House prices have recorded their steepest decline on record, with all eight capital cities experiencing a fall in the September quarter

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House prices have recorded their steepest decline on record, with all eight capital cities experiencing a fall in the September quarter for just the second time ever.

Higher interest rates, cost-of-living pressures and changes to property investment rules announced in the federal budget have seen Australian house prices tumble in a historic downturn, but despite appearances, it isn’t great news for those hoping to buy.

The latest Domain House Price Report revealed median house prices across the capitals dropped 4.7 per cent, or almost $60,000, in just three months.

Perth recorded the steepest quarterly decline

Perth suffered the most, with $88,664 wiped off its median house price, bringing it down to $1.115 million.

Sydney has been hit with a decline of $82,420 to $1.66 million, while Brisbane had its first quarterly fall in close to four years, dropping $66,001 to $1.15 million.

Interestingly, some of the steepest declines have been recorded in cities that had years of price growth, particularly Perth and Brisbane, where rising prices eventually became out of reach for buyers.

Now, the downturn has spread beyond Australia’s more expensive housing markets.

Domain chief residential economist Dr Nicola Powell said the shift had been uncharacteristically fast, with prices falling beyond the usual confines of Sydney and Melbourne.

“What began as weakness concentrated in some cities has broadened considerably, with house prices now falling across every capital for the first time in 15 years,” she told Domain.

“When buyers expect prices could fall further, there is less urgency to act and greater incentive to wait.”

Sydney’s median house price has dropped for three consecutive quarters

Four interest rate hikes this year, changes to property investment taxation in the federal budget and rising living costs have weakened demand for housing nationally.

Prospective buyers are dealing with tighter borrowing limits, while homeowners have less money to spend as a result of higher mortgage repayments.

The slowdown has also been made worse by investors shying away from the market following this year’s budget changes.

Buyers appear to be growing more and more cautious, with auction results showing more properties going unsold.

In Sydney, the September auction clearance rate fell to 51.1 per cent, its lowest result for that month since 2018, according to Domain.

One in four auctions were also withdrawn, the highest proportion recorded for September.

Weaker auction clearance rates

For buyers who can still afford to purchase, the downturn has brought less competition and more room to negotiate.

Homeowners who bought near the height of the market are facing the reality that selling now could mean accepting a loss, unless they’re prepared to risk waiting for conditions to change.

Jack Bongiorno, group sales director at Melbourne real estate agency Marshall White, has worked in the industry since 1981 and said the downturn was the worst he had witnessed.

He said vendors in Victoria had been adjusting their expectations for more than a year, while some were choosing not to sell at all.

Buyers, meanwhile, have become more selective about what they are prepared to pay.

“People have to get on with their lives,” he told nine.com.au.

“There are people taking advantage of the situation, obviously. There are people looking to upgrade. It’s a great time to upgrade when what you’re selling might be down, but what you’re buying is probably down more.”

Still, cheaper homes don’t necessarily mean it is easier for Aussies to buy.

Renters hoping to buy are still facing high housing costs

Despite the recent falls, Sydney’s median house price remains above $1.6 million, while Brisbane and Perth are still sitting above $1.1 million.

For renters hoping to save for a deposit, high rents and cost-of-living pressures have continued to make putting money aside difficult.

Even those who have managed to save might find they cannot borrow as much as they could earlier in the year.

Bongiorno said buyers in Victoria were facing both sides of the downturn.

“Affordability is an issue and every time we have a rate rise, obviously affordability diminishes,” he said.

But he argued that some buyers who could secure finance were finding opportunities, particularly those planning to hold a property for the long term.

The Reserve Bank has lifted interest rates four times this year

The Reserve Bank of Australia hiked the official cash rate to 4.6 per cent in September, its highest level in almost 15 years, and another increase could be on its way.

RBA deputy governor Andrew Hauser warned inflation is proving harder to bring under control, sending the chances of a November 3 rate hike soaring from 27 per cent to 41 per cent.

“The inflation outlook looks materially worse than we projected in the August report,” he told the Citi Investment Conference on Wednesday, according to the Australian Financial Review.

In Melbourne, Bongiorno said the impact was particularly noticeable when looking at the number of properties going to auction.

The agency’s auction numbers for this weekend, traditionally one of Melbourne’s busiest spring selling weekends and even referred to as “Super Saturday”, were down by almost two-thirds, he said.

Higher interest rates have reduced borrowing capacity for Australians hoping to enter the property market. Photo: Daria Nipot

“This spring feels like this winter, to be honest,” he said.

The future of Australian property prices remains uncertain, with some economists warning the downturn is far from over.

Morgan Stanley analysts have forecast national home values could fall up to 15 per cent by the end of next year, according to the Australian Financial Review.

The investment bank changed its earlier forecast as the potential of further interest rate increases rose, with analysts warning that higher borrowing costs are the key to the worsened outlook.

For now, falling prices might give some Australians a better opportunity to buy, but it will depend on how much they can borrow and whether they are prepared to enter a market that could continue to become even cheaper.