“The result takes the national housing downturn into new territory, breaking the previous record in peak-to-trough declines, when home values fell 8.38% between October 2017 and June 2019,” said Eliza Owen, CoreLogic Australia’s head of research.

The Australian housing market is likely to remain soft, with the central bank signaling it isn’t yet done raising rates. The Reserve Bank of Australia last month increased rates to 3.1% and said it expects to increase them further, although it isn’t on a preset course. It began raising rates in May, rolling back emergency measures introduced in response to the Covid-19 pandemic, which included a record-low cash rate of 0.1%.

Investors expect a peak in the underlying cash rate of around 4.0%, while the median forecast from Australian economists is lower at 3.6%, CoreLogic said.

Many borrowers have yet to feel the full impact of higher borrowing costs because they locked in fixed-rate mortgages during the pandemic, meaning their repayment rates currently remain low. However, many of those fixed loans are due to expire this year, pressuring household budgets and making the housing market vulnerable to deeper declines.

“A 300-basis point increase in the underlying cash rate over just eight months has resulted in a rapid reduction in borrowing capacity, lowering the amount buyers can offer for homes,” said Ms. Owen. “In addition to constrained borrowing capacity, higher interest costs may be dissuading potential buyers altogether.”

Still, the sharp drop in house price comes after an upswing of almost 29% between September 2020 and May 2022. At the end of 2022 home values were 16% higher than they were five years ago, and almost 60% higher than they were 10 years ago, CoreLogic data showed.

Write to Alice Uribe at [email protected]