Australian home values have fallen 8.4% since the market peaked in May last year, the biggest peak-to-trough decline on record, according to CoreLogic.
The current housing downturn surpassed the previous record, when home values fell 8.38% between October 2017 and June 2019.
CoreLogic Australia Head of Research Eliza Owen said the new record-breaking price falls had played out in less than nine months, with further falls expected in the months ahead, compared to 20 months during the 2017 and 2019 downturn.
Owen said the main force behind record home value falls was the recent cycle of rate hikes that had risen at the fastest pace on record.
“A 300-basis point increase in the underlying cash rate over just eight months has resulted in a rapid reduction in borrowing capacity, lowering the amount buyers can offer for homes,” Owen said.
“In addition to constrained borrowing capacity, higher interest costs may be dissuading potential buyers altogether.
“Australians are also more indebted today than through historic periods of rate rises, with the latest Reserve Bank of Australia’s estimate of housing debt-to-income ratio sitting at 188.5%.
“A decade ago, this figure was 162.0% and in 2002 the ratio was 130.2%. Higher household indebtedness may have increased the sensitivity of housing values to interest rate rises.”
The downturn has been led by Sydney, Melbourne and Brisbane.
Sydney home values have seen a peak-to-trough decline of 13%, Brisbane values have fallen 10% and Melbourne dwelling values are 8.6% from the peak.
That said, Perth dwelling values fell less than 1% from their peak in August last year.
Owen said the 8.4% drop had come off a high base, following a 28.9% upswing between September 2020 and May 2022 – the fastest rise in home values nationally on record.
Over the coming months, housing market conditions were expected to remain soft, Owen said.
The underlying cash rate was likely to see further increases in 2023, with market expectations pricing a peak of around 4%, while the median forecast from Australian economists was lower at 3.6%.
Ongoing increases in interest rates were expected to further erode the borrowing capacity, and likely prolonged the country’s housing downturn until interest rates stabilised.