(Bloomberg) -- Sydney property prices, the bellwether of the Australia market, advanced for the first time in 13 months in February in a positive sign for home values that have been under pressure from rising interest rates.

Prices in Sydney climbed 0.3% last month, their first increase since January 2022, while Melbourne and Brisbane slipped 0.4% apiece, CoreLogic Inc. data showed Wednesday. That sent the combined capitals index down 0.1%.

The property consultancy’s national home value index fell 0.1%, the smallest decline since May, when the Reserve Bank began its policy tightening cycle.

The increase in Sydney was driven by the upper quartile, or higher-end properties, signaling a possible turnaround in the city’s market as the segment tends to lead both upswings and downturns, CoreLogic said.

Australia’s housing market has been in the doldrums for the past nine months as the RBA joined global counterparts in an aggressive tightening cycle to try to contain spiraling inflation. The central bank surprised markets last month when it signaled it wasn’t done yet and expected further hikes to come.

Australia Recession Risk Rises as RBA Seen Hiking More Than Fed

That’s one of the reasons why Eliza Owen, CoreLogic’s head of research, says it’s difficult to call a bottoming-out of the housing market. 

“In fact, at this stage we think there are considerable downside risks to housing market performance in 2023, which could lead to a re-acceleration in housing value declines,” she said. Owen also highlighted the repricing of low fixed-rate mortgages at higher rates later this year and rising unemployment.

The RBA raised its cash rate to 3.35% in February, from a record-low 0.1% in May, as it tries to crush the hottest inflation in three decades. Money market pricing shows rates peaking at 4.31% this year, suggesting at least three more quarter-point hikes.

What Bloomberg Economics Says...

“There is now a greater danger of over-tightening that could tip the economy into recession in 2023”

“We still see the economy narrowly avoiding a technical recession thanks to surging population growth — but higher rates will increase the downside risks”

— James McIntyre, economist

For the full note, click here

While fewer property listings has helped keep prices from falling too far, a slump in consumer sentiment from higher borrowing costs may cool demand further and trigger another round of house-price declines, CoreLogic said.

“Because consumers are feeling uncertain about economic conditions, exacerbated by the past few weeks of hawkish sentiment from the RBA, they may be reluctant to make large financial commitments like housing purchases,” Owen said.

(Adds comments from economists, updates market pricing for peak RBA rate.)

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