Sydney, Melbourne property shock as market slows with unit prices falling for first time since 2020

Australia’s property market boom appears to have run out of puff with prices in Sydney falling for the first time in 18 months as borrowers face stricter lending rules.

Prices are still rising across Australia, with national property values climbing by 20.6 per cent in the year to February to an even more unaffordable $728,034.

But capital city home values are now growing at the slowest pace since late 2020.

This has coincided with new rules on lending and an increase in fixed mortgage rates. 

The CoreLogic data also showed the first monthly drop in Sydney’s median apartment price since September 2020, before the Reserve Bank of Australia cut interest rates to a record-low of 0.1 per cent.

Australia’s property market boom appears to have run out of puff with prices in Sydney falling for the first time in 18 months as borrowers face stricter lending rules (pictured is an auction at Strathfield in Sydney’s inner west)

The mid-point price of a unit in Australia’s biggest city last month fell by 0.3 per cent to $831,793, with values still up 13.7 per cent over the year.  

The first monthly drop in 18 months occurred despite Australia reopening to skilled migrants and international students for the first time since March 2020, which would add to rental demand. 

Westpac senior economist Matthew Hassan said new Australian Prudential Regulation Authority requirements for lenders to assess a borrower’s ability to cope with a three percentage point increase in mortgage rates were starting to bite.

‘The detail shows weakness concentrated in “units” for Sydney and “top tier” properties in Melbourne,’ he said.

Sydney’s median house price was flat last month but over the year has risen by 26 per cent to  $1,410,128.

Melbourne’s mid-point house price was also flat in February following a weaker annual increase of 15 per cent to $998,356. 

Flat prices in Australia’s two biggest cities have stalled following a strong year of growth, echoing what happened in 2017 when rules were tightened on investor and interest-only loans. 

Brisbane, however, was still going strong with house prices up 1.9 per cent in February for a year-on-year increase of 32.8 per cent, taking median values to $828,175. 

Adelaide house prices rose by 1.6 per cent last month and 28.3 per cent over the year to $648,418.

The CoreLogic data also showed the first monthly drop in Sydney’s median apartment price since September 2020, before the Reserve Bank of Australia cut interest rates to a record-low of 0.1 per cent (pictured are high-rise apartments at Sydney Olympic Park)

Hobart’s equivalent values for a home with a backyard edged up by 1.5 per cent last month and 25.1 per cent annually to $781,069.

But after a strong year, apartment values fell by 0.3 per cent $566,119.

Across Australia’s capital cities, property prices rose by just 0.3 per cent to $808,792, marking the weakest monthly growth since October 2020, following an annual increase of 19.2 per cent.

Regional home prices went up by 1.6 per cent last month and by 25.5 per cent over the year to $564,496.

Apart from Sydney and Hobart, Darwin was the only other capital city market to see a monthly fall in unit values, with median prices slipping one per cent in February to $363,820.

Last year, Australian property prices had climbed by more than 22 per cent, marking the fastest annual pace since 1989.

But now Westpac is expecting the Reserve Bank to raise interest rates in August this year instead of 2024 as Governor Philip Lowe had previously promised. 

Nonetheless, demand is still strong among landlords with separate Australian Bureau of Statistics data showing a 6.1 per cent increase in investor lending during January to another record high of $11billion.

The value of lending has increased for 15 consecutive months, in line with growing house prices.