Australian Home Prices Fall for a Fifth Month as the Reserve Bank Holds Rates High

Australian home prices fell 0.9 percent in August from July, when they had dropped 1.2 percent, extending the decline to a fifth straight month, according to figures from the property consultant Cotality reported by the South China Morning Post. Sydney fell 1.4 percent and Melbourne 1.1 percent, leaving both cities about 7 percent below their peaks. ABC News reported that the downturn has spread to 93 percent of suburbs across Australia's capital cities.

The correction has reached markets that led the earlier price gains. Brisbane fell 1.0 percent and Perth 0.8 percent, both after double-digit gains earlier in the year, Reuters reported. The Reserve Bank of Australia has raised its cash rate three times this year, to 4.35 percent, and traders are pricing in another increase after a high inflation reading in July.

Two policy changes are pushing in the same direction. Higher interest rates reduce the amount a household can borrow at a given income, and the government's restrictions on negative gearing, along with its higher capital gains tax, reduce the after-tax return for leveraged property investors. Australian household wealth is concentrated in housing to an unusual degree, so a sustained fall in prices removes the collateral that has supported consumer spending through the past decade of cheap credit.