn was becoming more widespread as stock levels rose, borrowing capacity shrank and affordability worsened.

“We’re now seeing a fairly broad-based, but so far, mild downturn,” he said. “Sydney is still in the early phase of the downswing, so we’ll probably see more suburbs where house prices drop in the coming months.”

Sydney home values fell by 0.1 per cent last month, the first monthly decline in almost two years, while Melbourne dipped by 0.2 per cent as the housing outlook dimmed.

The number of Sydney suburbs where house prices fell over the past three months to October jumped to 225, up from just 46 last year.

Similarly in Melbourne, values have dropped across 290 suburbs, a sharp rise from only 48 a year ago.

Louis Christopher, SQM Research managing director, said house prices in both cities were on track to fall further in the coming months.

“Auction clearance rates are now falling in Sydney, well beyond the seasonal weakness, and we’re seeing a marked increase in distressed selling across Melbourne,” he said.

“There are now 1117 total distressed listings in Melbourne as of November 6, which is the highest level since we started tracking in 2020.

“In the past year distressed selling surged by 28.4 per cent, which tells me there are more property owners that are struggling financially, as confirmed by the rising default rates,” Mr Christopher said.

Moody’s Ratings analysis showed mortgage delinquency rates increased across the country over the year to May. Melbourne emerged as the epicentre of arrears. The portion of mortgage defaults across the city increased by 0.73 of a percentage point to 2.54 per cent, just behind Hobart, which posted a 1.3 percentage point rise in arrears to 2.68 per cent.

Melbourne dominated the top 20 suburbs with the highest mortgage default rates. Fourteen suburbs posted delinquency rates as high as 5.37 per cent. By contrast, many suburbs with the lowest default rates were in Brisbane and Sydney.

However, there are signs that worsening affordability has started to weigh across Brisbane, as house prices dropped in 36 suburbs out of 326, an eightfold rise from just four suburbs last year.

House values lower

Nationally, house values for about one out of three suburbs have drifted lower, which is more than double from a year ago.

By contrast, the number of Adelaide suburbs where house values fell over the past three months shrank by about half, while prices in all Perth suburbs rose during the same period.

The surge in listings across the biggest capitals has significantly outpaced demand, which has weighed on prices.

Total listings climbed by 7.1 per cent across Sydney over the past four weeks to November 3 compared to a year ago and lifted by 4.2 per cent and 4.9 per cent in Melbourne and Brisbane, respectively.

Total listings are now 13.2 per cent above the previous five-year average in Sydney and 13 per cent higher in Melbourne.

“Values are still falling in Melbourne because of a big increase in listings by disgruntled investors selling up in Victoria,” said Scott Kuru, co-founder of property investment advisory Freedom Property Investors.

“Nevertheless, this is a great time to buy in Melbourne. Melbourne property is seriously undervalued at the moment, especially when you look at population inflows – from overseas and other states – to what’s arguably now Australia’s largest city.

“Buying conditions probably aren’t going to get much better in Melbourne, but if you see a great investment grade property in Brisbane or Sydney I wouldn’t hang around on the off chance prices might decline,” he said.

Sydney downturn ‘accelerating’

The upper end of the housing market posted the sharpest decline of up to $326,000 in just three months as demand wanes amid higher borrowing costs and property prices.

House prices in Rodd Point in Sydney’s inner west, along with Abbotsford and Balmain East slumped by at least 7 per cent or the equivalent declines of between $221,797 and $325,846 during the same period. Those suburbs have also dropped by 8.2 per cent, 7.6 per cent and 2.1 per cent in the past 12 months respectively.

“The downturn in the top 25 per cent of the housing market, particularly in Sydney is clearly gaining some momentum,” Mr Lawless said.

“House values in this segment had been falling since June last year and in the past two months alone, they declined by 1.1 per cent, which is nearly twice as fast compared to the previous two months.

“So, it doesn’t look like this trend is turning around. It seems like it’s actually accelerating,” he said.

Across Melbourne, house values in inner suburbs Albert Park, South Melbourne and Port Melbourne tumbled by 9 per cent, 8.6 per cent and 8 per cent respectively, equating to a loss of between $132,882 and $213,677 in the past three months.

In Brisbane, Teneriffe led the largest drops in house values, at 4.8 per cent or a decline of $100,571 in the median.

House prices in suburbs within Adelaide’s Central and Hills district also weakened, with Hazelwood Park, Rosslyn Park and Kensington Garden posting 3 per cent, 2.6 per cent and 1.8 per cent respectively.