Property prices rose in six of the eight capital cities in September, but the impact of the coronavirus pandemic and drag on the economy further weighed on Sydney and Melbourne.

Property values fell 0.9 per cent in Melbourne and 0.3 per cent in Sydney, but rose 0.8 per cent in Adelaide, 0.5 per cent in Brisbane, 0.2 per cent in Perth and Canberra, and climbed 1.6 per cent in Darwin, CoreLogic’s home value index said.

“There’s definitely a delineation between [Sydney and Melbourne and] the smaller capitals that are seeing some level of price growth, which isn’t too surprising given these are also the markets that have kept a lid on the virus quite well, where housing affordability is relatively healthy compared to the larger cities and homebuyers are able to take advantage of the ultra-low interest rates on offer,” said Tim Lawless, Corelogic’s head of research.

Sydney’s rate of decline has improved over the last few months and Mr Lawless expected to see the city move back into some level of “modest growth” in either October or November, provided the virus is kept under control.

Some pockets are recording strong sales as buyers compete for the few well-presented properties. However some homes that sold for a premium just a few years ago are now selling for a loss.

In Roseville, a four-bedroom home on an 870 sq m block that last sold for $2.75 million in 2018 was picked up after auction recently for just $2.23 million.

“It’s happening in areas where you’ve had a lot of Chinese investment and also in pockets where there are older homes coming onto the market that have been owned by retirees, whose savings have been decimated, and they don’t have the money to spend on the upkeep,” property consultant Edwin Almeida said.

In Melbourne, inspection activity is expected to pick up as restrictions are lifted, but Mr Lawless predicted the city would take longer to come out of the doldrums.

In the upmarket suburb of Toorak a three-bedroom house at 33 Montalto Avenue suffered a $2 million haircut, selling for $5.2 million in an August 31 transaction, well down on the $7,205,000 the vendors paid for it in August 2018. Kay & Burton sales agent Darren Lewenberg declined to comment.

“I think we probably will see a further reduction in the rate of decline, but I’d be surprised if Melbourne suddenly switched to positive month-on-month growth – I think that will take a little bit longer,” Mr Lawless said.

AMP Capital chief economist Shane Oliver said it was “dangerous” to read too much into current property indicators because the market was still being artificially supported.

“Prices have held up much better than feared back in March – but that’s mainly because JobKeeper, the increase in JobSeeker, the bank payment holiday and other support measures protecting heavily indebted households and property investors have headed off distressed sales,” Dr Oliver said.

The much-anticipated September fiscal cliff, as mortgage repayment holidays come to an end, has not played out noticeably so far in the housing market after the banks agreed to extend the six-month repayment holidays until the end of March for households and businesses that can show they are viable borrowers.

AMP Capital forecasts average capital city prices to fall into mid-2021 but has revised down its top-to-bottom forecast for price falls to 5 per cent to 10 per cent from its original forecast of a 10 per cent to 15 per cent decline.

A further possible cut to interest rates, budget spending announcements and a new policy of making credit more readily available for borrowers, as proposed last week by Treasurer Josh Frydenberg, were likely to offset the downside risks of high unemployment and distressed sales, Mr Lawless said.

Budget to offset downside risks

“I think we will start to see more urgent listings come onto the marketplace in October and November but the big question is whether those headwinds outweigh the tailwinds of potentially interest rates moving even lower than where they are at the moment,” he said.

“And the prospect of more easily available credit would be a very big upside to housing … probably enough to outweigh the downside of the fiscal hill,” he added.

The latest data from APRA, which tracks home loan deferrals, showed that in August 9 per cent of home loans – or $160 billion – were deferred, although that figure was down from a June peak of $195 billion – or 11 per cent.

With Michael Bleby