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80% of Australian property markets in decline – what does this mean for your mortgage?

Mark Bristow avatar
Mark Bristow
- 4 min read
80% of Australian property markets in decline – what does this mean for your mortgage?

Property values across the nation are falling, with a new report showing that almost 80% of Australia’s house and unit markets are now in decline. Combined with the cost of living and rising interest rates, how could these falling values affect your mortgage?

According to CoreLogic, its Mapping The Market tool shows that 79.5% of house and unit markets analysed saw values retreat over the September quarter. Out of 3027 capital city house and unit markets, 2405 markets recorded declines during the third quarter (Q3) of 2022, which is a sharp uptick from the 1293 markets that recorded a decline in Q2.

The report found that Sydney, Melbourne, Canberra and Hobart saw 100% of analysed suburbs experience a decline in house values over Q3, with Hobart also recording a quarterly decline in all unit markets analysed.

CoreLogic’s Home Value Index shows that dwelling values across the combined capitals declined -4.3% over the September quarter, down from a -0.8% decrease recorded over the three months to June.

CoreLogic economist, Kaytlin Ezzy, said that these accelerated declines can be partially attributed to the recent back-to-back rate hikes from the Reserve Bank of Australia (RBA):

“This analysis shows the effect of the three 50 basis point rate hikes through the September quarter, plus the lagged impact of the first two hikes (totalling 75 basis points) in May and June, so it’s not surprising to see significantly more markets recording a decline in value.”

How do rising rates lead to falling house prices? 

With mortgage interest rates rising due to the RBA’s cash rate hikes and other factors, it’s harder for many Australians to afford the interest payments on a home loan. This reduces the maximum amount a bank or mortgage lender is likely to offer a borrower applying for a home loan. Recent RateCity research shows that these RBA rate hikes have reduced the average family’s home buying budget by an estimated $195,500.

As homebuyers see their maximum borrowing capacity reduced, properties end up selling for less at auction, and vendors selling properties are forced to lower their asking prices to meet the market, resulting in lower average house price figures.  

What does this mean for current mortgage holders?

Even if you already own a property, falling house and unit values in your area could still affect you, especially if you applied for your mortgage relatively recently. When your property’s value falls, so does your equity in the property. Not only does this make it harder to access your equity via a home equity loan or line of credit, but it could make it much more difficult to refinance your home loan.

If falling property values mean that you now have less than 20 per cent equity in your property, you may not be able to refinance your home loan without paying costly Lenders Mortgage Insurance (LMI). Given that the RBA is likely to keep raising interest rates further into the future, and more Australians are coming off ultra-low fixed rates from a few years ago, it’s possible that some Australian borrowers could find themselves in “mortgage prison” – unable to afford their higher interest rates, but also unable to afford to refinance to a cheaper deal.  

According to RateCity.com.au research director, Sally Tindall, borrowers at risk of mortgage prison should focus on paying down their debt where possible: 

“Borrowers who can’t refinance their loan because of their equity position should still negotiate with their lender for a better rate. This will help them make their monthly repayments, and potentially extra so they can break out of mortgage prison faster.”

Home loans for refinancing:

5.80%

5.83%

$1,896

Australian Credit Licence 238311

Fees & charges apply

Product info
G&C Mutual Bank Limited
Essential Worker Home Loan
  • Owner Occupied
  • Variable
  • 5% min deposit
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5.80%

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$1,896

Australian Credit Licence 238311

Fees & charges apply

Product info
G&C Mutual Bank Limited
Fixed Rate Home Loan
  • Owner Occupied
  • Fixed 3 years
  • 5% min deposit
  • P&I

Compare home loans in Australia

Product database updated 26 Feb, 2024

This article was reviewed by Personal Finance Editor Peter Terlato before it was published as part of RateCity's Fact Check process.

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