2021 has so far been great for the property market across the country, however, we’re slowly starting to see house prices cool down after a period of record growth.
According to the latest data from CoreLogic, August was still a very solid month for house price growth, with dwelling values across the nation increasing by 1.8%.
Despite the headwinds of lockdowns, Sydney, Melbourne and also Canberra all recorded another month of strong gains. Dwelling values in Sydney increased by 1.8% in August based on the latest data from CoreLogic, Melbourne by 1.2% and Canberra was the strongest performer in the country along with Hobart, with values increasing by 2.2%.
After a strong start to the year and a clear rebound in sentiment from the lows of early 2020, the surge in growth now appears to be slowing down. After peaking in March 2021, where Sydney was seeing a 3.7% monthly jump in prices, the growth numbers are now slowing back down. Darwin was the only capital city where house prices fell, dropping back by -0.1% in August.
Head of Research at CoreLogic, Tim Lawless say this slowing growth across the country is a combination of decreasing levels of affordability and also sentiment.
“Housing prices have risen almost 11 times faster than wages growth over the past year, creating a more significant barrier to entry for those who don’t yet own a home.”
“Lockdowns are having a clear impact on consumer sentiment, however, to date the restrictions have resulted in falling advertised listings and, to a lesser extent, fewer home sales, with less impact on price growth momentum. It’s likely the ongoing shortage of properties available for purchase is central to the upwards pressure on housing values.”
Mr Lawless notes that house prices have grown nationally at 18.4% over the past 12 months which equates to approximately $103,400, or $1,990 per week. In comparison, Australian wages are rising at the average annual rate of 1.7%.
According to Mr Lawless, this is the fastest annual pace of growth in housing values since 1989.
“Through the late 1980’s, the annual pace of national home value appreciation was as high as 31%, so the market isn’t quite in unprecedented territory. The annual growth rate at the moment is trending higher, in fact, it is 3.6 times higher than the thirty-year average rate of annual growth.”
Listings Remain Low
One of the major drivers along with record low interest rates has been the incredibly tight levels of stock on the market. This has been a product of both sentiment and lockdowns disrupting the selling process causing many would-be vendors to hold off.
The latest CoreLogic data shows that due to both lockdowns and seasonal factors, the number of new listings through August dropped to -5.8% below the five-year average and total active listings were -29.4% below average.
Mr Lawless notes that while stock is low, there are still buyers present and transaction numbers are strong.
“Although there has recently been a trend towards fewer buyers, the past three months has seen the number of home sales remain 30% above the five-year average at a time when active listings are -29% below average,” Mr Lawless said.
“We are still seeing a disconnect between advertised supply and housing demand, even in the cities where lockdown restrictions are active which is keeping upwards pressure on housing prices despite challenges faced by both buyers and sellers.”
In terms of auction clearance rates, there has been a continual drift lower, especially in Melbourne, with vendors choosing to wait out the most recent lockdowns. While the days on market (time to sell a property) across the country are slightly higher than they were earlier in the year.
The pace of rental growth has dropped in recent months, however, the trend remains upwards. Across Australia, rents have increased by 8.2% over the past 12 months, which was the largest increase since 2008.
Looking forward, CoreLogic feels that while house prices around the country will move higher, the rate of growth will continue to slow down.
Demand will continue to outweigh supply in most areas and new listings will be absorbed quickly, helping to prop up house prices going forward.
In many areas, affordability is starting to become an issue for those not already on the property ladder and this will only add to slowing growth, particularly in our two most expensive cities of Sydney and Melbourne.
CoreLogic believes that when lockdowns do finally ease, inventory levels will rise due to the high levels of pent-up supply that is wanting to sell, however, it’s hard to tell if the same level of demand will be present going forward.