Australian dwelling values have just recorded their largest and fastest fall on record, according to CoreLogic:
Source: CoreLogic
This record price decline has been primarily driven by the Reserve Bank of Australia’s (RBA) ultra-aggressive monetary tightening, which drove the official cash rate up by 3.0% in only seven calendar months, nearly doubling variable mortgage rates:
Fastest monetary tightening on record.
There is another factor at play, however, that has also contributed to Australia’s record house price decline.
According to IFM Investors chief economist, Alex Joiner, real household disposable incomes are also falling at a rapid pace this time around. This is the polar opposite of previous rate tightening cycles, which saw strong growth in real household disposable incomes that helped support house prices:
Aussies real household disposable incomes falling this time around.
“On dwelling prices, yes this time is different. At least from the perspective of real household disposable income growth”, Joiner noted via Twitter. “Previously it rose as rates did, cushioning the impact on prices. This time real incomes are falling. Price falls are not disorderly but they will continue”.
The combination of soaring mortgage rates and rising cost of living (the flipside of falling real household disposable income) is why Australian house prices will continue to fall through 2023 until the RBA reverses course and begins cutting interest rates.