Capital city house prices are now down 6.1 per cent from their peak in March 2022. While we may not be at the end of declines, the rate of decline is clearly slowing. With interest rates still expected to rise, it’s likely that greater certainty around the inflation peak is a driver.

House prices move closely with interest rates but they don’t move exactly. House prices began declining in March 2022 even though rates didn’t start increasing until May 2022. Once it became apparent to buyers that the days of ultra low interest rates were over, price expectations were adjusted downwards. It’s likely that house prices will start to stabilise before the cash rate peaks.

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Some markets are also less sensitive to interest rates. Sydney, Melbourne and Canberra are our most expensive cities and as a result are far more sensitive to the cost of debt. Sydney house prices have now fallen by 10.8 per cent from their peak in February 2022. Compare that with Adelaide where the median is half that of Sydney - prices are down only 1.8 per cent from the peak. Resource capitals Perth and Darwin have seen similarly small declines.

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At a small area level, the difference between what’s happening is even more stark. The capital city areas still recording year-on-year increases are all relatively affordable suburbs in Brisbane and Adelaide. Both of these cities recorded net interstate migration during the pandemic. Most people that moved during this time initially rented and a shift from renter to buyer is likely to be in part driving price growth. At a regional level, the areas seeing growth tend to be more affordable holiday destinations, as well as towns that are benefitting from strong agricultural and mining conditions.

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The capital city areas seeing the largest declines at the moment are very expensive suburbs in Sydney. These areas saw very large jumps in pricing during the pandemic and are also the areas that, long term, are the strongest growth suburbs. You may not be able to find a bargain in North Sydney and Mosman but it’s likely that right now pricing is the best you’ll ever see. The regional areas seeing the largest declines are also areas that saw very big jumps in pricing during the pandemic. The shift away from holiday home demand is now clearly showing up in pricing.

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