Australian Housing Market Faces Downturn Amid Income-Home Value Gap

Australia’s housing market is experiencing a downturn, primarily influenced by a significant widening gap between household incomes and property values, according to a recent report by CoreLogic. In December, home values fell by 0.1% after a stagnant November, marking a gradual slow down that has persisted over the past year.

Eliza Owen, head of research at CoreLogic Australia, highlighted that this decline has been intensified by slowing economic growth and persistently high interest rates. With current economic pressures and increased living costs, affordability has become a major concern for potential buyers. A median income household with a 20% deposit can afford a home priced at $513,000, while the national median dwelling value stands at $815,000.

Owen noted that the past two years saw a steady market largely due to buyers less impacted by rising interest rates, including high-income individuals and sellers with substantial resale profits. However, as expectations for lower interest rates have not materialized, demand from these buyers is beginning to diminish.

The report found that while the downturn has been largely driven by declines in Sydney and Melbourne, the slowdown trend is evident in many regions. Only five out of 15 capital cities recorded price drops in December, with Melbourne experiencing the largest decline at -0.7%. In contrast, regional areas showed mixed results with some locations, like regional South Australia, seeing increases.

Despite the current downturn, Owen believes that the fundamental demand for housing remains strong, suggesting that the market will likely rebound quickly. She cautions, however, that while the drop in prices may aid first-time buyers, it is unlikely to drastically improve housing affordability in the long run.