Q+A: The housing boom is over. What happens next?
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Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics and more. I'm Sean Aylmer. Australia's housing boom appears to be over. For the first time in more than three years, house prices have fallen across the combined capital cities. with Sydney, Melbourne, Brisbane and Canberra leading the downturn. At the same time, buyers have more choice, auction clearance rates have weakened and the market is becoming much more fragmented. Dr Nicola Powell is Chief of Research and Economics at Domain. Nicola, welcome back to Fear and Greed Q&A.
Thanks for having me.
Is the boom over, Nicola? Yes or no?
I think so.
Is Australia’s housing boom really over?
It's very clear, I think, that we're at a turning point. And, you know, it's been three years of uninterrupted growth. But across the combined capitals, house and unit prices have now fallen. It does depend upon the capital city, though. So we've definitely got a broadening and more established downturn. And it is being led by markets such as Sydney, Melbourne and Canberra, where house and unit prices fell in those three. And we're seeing much bigger falls coming out of Sydney and Melbourne.
Okay, so let's go through those two cities specifically. Why Sydney?
So Sydney is much more sensitive to changes in interest rates. So three rate hikes this year was already starting to have a marked impact on borrowing capacity, buyer activity in the market, and ultimately supply has been building and continuously building. So choice is rising. And I think, you know, all of our cities are being impacted by variety of different factors colliding all at once. And that is three rate hikes, weak consumer sentiment, high costs of living, and of course, property taxation changes, which is really rattled investor sentiment. But I think that those are having a much more marked impact on a market like Sydney, which is high priced, so sensitive to changes in borrowing capacity, and also has a greater level of investor participation as well.
Okay, Melbourne?
Melbourne property prices are falling and saw one of the more substantial falls. And I think with Melbourne, Melbourne is also sensitive to changes in interest rates. But the big thing for Melbourne is supply has been much better, much better compared to our other capital cities and supply is starting to rise again. So really showing that kind of weaker conditions. And interestingly for Melbourne, Melbourne has seen now two back to back declines in house and in unit prices. So actually the downturn is a bit more established in Melbourne because it's been occurring for a bit longer than it has in Sydney.
Okay, I promise, Liz, I'm not going to go through every capital, but I'm really interested in Canberra. It's somewhere close to you, or you used to live in Canberra, you don't anymore. But what is it about Canberra, particularly in a Labor government, it kind of doesn't make a lot of sense that the market, there's a downturn there.
Canberra's just been struggling in recent years. It's been struggling because it's had weaker population growth, it's had an outward flow of residents leaving the ACT for other states and territories, and yes, I was one of those. Mm-hmm. It's seen increase in supply as well, which I think is really weighing in on the housing market. And again, it has that sensitivity to cash rate changes as well. So again, that amalgamation of factors just colliding all at once. But it's interesting, some of the other cities like Brisbane, Adelaide, Perth, they're holding up much better. And And actually Adelaide was the one that really did stick out. It saw an acceleration in house price growth, which did take me a bit by surprise.
But I think with Adelaide, supply is rising, but it's only about 6% higher than this time last year. Whereas when you have a look at some of the other capital cities, supply is 17% higher. So a vast difference in choice.
What about unit prices versus house prices? What's happening there?
So this was where the trends become very interesting. So when you look across unit prices, most of our capital cities saw a slight dip in unit price over the June quarter.
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