Australian home prices drop for seventh month as rate hike looms

what happened

Australian home prices fell for a seventh straight month in October, and the slide is the steepest in four decades, according to property data firm Cotality as reported by Reuters. National prices dropped 1.2% over the month and 2.8% over the year, leaving them 6.7% below their peak. Capital-city values have fallen at their fastest pace in 40 years, down 8.1% in just seven months.

Property sales have also slumped, down 23% from a year earlier and 18% below the five-year average. The steepest drop is in Sydney, where transaction volumes fell 30% over the year. Meanwhile, the Reserve Bank of Australia is widely expected to raise its cash rate for a fifth time next Tuesday, to 4.85%, an 18-year high. Markets imply a probability of nearly 90% for the hike.

why it matters

For markets, the key combination is a weakening housing market alongside rising rates. A higher policy rate typically supports the Australian dollar, but it strains mortgage books and cools credit demand, which weighs on the banking sector.

market impact

AUD/USD: expected RBA hike supports the Aussie dollar; banks face pressure from the weakening housing market

• ▲AUD/USD pressure up — expectations of a higher RBA rate support the Australian dollar
• ▼Australian banks pressure down — falling prices and sales weaken the outlook for mortgage lending

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