The housing market slowdown is entrenched and likely to continue in Sydney and Melbourne until at least 2020, a new report says, as nationwide property values post the first annual slide in five-and-a-half years.

Australian housing prices fell 0.1 per cent in May, taking the annual loss to 0.4 per cent, which was the first time values have fallen on annual basis since October, 2012, according to property data firm CoreLogic.

CoreLogic head of research Tim Lawless says tighter credit availability and a high number of units being built despite waning foreign investor interest are key factors behind the decline.

“The most significant driver of this turnaround has been tighter credit availability, particularly for those borrowing for investment purposes,” he said.

“Additionally, a high number of units remain under construction, with demand impacted by fewer foreign buyers and less domestic investment in the market.”

AMP chief economist Shane Oliver said the banking regulator’s tightening of lending standards for investors and interest-only borrowers, begun in July 2017, was continuing to impact.

“Along with poor affordability, rising supply, falling price growth expectations and the end of FOMO (fear of missing out) are pushing prices down in cities which have seen strong gains over the last few years,” he said.

The banks’ latest round of tighter lending standards concerning borrower’s income and expenses is also contributing, particularly in Sydney and Melbourne, which have high home price to income ratios.

Mr Oliver tips prices in Sydney and Melbourne will fall another four per cent this year, five per cent next year and still be sliding in 2020.

Sydney posted a 4.2 per cent annual drop in housing values in the year to the end of May, while Melbourne values grew by 2.2 per cent.

But in the past three months Melbourne has overtaken Sydney as the weakest capital city housing market, while Hobart was the best performer.

Melbourne housing values slumped 1.2 per cent over the three months to May 31, the largest fall in values over that time period since February 2012.

Perth and Darwin, where values have been trending lower since 2014, are showing signs of recovery, with housing values up over the past three months in both cities by 0.1 per cent and 1.3 per cent respectively.

In the regions, housing values grew by a combined 2.2 per cent annually, led by Geelong, in Victoria, which rose 10.2 per cent.

Satellite cities Ballarat, in Victoria, and Newcastle, in NSW were also in the top ten performing regional markets, as were lifestyle destinations such as Queensland’s Sunshine Coast and the NSW Southern Highlands.


Sydney – down 4.2 per cent

Melbourne – up 2.2 per cent

Brisbane – up 0.9 per cent

Adelaide – up 0.6 per cent

Perth – down 1.8 per cent

Hobart – up 12.7 per cent

Darwin – down 7.9 per cent

Canberra – up 2.3 per cent

Combined capitals – down 1.1 per cent

Combined regional – up 2.2 per cent

National – down 0.4 per cent