'Impact across the board': Australia's housing downturn enters a new phase

Australia’s housing market has entered a new phase of decline, with regional areas showing signs of weakening despite their traditional resilience. According to Cotality’s latest Regional Market Update, the value of regional dwellings fell by 0.1 per cent over the past quarter, marking a departure from previous patterns. This decline contrasts with a steeper 2.5 per cent drop in capital city housing prices during the same period. The trend suggests that the housing downturn, once concentrated in major metropolitan centres, is now spreading across the nation. The shift is evident in regions such as the Southern Highlands of New South Wales, where the market has transformed into a buyer’s paradise. Duncan Hill, founder of Duncan Hill Property in Bowral, noted that the area, once a popular destination for those seeking a “tree-change”, has become a prime location for purchasing. He described the current climate as one of opportunity, stating it is likely the best time he has seen in the last five years. Over the past five years, housing prices in the region rose by approximately 30 per cent before declining by two to three per cent in the past 12 months. Cotality’s analysis of Australia’s 50 largest non-capital regional markets revealed that 47 significant urban areas experienced slower growth, while 22 saw a decline in home values. Despite these declines, regional markets continue to demonstrate greater resilience than capital cities, often outperforming them in terms of stability. The firm’s findings underscore a broader national trend, indicating that the housing market downturn is no longer limited to major cities. Experts attribute the downturn to a combination of factors, including rising interest rates and affordability challenges. Gerard Burg, head of research at Cotality Australia, pointed to the Reserve Bank of Australia’s (RBA) recent decisions as a key driver. The RBA has raised interest rates three times this year, aiming to curb inflation, which currently stands above the central bank’s target range. Rates were left unchanged at 4.35 per cent following the most recent meeting, with the next decision due in September. Burg explained that these rate hikes, along with a general cost of living crisis, have discouraged many potential buyers, resulting in reduced competition and increased negotiation power among remaining buyers. Anne Flaherty, a senior economist at REA Group, highlighted the impact of recent federal housing tax reforms introduced in the May budget. These reforms include changes to negative gearing and capital gains tax (CGT) rules, set to take effect next year. Flaherty noted that the immediate effect of these changes has been a reduction in overall demand, particularly among investor groups. She observed that fewer investors are active in the market, contributing to the broader downward pressure on housing prices. PropTrack, a subsidiary of REA Group, recently released its July Home Price Index, which tracks monthly changes in home values. The index showed that regional house prices declined by 0.1 per cent, slightly less steep than the 0.5 per cent drop in capital cities. However, unit prices in regional areas increased by 0.2 per cent, while median values in capital cities fell by 0.3 per cent. These figures reflect ongoing divergence within the housing market, with different segments responding differently to economic conditions. As the housing market continues to evolve, experts anticipate further adjustments in pricing and buyer behavior. With interest rates expected to remain elevated and tax policies shifting, the outlook for both residential and investment properties remains uncertain. For now, regional markets appear to offer a more stable environment, though the pace of decline suggests that the nationwide housing downturn is far from over.