Sydney house prices have dropped by 1 per cent through May in the largest monthly decline since January 2019.
The result was worse than for any month during the pandemic as deteriorating affordability and the recent rate rise accelerated the housing correction, data from CoreLogic’s home value index shows.
‘‘The biggest monthly fall in Sydney was 0.9 per cent, in July 2020, so you have to go back to the macro-prudential tightening which occurred through 2017 to 2018 to see this amount of price decline,’’ Shane Oliver, AMP Capital’s chief economist, said.
‘‘If the pace of the price drop continues to accelerate to, say, 1.5 per cent a month, then we’re looking at a 10 per cent or greater decline this year. You can’t rule out price drops accelerating because of the interest rate shock.’’
Sydney prices, including May’s result, have already fallen by a total of 1.5 per cent since February, CoreLogic data shows.
Tim Lawless, CoreLogic’s research director, said the speed of the decline has been building momentum since the first month-on-month decline was recorded in February, at 0.10 per cent.
‘‘Through the previous downturn, which commenced in mid-2017, it took the Sydney market 15 months for the monthly rate of decline to reach 1 per cent, so we are seeing a sharper deceleration in market conditions,’’ he said.
‘‘The market is probably declining more rapidly due to a few factors, including higher levels of housing debt and higher interest rates, so households are likely to be more sensitive to higher mortgage rates and the sharp drop in consumer sentiment from previously high levels.’’
During that previous downturn, the sharpest monthly decline was recorded in December 2018, when Sydney prices dropped by 1.8 per cent.
‘‘Prices steadily accelerated to get to that point as there was not any shock moment back then, like with higher interest rates,’’ Dr Oliver said.
‘‘The tightened lending standards cut off or reduced the supply of credit, so it only affected new borrowers. But now, with higher interest rates, it affects everyone – both new and existing borrowers, so there is more risk. It’s a different ballgame.’’
Melbourne is also on track to post a deeper price fall of 0.7 per cent during the month, and combined capitals by 0.3 per cent.
While Brisbane will probably post solid growth of 0.8 per cent in May, this is less than half the 1.7 per cent monthly growth recorded in April and way down from last December’s peak of 2.9 per cent.
CoreLogic will release its May home value index today.
‘‘The strength in the other cities is no longer enough to hold up the national average, so it seems that nationally prices have turned as well,’’ Dr Oliver said. ‘‘But there’s still a long way down for prices to fall as the Reserve Bank continues to hike rates.
‘‘We’re looking at another rate rise in June and several more by year-end, which would really put a brake on the property market – not because people will default on loans, but because buyers won’t be able to borrow as much.’’
Mr Lawless said there were clear signs vendors were struggling to get a sale as buyers pulled back.
‘‘Auction clearance rates in the major auction markets of Sydney and Melbourne are now tracking well below average,’’ he said.