An urgent warning has been issued that Sydney homeowners could face the largest property price plunge in 40 years, after six months of consecutive price declines.
Sydney’s median house price has dropped $87,000 since November, falling 5.8 per cent from $1.632 million to $1.545 million, according to fresh figures from Realestate.com.au (REA).
Higher interest rates mean buyers are facing some of the largest mortgages in the country, putting further pressure on affordability and pushing some buyers out of the market.
Regional NSW is continuing to outperform the city as buyers look for cheaper alternatives.
Cotality head of research Tim Lawless told The Australian he would argue ‘we are headed for the largest correction in Sydney for at least the last 40 years’.
‘That view is not breaking from the pack,’ Mr Lawless said.
Adding to uncertainty is the prospect of a cash rate rise by the Reserve Bank. Although it has been held at 4.35 per cent during the last two reviews, both Commonwealth Bank and ANZ predict a rise in November.
The cash rate had previously rose three consecutive times from 3.85 per cent to 4.35 per cent between February and May this year.
House prices in Sydney and Melbourne continue to fall month on month
Melbourne is faring even worse than Sydney, with house values falling for a 10th consecutive month and wiping almost $65,000 off the value of the typical home.
In Melbourne, a combination of factors, including increased housing supply and the impact of Covid lockdowns, has contributed to the decline in property values.
REA Group senior economist and report author Eleanor Creagh said investor demand had also weakened following the Federal Budget, which included changes to negative gearing and capital gains tax, making investment in existing properties less tax-effective.
These changes included restricting negative gearing to newly constructed properties, and a minimum 30 per cent tax rate to capital gains.
The standard 50 per cent capital gains discount was also replaced with an inflation-adjusted method. The changes are to take place on July 1, 2027.
‘Since the budget we’ve seen falling investor search activity on realestate.com.au and that’s been corroborated by the lending data with investor borrowing pulling back,’ Ms Creagh said.
‘Downward pressure on investor demand means less competition and can add to downward pressure on prices,’ she added.
Property Investors Council of Australia founder Ben Kingsley agreed the Federal Budget had contributed to the downturn.
Melbourne (pictured) has seen property values fall for a 10th consecutive month and is the worst-performing capital city over the past decade
‘There’s no doubt that the May budget has caused a property shock that’s amplified the current downturn we are experiencing,’ Mr Kingsley said.
‘What’s happened is the federal government has caused a sentiment shock which has flowed through into confidence for the market, and that’s not only investors who have pulled up stumps, but first-home buyers and all types of buyers.’
Ms Creagh said similar investor tax changes were also one reason Victoria had underperformed since the pandemic.
Investor tax changes introduced by the Victorian Government under former premier Daniel Andrews in 2023 had also reduced investor interest in the market, she said.
‘The property tax environment has been less favourable to property investors, which may have affected investor demand in Victoria.
‘And we have had investors choosing to sell homes, and that has been a contributing factor,’ she said.
Melbourne has recorded just 37 per cent growth in house values since 2016, making it the worst-performing capital city over the period.
By comparison, house values in Brisbane, Adelaide, Hobart and Perth have more than doubled.
Melbourne has recorded just 37 per cent growth in house values since 2016, making it the worst-performing capital city over the period
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Liberal housing spokesman NSW Senator Andrew Bragg said Labor’s higher taxes were ‘destroying confidence and making new developments uneconomic’.
However, the Federal Government defended its housing policies, pointing to measures designed to help first-home buyers while noting that a range of factors can influence property prices.
A spokesperson for Housing Minister Clare O’Neil said, ‘We’re levelling the playing field for first home buyers, helping 75,000 Australians into home ownership through our tax reforms and hundreds of thousands more through our 5 per cent deposit program’.
‘A number of factors influence house prices and rents, including interest rates, supply and global economic factors.’
Looking ahead, Ms Creagh said the direction of house prices would depend on the prospect of further interest rate rises and the upcoming spring selling season.
‘Spring selling season is going to be an important test of whether we see price falls continuing to ease or whether potentially there’s additional downward pressure on prices if we do see a large increase in the flow of new listings here in the market,’ she said.
