National property prices have fallen for the second month in a row, as higher interest rates and unaffordable prices hit demand for homes, while rental rates are rising at a faster rate than housing values.
Housing data and analytics firm CoreLogic said home values across the country fell 0.6 per cent in June, led by declines in Australia's biggest cities Sydney (-1.6 per cent) and Melbourne (-1.1 per cent), but prices also dropped in Hobart (-0.2 per cent) and regional Victoria (-0.1 per cent).
The Reserve Bank increased official interest rates in May and June to curb surging inflation, and more steep increases are expected.
Property values rose by the most in Adelaide (+1.3 per cent), followed by Darwin (+0.9 per cent), Perth (+0.4 per cent), Canberra (+0.3 per cent), and Brisbane (+0.1 per cent).
A rival report by REA Group's Prop Track found that Australian home prices fell again in June, by 0.25 per cent, with the decreases led by a 0.4 per cent drop in Sydney a 0.6 per cent drop in and Melbourne.
Prop Track said prices in Brisbane were down for the first time since the start of the pandemic — by 0.09 per cent — and values also slipped in Canberra, by 0.35 per cent.
It said a "two-speed housing market" was evident with Hobart (+0.26 per cent) and Adelaide (+0.42 per cent) the strongest-performing capital cities.
Demand for homes has been waning, with the latest lending data from the Australian Bureau of Statistics showing that demand for home loans fell by 6.4 per cent in April, just before the RBA started to hike rates in May, the first rate rise in more than a decade.
CoreLogic Research Director Tim Lawless said the fall in prices over June followed May's interest rate hike, surging inflation and worried consumers.
"So it's definitely increasing the level of decline and we are starting to see more and more cities quite clearly losing steam in the rate of growth in housing values, but we've also seen a fairly sharp reduction in the number of home sales as fewer people are active in the market, and an increase in listing numbers."
Buyers flee Melbourne market
Ivan Juricevich, a real estate agent in Melbourne's western suburbs, said the number of buyers and properties on the market had dropped off.
"That means that maybe they've dropped down a tier in their property searches.
"Investors are still prominent, but again, they need the numbers to work for them."
And Mr Juricevich thinks prices in Melbourne will fall further.
"In the next six to 12 months I think it's a buyers market, definitely."
CoreLogic said that as housing conditions slowed down, the property market was "swinging back in favour of buyers" with the capital city clearance rate below 60 per cent since late May, longer selling times and high levels of vendor discounting.
Smaller capitals continue to climb
It is a different story in Adelaide, where property prices are still rising.
Benjamin Cardi recently moved back to the South Australian capital and has a sizeable budget of $1.5 million to spend on a family home.
"It remains a seller's market at the moment," Mr Cardi said.
Mr Cardi has watched from interstate as Adelaide property prices surged by more than one quarter over the past year.
"It's now reaching the point where it's about the maximum that we can afford to do what we want."
However, Mr Cardi is not too concerned about rising interest rates.
"With another property asset in our portfolio, I'm comfortable that we have some room to manoeuvre."
Mr Cardi's buyer's agent, Katherine Skinner, has never seen Adelaide's market this hot.
"The huge amount of growth is unheard of here."
"There's still a lot of buyers that have been left over from the extremely hot market and aren't necessarily affected by the interest rate rises."
Ms Skinner said she's seeing properties that would have gone for $900,000 selling for $1.5 million without any work done on them.
Home prices set to fall further
Barrenjoey chief economist Jo Masters expects house prices to fall 15 per cent and potentially more in Melbourne and Sydney before starting to stabilise towards the end of the next year.
That is as interest rates increase, with Ms Masters predicting that the Reserve Bank will raise the official cash rate to as high as 2.6 per cent by early 2023.
"That's about what economists call neutral, so that's where the RBA is trying to get to.
"And at that level, we do think that interest payments as a percentage of disposable income will be at levels that have typically seen household spending slow."
She said falling house prices will hit all income brackets and that was a major risk to the economy in 2023.
"And that's why when house prices fall, all income groups get exposed."
"We'd expect a negative wealth effect shock right across the income spectrum. And that's a key risk for the economy going forward."
Prop Track's Paul Ryan said the "outsized" rate rise in June by the RBA and expectations of much higher rates later in the year continued to slow property markets across the country in June.
"We expect continued price falls across the country until the uncertainty about the extent of interest rate increases is resolved — likely extending beyond 2022."
Rents go up
CoreLogic said across the country, rents increased by 0.9 per cent in June, taking the annual growth rate to 9.5 per cent.
"Such strong rental conditions through the current cycle have occurred largely in the absence of overseas migration, although the reopening of international borders is likely adding further upwards pressure on rental demand," Mr Lawless said.
"A reduction in average household size through the pandemic helps to explain such high rental demand during a time of closed international borders."
He said the supply of rental properties was also affected by a long-running downturn in investment between 2015 and 2021.
