After a seemingly unstoppable run of soaring valuations in recent years, house prices in major Australian cities have begun to slide in a sign that one of the world's hottest real-estate markets is cooling.
In Sydney, Australia's biggest and most expensive housing market, house prices fell 1.4 per cent in November, while prices in Melbourne fell by 3.5 per cent, according to data from global research firm CoreLogic RP Data. The situation has forced many sellers to cut asking prices, has led to fewer auctions resulting in sales and fewer investors piling into the real-estate market.
The sudden pullback in Australia's major, internationally exposed urban real-estate markets raises questions about the sustainability of other housing hotspots around the world – including Toronto and Vancouver – in a slow-growth global economy.
Five of the eight capital cities across Australia saw slumping house prices, with Hobart, Darwin and Canberra also seeing declines. Adelaide, Brisbane and Perth showed slight price increases – of 0.7 per cent, 0.6 per cent and 0.3 per cent respectively. But prices in Perth and Darwin were both down more than 4 per cent over the past year, largely due to grim local economic conditions as a result of the commodity price slump.
Tim Lawless, CoreLogic's head of research, said the housing market was "moving through the peak of the cycle at a time when there is a large number of new dwellings commencing construction" and that the housing slump was related to a tighter lending environment, less appetite for risk among investors and "affordability constraints" in the major markets of Melbourne and Sydney – where the average price of a dwelling is 810,000 Australian dollars ($790,000). Investor participation in the housing market also fell from 54.1 per cent of all new mortgages in May to 45.4 per cent at the end of September, the lowest level since 2013, CoreLogic said. At the same time, the average selling time is going up and vendor discounting is rising from record lows.
There is also anecdotal evidence from Sydney-area real-estate agents that international demand from mainland China has dropped off as house prices have soared. That has reportedly led some agents to convince multiple sellers to drop their asking prices in recent months – upwards of 10 per cent, in some cases.
But in Vancouver, there doesn't seem to be any similar dip in local prices. Observers sometimes draw comparisons between Australian and Canadian housing markets: Both countries have seen hot housing markets in recent years that have raised worries about a possible real-estate bubble, both have economies and cities – such as Calgary and Perth – that are dangerously exposed to the huge slide in commodity prices, and both also have cities such as Vancouver and Sydney that have seen housing prices boosted by rising demand from China.
On Wednesday, new real-estate figures showed the benchmark price for detached homes in Greater Vancouver was up 22.6 per cent year-over-year. Vancouver, like Sydney, has seen soaring house prices in recent years.
There also doesn't seem to be any drop-off of international interest in Vancouver. Local real-estate agent Nava Rosenberg, who has a real-estate partner of Chinese descent, says the majority of her clients are still coming from China. She points to a detached home she just sold in Vancouver's Dunbar neighbourhood. The property was listed for just under $2-million and sold for $2.55-million, more than $500,000 over the asking price. Four out of the five offers came from buyers from China, she said, and the local offer was outbid by a whopping $300,000.
The house was also a tear-down, she said.
"People have been asking about the bubble situation, but at the end of the day it still comes back to supply and demand," Ms. Rosenberg says. "It keeps on going up. … There's just not enough inventory out there."