Home prices drop for the second month in a row as Reserve Bank's aggressive interest rate rises hit hard
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. 
The RBA admits it suffered "reputational damage" when it tried to wind back its COVID-19 pandemic stimulus program.
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. 
"We are seeing the higher cost of debt along with super-high inflation and lower confidence all feeding through to less housing demand in the marketplace," he said.
"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."
Ivan Juricevich, a real estate agent in Melbourne's western suburbs, said the number of buyers and properties on the market had dropped off.
"First home owner buyers are still strong in a market but, with interest rates rising, they've had to re-evaluate their borrowing capacity," Mr Juricevich said.
"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. 
"Nobody has a crystal ball, unfortunately. I believe there will be a slight correction," he said.
"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. 
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.
"There's still a lot of competition, and specifically in the upper middle area of that market, there's lots of competition because Adelaide remains so affordable compared to many other areas of the country."
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.
"In my 15 years in real estate, I've never experienced anything like the market we have seen over the past essentially 24 months here in Adelaide," Ms Skinner said.
"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.
"With that $600,000 upswing, it's making it really challenging for people to enter the market," she said.
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.
The rate hike surprise which is hoped will rein in inflation
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. 
"For every group, except very-high-income earners, housing as a percentage of all the wealth that you own, as a household is about three quarters, so it's very high."
"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. 
"Conditions in the housing market have slowed rapidly, marking the sharpest slowdown in prices in more than 30 years."
"We expect continued price falls across the country until the uncertainty about the extent of interest rate increases is resolved — likely extending beyond 2022."
With everything from mortgage rates to grocery prices and energy bills going up, more Australians are under financial pressure. We want to hear how it's impacting you. 
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. 
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