Australia's property market is facing a rare price correction, as rising interest rates and less favourable tax settings for investors accelerate a downturn. This was reported by Qazaqyia.kz citing The Guardian.

Most capital cities recorded winter price falls, according to Cotality data, with Sydney leading the decline. That weakness is expected to continue, as higher inflation could lead to further interest rate hikes, denting demand.

But the recent price falls are not uniform. In general, suburbs that previously recorded the biggest price increases also cooled the fastest. More affordable homes are also more likely to hold their value, given they are in demand by first home buyers aided by the government's low-deposit scheme.

Those who have owned their properties for longer are also likely to be sitting on significant gains, even after the recent falls. In some cities, including Brisbane, Perth and Darwin, home values are still up more than 10% over the past 12 months.

And the falls have not done much to make Australian homes more affordable for prospective homeowners, given rising mortgage repayment rates have cut borrowing capacity. AMP notes that while home prices have fallen recently, "it's just a flick off the top after a 50% surge since the pandemic".

Which suburbs have had the biggest falls?

According to Cotality data, Sydney experienced the largest price declines during winter. This decline mainly occurred in suburbs that previously saw the highest growth. For example, in some outer suburbs of Sydney, prices fell by 5-10%, while in inner suburbs the decline was 2-3%.

Melbourne also saw price declines, but less than Sydney. In Brisbane, Perth and Darwin, prices are still rising, but at a slower pace. Adelaide and Canberra remained stable.

Why are prices falling?

The main reasons for the decline include: - The Reserve Bank's interest rate hikes, which increased the cost of borrowing. - Reduced tax concessions for investors, dampening investment demand. - High inflation, which could lead to further rate increases.

Outlook

Experts suggest that price declines may continue, especially if inflation remains high. However, AMP analysts believe the scale of the downturn will be limited, given the market has risen significantly since the pandemic.

Government schemes for first home buyers are supporting demand for affordable housing, ensuring price stability in that segment.

Full data is available on the Cotality website, showing specific changes for each suburb.