2021 was a year of record house price growth across the country, with values increasing 22.1% in 12 months according to the latest data from CoreLogic.

In December, national house prices increased by 1.0%, down from 1.3% in November. Once again, it was Brisbane and Adelaide that were the strongest two markets in December, increasing by 2.9% and 2.6% respectively. Sydney property prices saw a modest 0.3% increase last month, while Melbourne recorded a fall of -0.1%.

Over the past 12 months, Hobart has been the strongest market in the country with a gain of 28.1%, with Brisbane increasing by 27.4% and Sydney by 25.3%.

Source: CoreLogic

CoreLogic’s Research Director Tim Lawless says momentum has started to slow in both Sydney and Melbourne.

“A surge in freshly advertised listings through December has been a key factor in taking some heat out of the Melbourne and Sydney housing markets, along with some demand headwinds caused by significant affordability constraints and negative interstate migration,” Mr Lawless said.

“We have seen this trend in previous growth cycles, where more expensive housing markets have shown greater levels of volatility; housing values tend to rise more through the upswing but record a larger decline through the down phase of the cycle.”

Record Growth

According to CoreLogic, Brisbane and Adelaide, along with regional Queensland, are the only broad regions where there is no evidence of growth slowing down,

“These regions show less of an affordability challenge relative to the larger capitals, as well as better support for housing demand with Queensland in particular showing strong interstate migration. Additionally, we haven’t seen the same level of supply response seen in other regions, with the trend in advertised supply remaining well below average in these markets.”

The most popular regional markets have seen housing values rise more than 30% over the calendar year, with the Southern Highlands and Shoalhaven recording the highest annual rise in home values at 37.7%, followed by Queensland’s Sunshine Coast at 33.7%.

Regional markets, especially on the East Coast are continuing to see strong growth and have rebounded while other capital city markets have started to slow down. Since March 2020, housing values across regional Australia are up 32.0% compared to the 20.0% lift in values seen across the combined capitals.

Stock Levels Still Low

Stock levels in regional Australia finished the year 35.9% below the five-year average. This compares to combined capital cities seeing stock 14.2% below the five-year average.

Source: CoreLogic

According to Mr Lawless, stock levels should continue to normalise over the course of 2022.

“The number of homes available to purchase has been a key factor underlying the trend in housing values. Cities where advertised stock levels are above average or close to normal, such as Melbourne and Sydney, have shown a more obvious slow down relative to cities with persistently low advertised supply, like Brisbane and Adelaide,” Mr Lawless said.

“Such a significant mismatch between available housing supply and the level of demand is a fundamental reason why housing prices have risen so sharply over the year. As stock levels normalise and affordability constraints along with tighter credit conditions drag down demand, it’s reasonable to expect growth conditions will be more subdued in 2022,” Mr Lawless said.

Nationally, rents increased by 9.4% over the course of 2021. Unit rents were up 7.5% over the year compared to the 10.1% increase recorded rents for freestanding homes.

Growth to Slow Down

2021 has been a record year for Australian housing markets, but 2022 is likely to see a further easing in the pace of capital gains according to CoreLogic.

With house prices increasing at the fastest rate since the late 1980s it’s becoming increasingly difficult for many homebuyers to afford to buy in many areas of the country.

Sellers have had the upper hand for many months, but CoreLogic believes buyers are starting to regain some leverage. With demand outweighing advertised supply, vendors have started to see more room to negotiate and less competition.

Another downside risk is an early lift in interest rates and tighter credit policies. CoreLogic says ‘an early lift in the cash rate implies the economy has improved enough to tighten monetary policy, however, housing markets are likely to be sensitive to any increase in the cost of debt.”

Overall, while there are headwinds that will slow the growth of housing markets, CoreLogic expects national housing values will continue to rise in the short term. However, there is likely to be large discrepancies between different markets around the country based on short-term supply and demand as well as other lifestyle factors.