Australian house prices suffer first drop since 2020 in May after Reserve Bank interest rate rise

Australian house and unit prices have suffered the first drop in almost two years as an interest rate rise turns off potential buyers – with wealthy suburbs suffering the biggest drops.

Sydney, Melbourne and now Canberra saw prices go backwards in May after the Reserve Bank of Australia last month raised the cash rate for the first time since November 2010.

The CoreLogic data showed the first national fall in property prices since September 2020 – the era before the RBA slashed rates to a record-low of 0.1 per cent.

Across Australia, median real estate values fell by 0.1 per cent to $752,507, with this figure covering both houses and units.

Australian house and unit prices have suffered the first drop in almost two years as an interest rate rise turns off potential buyers. Across Australia, median real estate values fell by 0.1 per cent to $752,507, with this figure covering both houses and units (pictured is a Melbourne auctioneer)

But in Sydney, mid-point house prices fell by an even steeper 1.1 per cent to $1.404 million as apartment values dropped by 0.7 per cent to $829,598.

The upmarket Northern Beaches had Australia’s biggest drop of 1.9 per cent, in an area covering suburbs like Manly and Palm Beach where houses typically cost more than $4.5 million. 

Sydney’s inner west had a 1.7 per cent decline, with houses in Birchgrove typically selling for more than $3 million. 

The north shore and eastern suburbs both had monthly falls of 1.5 per cent, covering postcodes like Woollahra where $4.5 million is the mid-point price. 

In Melbourne, house prices fell 0.8 per cent back into six-figure territory to $992,474 as unit values slipped 0.3 per cent to $629,344.

The city’s inner south, covering Brighton where the median house price is $3.9 million, suffered a 1.3 per cent drop. 

Canberra house prices fell 0.4 per cent to $1.070 million.

Hobart’s equivalent house price rose by just 0.1 per cent last month to $796,595 and was flat in the three months to May.

CoreLogic research director Tim Lawless said affordability issues had turned off buyers as the banks raised fixed mortgage rates from historically low 2 per cent levels.

‘There’s been significant speculation around the impact of rising interest rates on the property market and last month’s increase to the cash rate is only one factor causing growth in housing prices to slow or reverse,’ he said.

‘Now we are also seeing high inflation and a higher cost of debt flowing through to less housing demand.’

But Mr Lawless is expecting regional property markets to continue thriving with median house prices outside capital cities last month rising by 0.5 per cent to $620,201.

In Sydney, mid-point house prices fell by an even steeper 1.1 per cent to $1,403,964 as apartment values dropped by 0.7 per cent to $829,598 (pictured is the Harbour Bridge from Dawes Point)

‘Arguably some regional markets will be somewhat insulated from a material downturn in housing values due to an ongoing imbalance between supply and demand as we continue to see advertised stock levels remain extraordinarily low across regional Australia,’ he said.

Last month, the Riverina area in southern New South Wales saw a 3.4 per cent increase followed by southern Queensland’s Darling Downs and Maranoa region which had a 3 per cent rise.

But he didn’t expect the boom in regional areas to last as higher interest rates affected affordability.

‘Considering we are already seeing the pace of growth easing across most regional markets, it is likely we will see growth conditions softening in line with higher interest rates and worsening affordability pressures,’ Mr Lawless said.

Smaller capital cities are still enjoying growth with Adelaide’s median house price surging by 1.9 per cent in May to $687,635 for a healthy annual growth pace of 28.1 per cent.

Brisbane’s median house price was up 0.8 per cent to $885,633 for an annual growth pace of 30.2 per cent.

The upmarket Northern Beaches had Australia’s biggest drop of 1.9 per cent, in an area covering suburbs like Manly and Palm Beach where houses typically cost more than $4.5 million (pictured is the Pittwater area around Bayview)

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Perth prices rose by 0.6 per cent to $582,550.

Darwin house prices increased by 0.8 per cent to $583,725 but unit values fell by 0.2 per cent to $369,806.

CommSec chief economist Craig James said higher rates were likely to eventually cause property prices to fall in the smaller capital cities.

‘Home prices are still rising over much of the nation, but over coming months more regions and capital cities will likely join Sydney and Melbourne with outright monthly declines in prices,’ he said.

‘A key factor behind the softening of home prices will be higher interest rates.’

Canberra house prices fell 0.4 per cent to $1,070,403 (pictured is Parliament House)

But a 3.9 per cent jobless rate in April, the lowest since 1974, may help minimise the losses. 

‘A strong job market will provide fundamental support for housing demand and thus home prices,’ Mr James said. 

Australia’s economy grew by 0.8 per cent in the March quarter, a big drop from the 3.6 per cent pace of the December quarter following the end of lockdowns, Australian Bureau of Statistics national accounts data released on Wednesday showed.