According to the CoreLogic Daily Home Value Index, this is the deepest peak-to-trough decline, surpassing the previous record-breaking fall between 2017 and 2019.

The current record slump has been triggered by the RBA’s aggressive interest rate hikes - the fastest rate of tightening since 1994.

CoreLogic noted previous housing market cycles in the mid to late 2010s were driven more by changes in housing investment activity and tighter lending standards.

CoreLogic Head of Research Eliza Owen said a collective 300 basis points’ worth of tightening to the cash rate since May has quickly rebalanced the housing market in 2022/23. 

“A 300-basis point increase in the underlying cash rate over just eight months has resulted in a rapid reduction in borrowing capacity, lowering the amount buyers can offer for homes,” Ms Owen said.

“In addition to constrained borrowing capacity, higher interest costs may be dissuading potential buyers altogether.”

The analysis also revealed Aussies are more indebted today compared to other periods of interest rate hikes in previous eras.

The RBA’s latest estimates of housing debt-to-income ratio is at 188.5% - a decade ago, this figure was 162% and in 2002 the ratio was 130.2%.

Higher household indebtedness may have increased the sensitivity of housing values to interest rate rises.

Which cities were the downturn frontrunners?

The property downturn was led by Australia’s three largest capital cities.

Sydney home values took the crown for the largest peak-to-trough decline, falling 13%.

Brisbane prices dropped by 10% from their peak with Melbourne following just behind, down 8.6%.

At the other end of the spectrum, Perth dwelling values have fallen less than 1% from their peak in August 2022.

Ms Owen noted the -8.4% downturn has come off the Covid-19 upswing which delivered extraordinary value gains. 

“The sharp decline in dwelling values follows an upswing of 28.9% between September 2020 and May 2022, which was the fastest rise in home values nationally on record,” she said.

“The fall in national home values may be the largest peak-to-trough decline on record, but at the end of 2022 home values were still 16% higher than they were five years ago, and 59.8% higher than they were 10 years ago.”

Where to from here? 

AMP Chief Economist Shane Oliver said the cash rate hikes are the biggest driver of the downturn and believes prices have a way to fall before they bottom out.

"We expect average property prices to fall further out to the September quarter 2023 as rate hikes continue to flow through and economic conditions deteriorate," Mr Oliver said.

According to Ms Owen, housing market conditions are expected to remain soft over the coming months.

“Ongoing increases in interest rates will further erode the borrowing capacity, and likely prolong the country’s housing downturn until interest rates stabilise,” she said.

Current house price forecasts by the big-four banks are:

  • NAB - decline of around 20%
  • Westpac - decline of 16%
  • ANZ - decline of 18%
  • CommBank - decline of 15%

Read More: How will the Australian property market fare in 2023?

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