Property prices in most suburbs have already peaked. How hard have you been hit?

Updated

The tide is turning on Australia's $7.6-trillion property market.

Home prices in more than four out of five council areas have reached their peak and are sliding towards an unknown nadir, according to the latest figures from property market analyst CoreLogic.

As the slump moves into its second year with little or no prospect of rebound, the downturn in capital city property markets threatens to drag down the rest of the economy.

And with a mixed outlook for the global economy, doubts are surfacing about where Australia is going to find the fuel to extend its near-record run of 27 years of unbroken economic growth.

"The likelihood of Australia facing the longest housing downturn in history has increased," says UBS chief economist George Tharenou.

"It seems quite plausible to me that house prices will continue to fall for all of the next year into 2020."

Yearly change in median dwelling value Sydney 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Melbourne 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Brisbane 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perth 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Adelaide 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Hobart 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Canberra 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Darwin 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: CoreLogic 2018

These maps capture the highs and lows of capital city house prices over the past decade.

In particular, they show how rapidly property fortunes have shifted in Sydney and Melbourne, where about 60 per cent of the country's property transactions take place.

In Sydney, the current downturn is both sharper and more widespread than the two most recent slumps. And the record decline of 9.6 per cent in 1989–91 is almost certain to be surpassed.

The property market is down 9.5 per cent since its peak in July 2017 and some economists are predicting a likely price drop of at least 15 per cent.

In Melbourne, the current downturn is yet to mirror the intensity of the 2008–09 slump but the maps show it has already spread further.

Experts warn that while Melbourne may be faring slightly better than Sydney — home prices in Melbourne are down 5.8 per cent since the peak in November 2017 — it's following a similar trajectory, albeit four months behind.

"If we look at Sydney, it's falling pretty much across the board … The rate of the current decline is generally much faster than many of the other periods we've seen," says Cameron Kusher, head of research for Australia at CoreLogic.

"In Melbourne you can see that in 2018 the falls have been largely in those areas closer to the city and it's slowly creeping out to the more affordable suburban areas."

Mr Kusher says he "wouldn't be surprised" if Melbourne's current decline deepened to the 10 per cent fall of the global financial crisis.

"In Melbourne, we've not gone quite as deep as the financial crisis yet but… it's certainly gathering pace."

It's different this time

Historically, downturns in house prices have been driven by rises in interest rates or unanticipated shocks such as the global financial crisis.

This time the downturn is being driven by credit tightening intended to cool a hot investor market.

Housing market declines since 1980 Each line represents a downturn.

(Longer line = longer downturn; steeper line = steeper downturn) All

Sydney

Melbourne

Brisbane

Perth

Adelaide

Hobart

Canberra

Darwin Source: CoreLogic 2018

In 2014 the banking regulator, the Australian Prudential Regulation Authority (APRA) asked the banks not to increase their proportion of investor loans by more than 10 per cent a year. This year it began winding back this limitation.

Then in 2017 APRA targeted interest-only loans, telling the banks they couldn't have more than 30 per cent of such loans on their books.

The final report of the banking royal commission isn't due until next year, but its dramatic hearings have had an additional chilling effect on the banks' willingness to lend.

The Guptas are among the investors such moves are aimed at. They embraced Australia's property market obsession when they moved to Melbourne from Dubai in 1990 and now own more than 30 properties between them.

"I call it generational wealth … so, yes, I might have a few properties. Dad might have a few properties. You know Mum's got a few properties. Even Grandma's got a couple up her sleeve right now," Goro Gupta says.

"For us, it's a never-ending thing."

Except for many property owners, the dream run has already ended.

Mark and Samantha Burgess took a double hit from tougher lending conditions and falling property values when they bought a Sydney apartment off the plan in 2016.

The couple were initially told they needed a 10 per cent deposit on a $1.6 million purchase. But when it came time to settle in August this year, the bank asked for a 20 per cent deposit on a property now valued at $300,000 less.

"We were on the verge of losing the deposit and losing the property," Mr Burgess says.

Tough times for investors are unlikely to garner sympathy from a growing number of Australians who will never have the means to buy their own home, let alone amass a property portfolio.

But Mr Tharenou warns the downturn could spread and if it does, there's no easy way out.

"The main driver of the correction this time is a credit tightening … and the problem is, I just can't see what reverses that quickly," he says.

"It would take a major reversal of policy decisions by the Government and the regulators to try to attempt to re-inflate the housing market and at the moment that's not the case."

How has your neighbourhood fared?

After years of record high prices, 66 council areas have become the first in Sydney and Melbourne in six years to join the list of neighbourhoods where property values have passed their peaks.

Home prices in 473 of Australia's 545 local government areas (LGAs) — more than four in five — have fallen from record highs.

The chart below shows how far each LGA has fallen from its peak (specifically, the percentage decrease from that council area's record high).

The longer the line, the bigger the fall.

This feature doesn't work on this app. Tap the image below to explore the data on the ABC mobile site or scroll past to keep reading.

Among the 25 capital city areas that have slid the furthest, Sydney's Hunters Hill is the only one outside Perth or Darwin.

Property prices in Hunters Hill have fallen by 14.9 per cent since their peak in July 2017 — one of the sharpest declines of any capital city area. Ryde (-13.6 per cent since August 2017) and Hornsby (-13.1 per cent since October 2017), also in Sydney's northern suburbs, recorded similarly precipitous declines.

The other capital city LGAs recording falls of a similar magnitude have been in downturn for at least four years.

Boroondara posted the largest fall of Melbourne's capital city LGAs, with a decline of 11.6 per cent since its peak in August 2017. It is followed by Bayside (-9.9 per cent since October 2017), Manningham (-9.1% since October 2017) and Whitehorse (-9.1% since January 2018).

But the LGAs tumbling furthest from their market peaks — some plummeting more than 50 per cent — are outside capital cities, mostly in outback WA.

"In WA and Queensland it's all about the mining towns where you've seen large falls; in Perth we've seen some pretty large falls too.

"But in NSW, some of the larger declines have been in the heart of Sydney and that's now filtering out to areas such as Newcastle and Wollongong," Mr Kusher says.

"In Victoria, the largest declines have been in some of the high value areas. The regional markets are actually holding up better at this stage."

The million-dollar club is finally shrinking

The number of postcodes with a median property price of at least $1 million has fallen for the first time in six years.

At the market's peak in October 2017, 157 postcodes (the vast majority in Sydney) belonged to Australia's "million-dollar club" — five times as many as in 2012.

By October this year, property prices in 118 of those postcodes had declined, including 21 where the median value dropped below $1 million. Six new postcodes joined the club in 2018.

It's a far cry from the previous five years, when an average of 25 postcodes a year joined the club. Only two — 3125 (Burwood, Vic) and 2079 (Mount Colah) — dropped out over the five-year period.

It's another symptom of the tougher lending conditions at the heart of the current downturn.

"In Sydney the slowdown really started at the top end of the market because it became difficult to access credit … Credit tightening has a bigger impact at the higher end of the market," Mr Kusher says.

"But now we're starting to see the weakness flow into the lower end of the market."

The worst-case scenario

With about 55 per cent of the wealth of Australians tied up in property, fear is mounting that the downturn in housing could affect the broader economy.

That will happen if consumption contracts significantly and the credit squeeze starts to impact unemployment.

Last week the Reserve Bank signalled a further potential cut to the cash rate if the economy takes a hit.

"This is to some extent uncharted territory," Reserve Bank deputy governor Guy Debelle says.

The hope now is that the downturn in house prices can be contained.

"The worst-case scenario for Australia is that the downturn in house prices starts to feed back to the real economy and you get unemployment increasing and interest rate cuts don't do very much," UBS' George Tharenou says.

"Under that scenario you could see house prices down by 20 to 30 per cent. But that is really a relatively low probability.

"Everything has to go wrong, but the chance of that is going up by the day.

"That's the concern for me: it's generally not accepted … that the probability of a very bad scenario right now is real."

Watch 7.30 tonight for the first of three special programs on the state of the property market from reporter Geoff Thompson and producer Alex McDonald.

Notes about this story:

Data excludes areas with fewer than 20 sales in a given year

Data on capital city housing market downturns begins in 1980 in NSW, Victoria and Queensland; 1989 in Western Australia and Tasmania; 1991 in ACT; 1993 in South Australia; and 1999 in the Northern Territory

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Topics: housing-industry, consumer-finance, economic-trends, money-and-monetary-policy, housing, australia

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