After seeing some of the strongest price growth so far this year, both Perth and Adelaide have now joined the other major capital cities with declining prices.
The latest data from CoreLogic shows that property values across the country fell 1.8% last month, led by a 2.3% decline in Sydney prices.
Brisbane prices dropped 1.8%, Hobart and Canberra fell 1.7% while Melbourne was 1.2% lower. Darwin was the only capital city market to record price growth last month.
Source: CoreLogic
CoreLogic’s research director, Tim Lawless, said Brisbane’s market had finally started to slow down after almost two years of growth.
“It was only two months ago that the Brisbane housing market peaked after recording a 42.7% boom in values,” Mr Lawless said.
“Over the past two months, the market has reversed sharply with values down -1.8% in August after a - 0.8% drop in July.”
According to CoreLogic, it’s not just the capital cities that are experiencing declining prices. Regional markets are also starting to turn down after what has been a record-setting few years of price growth.
Regional home values were down -1.5% in August compared with a -1.6% fall in values across the combined capitals. Between March 2020 and January 2022 regional dwelling values surged more than 40% compared with a 25.5% rise for the combined capitals.
“The largest falls in regional home values are emanating from the commutable lifestyle hubs where housing values had surged prior to the recent rate hikes,” Mr Lawless said.
“Over the past three months, values are down -8.0% across the Richmond-Tweed, -4.8% across the Southern Highlands-Shoalhaven market and -4.5% across Queensland’s Sunshine Coast.“
The annual trend in housing values is rapidly levelling out. After moving through a peak annual growth rate of 21.3% in November last year, the annual growth rate across the combined capitals has eased back to just 2.2%. Values across Sydney (-2.5%) and Melbourne (-2.1%) are now below the level recorded this time last year.
Despite the recent weakness, housing values across most regions remain well above pre-COVID levels. Home values in all capital cities and rest-of-state regions, bar Melbourne, remain 15% or above the levels recorded in March 2020, implying most home owners have a significant equity buffer before their home is likely to be worth less than what they paid.
“A 15% peak to trough decline would roughly take CoreLogic’s combined capitals index back to March 2021 levels,” Mr Lawless said.
“Additionally, many home owners would have had at least a 10% deposit and paid down a portion of their principal, the risk of widespread negative equity remains low.”
Mr Lawless said he expects the downturn will continue to play out through the remainder of the year, and possibly into 2023.
“It’s hard to see housing prices stabilising until interest rates find a ceiling and consumer sentiment starts to improve,” he said.
“From current levels, interest rates are likely to increase by at least another 75 basis points and there is a good chance advertised stock levels will accumulate through the spring selling season, providing more choice for buyers and adding further downwards pressure on housing values.”
According to Mr Lawless, higher advertised stock levels are mostly the result of less housing demand rather than a rise in the number of new listings being added to the market. Nationally, CoreLogic estimates the number of home sales over the three months to August was -14.8% below the same period a year ago, but larger declines were evident across some cities including Sydney (-35.4%), Canberra (-18.9%) and Melbourne (- 16.5%).
“Between winter and spring we typically see a 22% rise in the number of new capital city listings based on the pre-COVID five-year average,” Mr Lawless said.
The flow of new listings this spring season may not be quite as active with the housing downturn dissuading some prospective vendors, but we are likely to see more listings added to the market than in winter.
“At the same time we are expecting to see less buying activity as higher interest rates and low sentiment continue to weigh on demand. Should this scenario play out, the net result will be an accumulation of advertised supply that could further weigh down values.”
Rental rates increased a further 0.8% in August according to CoreLogic’s national rental index, down from 1.0%.
The slowdown in rental appreciation comes after annual rental growth reached double digits (10.0%) for the first time since at least 2006 when CoreLogic rental statistics commence. The slowdown was most evident across regional Australia, where the annual rate of rental growth eased from 12.5% in November last year to 10.1% over the 12 months ending August. Growth in capital city rental trends look to be easing a little as well, with the combined capitals recording a 10.0% rent rise over the past year, while the monthly trend eases from a recent peak of 1.1% in May to 1.0% in August.
“This trend is reversing as tenants become more willing to rent in higher density situations, especially in Sydney and Melbourne where unit rents are now rising at a much faster pace than house rents,” Mr Lawless said.
“Potentially we are seeing the first signs of smaller rental households that formed earlier in the pandemic reverting back to larger households or utilising higher density rental options to combat worsening rental affordability.”
Source: CoreLogic
The outlook for the housing market remains intertwined with the trajectory of interest rates. Forecasts for the terminal cash rate generally range from the mid-2% to the mid-3% range, although financial markets are pricing in a peak cash rate of just over 4% by August next year. Mr Lawless said the range of forecasts for the cash rate highlights the sheer uncertainty associated with inflation, wages growth and monetary policy.
“As borrowing power is eroded by higher interest rates and rising household expenses due to inflation, it’s reasonable to expect a further decline in consumer confidence and lower housing demand,” Mr Lawless said.
Mr Lawless said that while interest rates are hurting property prices, it is also helping with affordability in many areas.
“The wash up is that lower housing prices and higher incomes should make home ownership more achievable for non-home owners, but headwinds remain in being able to save for a deposit and demonstrate the ability to service a loan amid such a high cost of living,” he said.
“With spring upon us, advertised stock levels are expected to rise. Inventory was already higher than average across some markets at the end of winter (Sydney/Melbourne/Hobart) and, although the flow of new listings may not be as high as previous years, we could see advertised supply accumulating through spring due to a lack of housing demand.
“Amid higher advertised stock levels, vendors will be competing across a larger pool of available supply for fewer buyers. While this is positive news for buyers, sellers will need to be realistic in their pricing expectations and ensure they have a quality marketing campaign in place.”
Although housing values are on track to record a significant drop, the risk of widespread negative equity remains low, considering the substantial rise in housing values between September 2020 and April 2022. Nationally home values rose by 28.6%; so even a 20% decline in housing values would result in housing values remaining above their pre-COVID levels.
Property prices are continuing to soften with both Sydney and Melbourne leading the falls across the country.
According to the latest data from CoreLogic, national property values fell 1.3% in July, with Sydney down 2.2% and Melbourne's values dropping by 1.5%.
The previously rampant Brisbane market also dipped into negative territory for the first time in nearly two years, falling -0.8%, while Canberra (-1.1%) and Hobart (-1.5%) were also down over the month.
Perth's growth in values has seen a sharp reduction, but it still managed to achieve a small 0.2% gain, while Adelaide (+0.4%) and Darwin (+0.5%) also showed positive growth.
Source: CoreLogic
CoreLogic's Research Director, Tim Lawless, said rising interest rates are likely to cause price to continue to soften.
"The rate of growth in housing values was slowing well before interest rates started to rise, however, it's abundantly clear markets have weakened quite sharply since the first rate rise on May 5," Mr Lawless said.
"Although the housing market is only three months into a decline, the national Home Value Index shows that the rate of decline is comparable with the onset of the global financial crisis (GFC) in 2008, and the sharp downswing of the early 1980s."
"In Sydney, where the downturn has been particularly accelerated, we are seeing the sharpest value falls in almost 40 years."
Regional markets have also weakened, with the combined regional index recording the first monthly decline (-0.8%) since August 2020. Dwelling values were down across Regional New South Wales (-1.1%), Regional Victoria (-0.7%), Regional Queensland (-0.7%) and Regional Tasmania (-0.6%), while values continued to trend higher in Regional SA (1.1%) and Regional WA (0.1%).
Overall, regional markets are still outperforming their capital city counterparts, but this month's figures show major regional centres are not immune to falling home values.
"Dwelling values across CoreLogic's combined regionals index were up 41.1% from the pandemic trough to the June peak, compared with a 25.5% rise across the combined capitals index," Mr Lawless said.
"The stronger growth reflects a significant demographic shift towards commutable regional markets, which is likely to have some permanency as more workers take advantage of formalised hybrid employment arrangements."
Most of the regional centres adjacent to Sydney, Melbourne and Brisbane (including Geelong, Ballarat, Illawarra, Newcastle and Lake Macquarie, the Southern Highlands & Shoalhaven, the Gold Coast and Sunshine Coast) recorded a decline in home values over the three months to July, marking the end of nearly two years of significant capital gains.
After seeing a slower rate of growth during the past few years, unit values are now holding up strongly compared to houses, with values down -1.0% compared to -1.5% for houses.
"This trend is most apparent across the three largest capitals as well as Canberra, where housing affordability challenges may be deflecting more demand towards the medium to high density sector," Mr Lawless said.
"Additionally, firmer interest from investors should favour the unit market over houses where demand has historically been more concentrated."
Listings continue to trend higher across much of the country, however, there is a growing divergence between the major capital cities and the smaller locations.
In Sydney and Melbourne, total listings are already 8 to 10% above five-year averages, however Brisbane, Adelaide and Perth are recording advertised supply levels that are more than -30% below the five-year average, suggesting a faster absorption through the growth cycle to-date.
Notably, CoreLogic's estimate of sales activity over the three months to July was -16% lower relative to the same period in 2021.
The national figures are heavily impacted by an estimated -39.8% drop in sales across Sydney and a -26.3% fall in Melbourne sales, relative to the same period a year ago. Stronger markets such as Adelaide and Perth have recorded a rise in activity, with the estimated volume of sales up 21.6% and 7.2% respectively.
"It's important to remember the context of these statistics," Mr Lawless said.
"While national home sales are falling from record highs, they are still 9.2% above the previous five-year average for this time of year.
"There is a good chance the number of properties sold in the second half of this year and into 2023 will continue to trend lower as higher interest rates, a more cautious lending environment and a reduction in household confidence continues to weigh on housing demand."
Source: CoreLogic
Rents continued to trend higher through July, rising 0.9% nationally over the month to be 2.8% higher over the rolling quarter and 9.8% higher over the past 12 months.
The trend in rising rents is evident across each of the capital city and broad rest of state markets, led by Brisbane with a 4.2% rental rise over the three months to July, to a 0.3% rise across regional NT.
Mr Lawless said rental markets are extremely tight, with vacancy rates around 1% or lower across many parts of Australia.
"The number of rental listings available nationally has dropped by a third compared to the five-year average, with no signs of a lift in rental supply," he said.
“On top of already tight rental supply, it’s likely demand will continue to increase as overseas arrival numbers climb."
“Such widespread and rapid rental growth is likely to remain one of the key domestic factors pushing up inflation, along with construction, food, transport and energy costs.”
While some of these can be attributed to global supply chain issues, the rental situation is a domestic one, caused by a combination of tight supply and amplified demand, according to Mr Lawless.
“Logically, we will probably see a reversal of the pandemic trend towards smaller rental households as tenants look to maximise their occupancy and spread rental costs across a larger household.
“To this end, rental values are rising fastest in the more affordable unit sector as tenants seek out cheaper rental options.”
Source: CoreLogic
The outlook for national property markets remains uncertain as the RBA continues to move forward with higher interest rates to combat inflation.
“As borrowing power is eroded by higher interest rates, and rising household expenses due to inflation, it’s reasonable to expect a further loss of momentum in housing demand,” Mr Lawless said.
Mr Lawless said this interest rate hiking cycle may be short and sharp, with financial markets and some economic forecasters now factoring in interest rate cuts through the second half of next year.
“When interest rates start to stabilise, or potentially reduce next year, this could be the cue for housing values to find a floor,” he said.
“Similar to the trajectory of the upswing, this downswing phase could be a short but sharp one, depending on how high and fast interest rate settings go.”
The spring selling season will test the depth of housing demand where historically the flow of new listings has surged through spring and early summer, typically reaching a peak in late November Mr Lawless said.
“The rise in freshly advertised stock may not be met with a commensurate lift in buyer demand, resulting in higher levels of housing inventory.
“By late spring or early summer, we could be seeing advertised stock levels trend higher than normal,” he said.
“Vendors are likely to be more competitive across a smaller pool of active buyers, which would drive clearance rates lower across auction markets, and could result in longer selling times and larger discounting rates for private treaty sales.”
Australia’s two largest capital cities have both seen property prices decline the last month, dragging national house prices lower.
According to the latest data from CoreLogic, national property prices fell -0.6% in June, led lower by falls in Sydney (-1.6%) and Melbourne (-1.1%).
Hobart was the only other capital city to record a fall in home prices with a -0.2% decline, while Brisbane (0.1%), Canberra (0.3%) and Perth (0.4%) all saw minimal growth.
Adelaide continues to be the strongest housing market in the country, with values increasing 1.3% over the month of June.
Source: CoreLogic
Values in regional Australia have also started to slow down after a record run of growth, with prices up just 0.1% for the month.
According to CoreLogic, every capital city and broad rest of state region is now well past their peak rate of growth as trend rates eased across the remaining markets.
CoreLogic Research Director, Tim Lawless, said the housing market’s sharper reduction in growth coincides with the May cash rate hike, surging inflation and low consumer sentiment.
“Housing value growth has been easing since moving through a peak in March last year, when early drivers of the slowdown included rising fixed term mortgage rates, an expiry of fiscal support, a trend towards lower consumer sentiment, affordability challenges and tighter credit conditions,” Mr Lawless said.
“More recently, surging inflation and a rapidly rising cash rate have added further momentum to the downwards trend. Since the initial cash rate hike on May 5, most housing markets around the country have seen a sharper reduction in the rate of growth.
“Considering inflation is likely to remain stubbornly high for some time, and interest rates are expected to rise substantially in response, it’s likely the rate of decline in housing values will continue to gather steam and become more widespread.”
After what’s been a long period of time where sellers have been in control, markets are now starting to come back to favour buyers.
According to CoreLogic, national advertised stock levels remain -7.4% lower than 2021.
In Sydney and Melbourne, total advertised supply is now 7-8% above the levels recorded a year ago and well above the five-year average.
Hobart has seen advertised stock levels jump 48.4% higher relative to last year and inventory is 20.7% higher in Canberra.
In Adelaide, where housing conditions remain quite strong, advertised stock levels are still -16.9% lower than last year and almost -40% below the five-year average. Brisbane (-14.9%) and Perth (-16.2%) are also showing low advertised stock levels relative to this time last year.
Mr Lawless said the rise in advertised supply across some markets is mostly due to a slowdown from buyers.
“Estimated transactions in Sydney throughout the June quarter were -36.7% lower than a year ago while Melbourne is down -18.3%,” he said.
“At the same time, the flow of new listings added to the market is falling as selling conditions becoming more challenging and listings move into a seasonal lull."
“We aren’t seeing any signs of panicked selling as housing conditions cool, in fact the trend is the opposite, with the flow of new listings to the market slowing.”
Source: CoreLogic
Despite a slowdown in transactions, rental markets remain extremely tight around the country, with rents consistently rising.
Nationally, rents increased 0.9% in June, taking the annual growth rate to 9.5%. This is the highest annual growth rate since December 2007 when record levels of overseas migration pushed rental demand higher.
Mr Lawless said rents had been negatively impacted by the long-running downturn in investment activity between 2015 and 2021.
“A reduction in average household size through the pandemic helps to explain such high rental demand during a time of closed international borders,” he said.
According to CoreLogic, Australia’s housing market outlook is becoming increasingly skewed to the downside, with the trajectory of housing values heavily dependent on the path interest rates take.
Mr Lawless said while forecasts vary significantly it’s entirely possible the cash rate could rise beyond the pre-COVID 10-year average of 2.56%.
“Under this scenario, the average variable mortgage rate for new owner occupier loans would be approximately 4.96%, more than double the rates in April, adding roughly $720 per month to a $500,000 mortgage or $1,439 per month to a $1 million loan,” he said.
Households are also likely to be all the more sensitive to rising interest rates due to record levels of debt held by the sector according to Mr Lawless.
“The double whammy of high inflation is another factor likely to weigh on the household sector and ultimately housing demand,” he said.
“Lower savings and higher expenses along with rising interest rates will have an ongoing impact on borrowing capacity for households.
“Reduced borrowing capacity is likely to further diminish housing demand and potentially deflect more home buyers towards the middle to lower end of the pricing spectrum.”
Higher interest rates and rising inflation are also both likely to continue to weigh on consumer sentiment which could further impact homes sales Mr Lawless said.
“Although sales activity remained above average throughout the June quarter, it’s likely the number of home sales will continue to drift lower as housing demand cools and lenders become more cautious in their approach towards borrowers,” he said.
House price growth is continuing to ease after a record run, led by the larger capital cities of Sydney and Melbourne.
Nationally the CoreLogic Home Price Index shows home prices increased 0.6 per cent last month, the smallest increase since October 2020.
Values in Sydney fell -0.2 per cent in April while Hobart also saw a fall of -0.3 per cent, with prices in Melbourne remaining flat.
The smaller capital cities of Adelaide, Brisbane and Canberra all saw continued strong price growth with values up 1.9 per cent, 1.7 per cent and 1.3 per cent respectively.
In the past 12 months, home prices across the country are now 16.7 per cent higher, with regional areas outperforming, up 23.9 per cent.
Source: CoreLogic
CoreLogic’s Research Director Tim Lawless said the weakening state of the market has taken the rolling quarterly trend into negative territory across Sydney and Melbourne for the first time since these cities were in the midst of extended lockdowns in mid-to-late 2020.
Mr Lawless said that while the smaller cities are currently still experiencing price appreciation, they too will likely see slowing growth in prices as higher interest rates take their toll.
“With the RBA cash rate set to rise, we are likely to see a further loss of momentum in housing conditions over the remainder of the year and into 2023,” Mr Lawless said.
“Stretched housing affordability, higher fixed term mortgage rates, a rise in listing numbers across some cities and lower consumer sentiment have been weighing on housing conditions over the past year.
“As the cash rate rises, variable mortgage rates will also trend higher, reducing borrowing capacity and impacting borrower serviceability assessments.”
One of the main factors that continue to boost prices in the smaller capital cities and regional areas is the lack of listings.
Advertised inventory, at a national level, is tracking almost 30 per cent below the previous five-year average. Total advertised inventory is more than 20 per cent below levels from a year ago in Brisbane and Adelaide, and around 40 per cent lower than the previous five-year average in both cities.
In weaker markets like Melbourne and Sydney, advertised supply levels have normalised. Sydney advertised stock levels are roughly in line with the previous five year average, while listings in Melbourne were 8.2 per cent higher. Higher stock levels across these markets can be explained by an above average flow of new listings coming on the market in combination with a drop in buyer demand.
In Hobart, where April’s -0.3 per cent decline follows 22 consecutive months of growth, stock levels started to increase in the middle of March.
The new listing count is now 46 per cent higher over the four weeks to April 24 compared to the same period in 2021.
“With higher inventory levels and less competition, buyers are gradually moving back into the driver’s seat. That means more time to deliberate on their purchase decisions and negotiate on price,” Mr Lawless said.
Source: CoreLogic
Rental markets are also showing multi-speed conditions, with most of the capital cities experiencing an upward trend in rental growth in 2022. Based on the annual change, house rents (+9.1 per cent) are rising faster than unit rents (+8.7 per cent), however this trend is changing sharply as demand for unit rentals increases.
“On a rolling quarterly basis, we are now seeing unit rents rising faster than house rents especially in Sydney and Melbourne where rental conditions across the unit sector were previously much softer,” Mr Lawless said.
“The shift in rental demand towards units reflects both rental affordability pressures, which are deflecting more demand towards the ‘cheaper’ unit sector, and the return of overseas migrants and visitors.
“Rental demand from overseas arrivals tends to skew towards inner city and higher density precincts.”
According to Mr Lawless, housing market conditions have been easing since moving through a peak rate of growth in March last year.
This slowing of growth coincided with rising fixed-term mortgage rates, as well housing affordability progressively becoming more of a challenge, consumer sentiment trending lower and, from October last year, tighter serviceability testing for borrowers.
Mr Lawless said higher interest rates will slow housing markets around the country.
“Although we are expecting the housing market to move into a downturn through the second half of the year, it is important to remember the context of the recent growth phase,” he said.
“Since the onset of the pandemic, national housing values have increased by 26.2 per cent, adding approximately $155,380 to the median value of an Australian dwelling.”
CoreLogic believes the outlook for the housing market will depend on how aggressively the RBA raising interest rates, with the expectation being that a 2 per cent increase in the OCR could weaken home prices by 15 per cent.
The smaller capital cities of Adelaide and Brisbane continue to drag up property prices while Sydney and Melbourne have started to stagnate.
The latest data from CoreLogic shows that across the country property prices rose 0.7 per cent last month, with Brisbane prices surging 2 per cent and Adelaide 1.9 per cent.
Canberra and Perth saw rises of 1 per cent, with Darwin increasing 0.8 per cent. Sydney values fell -0.2 per cent while Melbourne prices dropped -0.1 per cent.
Over the past 12 months, property prices around the country are now 18.2 per cent higher, led again by Brisbane with an increase of 29.3 per cent.
Source: CoreLogic
CoreLogic’s research director, Tim Lawless, said that while prices are still moving higher, the rate of growth has slowed in nearly all markets.
“Virtually every capital city and major rest-of-state region has moved through a peak in the trend rate of growth some time last year or earlier this year,” Mr Lawless said.
“The sharpest slowdown has been in Sydney, where housing prices are the most unaffordable, advertised supply is trending higher and sales activity is down over the year.”
“There are a few exceptions to the slowdown, with regional South Australia recording a new cyclical high over the March quarter and some momentum is returning to the Perth market where the rate of growth is once again trending higher since WA re-opened its borders.”
The move towards the regions is continuing to put upward pressure on prices with regional dwelling values increasing 5.1% in the three months to March, compared with the 1.5% increase recorded across the combined capital cities.
Source: CoreLogic
Along with slowing growth rates, national housing turnover is also easing, with preliminary transaction estimates for the March quarter 14.3% lower than the same period in 2021 according to Mr Lawless.
“Nationally, the volume of housing sales is coming off record highs but there is some diversity across the capital cities in these figures as well,” he said.
“Our estimate of sales activity through the March quarter is 39% lower than a year ago in Sydney and 27% lower in Melbourne, while stronger markets like Brisbane and Adelaide have recorded a rise in sales over the same period.”
One of the reasons for the divergence between the smaller markets and the larger capital cities has been the level of new listings.
While advertised inventory, at a national level, is 30% below the previous five-year average there are still significant differences between the different capital cities.
In Melbourne, total advertised supply was 8% above the previous five-year average towards the end of March, while the number of homes available to purchase in Sydney had virtually normalised to be 7.5% higher than a year ago and only 2.6% below the five-year average.
Advertised stock levels in Brisbane and Adelaide remain more than 40% below the previous five-year average levels and around 20% to 25% down on a year ago.
“With higher inventory levels and less competition, buyers are gradually moving back into the driver’s seat. That means more time to deliberate on their purchase decisions and negotiate on price,” Mr Lawless said.
According to CoreLogic, the housing market has transitioned from a broad-based upswing to one the described as ‘multi-speed’.
Sydney and Melbourne, are recording flat to falling housing values, while at the other end of the scale is Brisbane and Adelaide are seeing annual growth rates of upward of 20 per cent.
However, CoreLogic warns that the outlook for housing remains skewed to the downside, with risks including the prospect of rising interest rates, affordability, higher supply and waning sentiment all likely to pressure the market.
Although there are going to be some drivers of growth to come including the return of immigration, a strong economy and the latest round of incentives for first home buyers outlined in the federal budget.
After a record-setting 12 months of house price growth, there are signs that some of Australia’s largest property markets are starting to cool down.
The latest data from CoreLogic shows that both Sydney and Melbourne did not see house price growth in the month of February, while a number of other markets around the country have also started to see lower rates of growth.
Brisbane and Adelaide continue to be the standout performers from the capital city markets with increases of 1.8 per cent and 1.5 per cent last month, while Hobart also powered forward with growth of 1.2 per cent.
While regional values have continued to appreciate, with a sharp 1.6 per cent increase in dwelling values in February - significantly outpacing the combined capital cities that increased by just 0.3 per cent.
Canberra and Darwin grew by 0.4 per cent while Perth had a 0.3 per cent increase in dwelling values.
Sydney and Melbourne saw the softest conditions in the country with values falling by -0.1 per cent in Sydney and remaining flat in Melbourne.
Source: CoreLogic
According to CoreLogic’s director of research, Tim Lawless, all areas are now recording a slowing trend in value growth.
“Sydney and Melbourne have shown the sharpest slowdown, with Sydney (-0.1 per cent) posting the first decline in housing values since September 2020, while Melbourne housing values (0.0 per cent) were unchanged over the month, following similar results in December (- 0.1 per cent) and January (+0.2 per cent),” he said.
“Conditions are easing less noticeably across the smaller capitals, especially Brisbane, Adelaide and Hobart, where housing values rose by more than 1 per cent in February. Similarly, regional markets have been somewhat insulated to slowing growth conditions, with five of the six rest-of-state regions continuing to record monthly gains in excess of 1.2 per cent.”
Regional house prices have been strong performers over the past 12 months and increased by an impressive 5.7 per cent on a quarterly basis. However, this too is down slightly from the peak of 6.6 per cent recorded in April last year.
“Regional housing markets aren’t immune from the higher cost of debt as fixed-term mortgage rates rise,” Mr Lawless said.
“These markets are also increasingly impacted by worsening affordability constraints as housing prices consistently outpace incomes. However, demographic tailwinds, low inventory levels and ongoing demand for coastal or treechange housing options are continuing to support strong upwards price pressures across regional housing markets.”
“The slower growth conditions in Australian housing values goes well beyond the rising expectation of interest rate hikes later this year.”
“The pace of growth in housing values started to ease in April last year when fixed-term mortgage rates began to face upwards pressure, fiscal support was expiring and housing affordability was becoming more stretched.”
“With rising global uncertainty and the potential for weaker consumer sentiment amidst tighter monetary policy settings, the downside risk for housing markets has become more pronounced in recent months.”
Total listings are continuing to trend higher, however, overall they are still 13.3 per cent lower than the same time last year. Sydney and Melbourne are the two cities where listings are now back to normal levels, with Melbourne seeing listings 4.7 per cent above the 5-year average.
Mr Lawless said more listings is helping buyers, but there are still discrepancies between states.
“The cities where housing values are rising more rapidly continue to show a clear lack of available properties to purchase,” he said.
“Total listings across Brisbane and Adelaide remain more than 20 per cent lower than a year ago and more than 40 per cent below the previous five-year average. Similarly, the combined rest-of-state markets continue to see low advertised supply, 24.9 per cent below last year and almost 45 per cent below the five-year average.”
Source: CoreLogic
Pressure on renters is also still a factor in the current market with CoreLogic stating that rents increased by 0.8 per cent across the country a figure that was the same as January.
The February rise in rents was focused within the unit market with the national unit rental index up 0.9 per cent over the month and 2.4 per cent higher over the rolling quarter compared to +0.7 per cent and 2.0 per cent for houses respectfully.
According to Mr Lawless, this stronger trend in unit rents is most visible in Sydney and Melbourne.
“Anecdotally, demand for unit rentals in these cities has been bolstered by a combination of worsening rental affordability deflecting more demand towards the higher density sector, where rents tend to be lower, and demand starting to return from overseas arrivals,” he said.
CoreLogic notes that many of the factors that have driven house prices to record high levels are now starting to fade. Interest rates are as low as they can possibly go, listings are beginning to increase and the host of fiscal stimulus has now ended.
Meanwhile, the prospect of rising interest rates from the RBA and affordability issues will likely dampen demand.
However, there are also positives as borders are now open internationally, which will encourage people to return to CBDs and inner city areas. Improving economic conditions and higher wages growth should also help to keep a floor under housing demand and distressed property sales to a minimum.
Property prices across Australia have grown by 16.1% over the past 12 months…
As house prices continue to surge higher around the country, there are concerns that affordability is now a major issue for potential buyers.
Recently, a report from CoreLogic and ANZ noted that the ratio of housing values to household incomes reached a new record high. Meaning that Australian’s are spending more than ever on their mortgages. At the same time, incomes have been stagnating, and when compared to the high level of inflation we’re currently seeing, in real terms most household incomes are going backwards.
For first home buyers and upgraders, this is a concerning trend and it is contributing to a worse quality of life than most people had only a generation ago, where it was possible to raise a family on a single income alone.
For real estate agents, it’s important to acknowledge the rise in affordability constraints and understand what the impacts might be for home buyers and vendors alike.
In the past 12 months, property prices across Australia have risen by more than 20% in most areas. However, the surge in capital growth has clearly been led by freestanding homes. With people working from home and stuck inside for extended periods, demand quickly changed from inner-city locations to outer suburbs and semi-regional areas.
Now, we’re starting to see the second stage of the prices rise and how that has impacted affordability. Many freestanding homes in popular areas are simply too expensive which has forced people to look at different options including townhouses or apartments.
This trend is likely to continue and in the short-term, demand for smaller, more affordable types of properties will be high.
For first home buyers today, it’s not uncommon to borrow 95% of the value of the property or even 100%. Going forward, first home buyers are likely going to need to use different strategies for obtaining finance just to get their foot in the door.
Now, it’s already standard practice for this group of buyers to take out guarantor loans, pay LMI to obtain a higher LVR or look to use Government assisted programs such as the FHLDS.
These types of programs and options are helpful, but they do often mean the finance approval process takes longer. For agents, this is important to consider when assessing offers and working with buyers and vendors to facilitate a deal.
Many first home buyers are now faced with the prospect of not being able to buy into their preferred area and for many people in the larger cities, not being able to afford anything at all.
This might lead to a change in approach for younger people, who will look to invest in different areas that are more affordable, such as the regions. In a bid to get their foot on the property ladder. They will then likely rent in their preferred location.
In the past 12 months, we’ve already seen a big surge in the value of regional properties, which has come on the back of owner-occupiers looking to exit the cities and investors getting involved in the rising prices.
When potential clients come to you for advice, it’s up to you to be on the pulse with current market trends, but also how some consumers are navigating through those trends. A true professional real estate agent will be up to date with strategies like rentvesting and making the most of Government schemes such as FHLDS. Clients will appreciate your knowledge in the field.
In the likes of Sydney and Melbourne, there is a growing trend towards older first home buyers.
Younger couples and singles in Australia’s two most expensive cities are forced to work longer to save for a deposit. We’re also seeing many couples choosing to delay having children simply due to the financial burden of rising living costs, which is predominately due to high mortgages and rents.
For agents, it’s important to understand the demographic that will be buying a certain property and how that is changing with higher prices.
With many people already stretched to their limit, it’s important to monitor what the RBA chooses to do with monetary policy. While RBA Governor Lowe is still maintaining his stance on keeping interest rates low, there will come a point where they must rise due to ongoing inflationary pressures.
This could lead to lower demand from buyers as borrowing capacity has already started coming under pressure from the likes of APRA who are already raising their serviceability buffer ahead of any potential rate rises.
Rising rates will put further pressure on affordability and exaggerate all already stretch living costs. As a real estate agent, it’s important to understand what your potential buyers are faced with. When coming from a position of empathy and understanding, your clients and potential clients are more likely to trust and identify with you, thus building your relationships.
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.”
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 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.
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.
House prices continue to rise around Australia, but the strong selling conditions are seeing many vendors choose to list their properties, leading to a sharp jump in stock levels.
The latest data from CoreLogic shows that house prices around the country rose by 1.1% last month, marking the 14th consecutive month of rising prices.
November saw Brisbane and Adelaide lead the way with gains of 2.9% and 2.4%, taking their quarterly increases to 7.5% and 6.9%. Sydney and Melbourne continued to see price growth with rises of 0.9% and 0.6%, while Hobart and Canberra also remained strong increasing by 1.1%.
Elsewhere, Perth recorded relatively flat growth at 0.2% while only Darwin had a negative result with a fall of -0.4%.
Over the past 12 months, the growth of regional areas has continued to outpace the capital cities. In November, regional areas saw 2.2% growth taking the annual rate of growth to 25.2%. Compared to 21.3% for the capital cities over the same period of time
While the gains continue around the country, Head of Research at CoreLogic, Tim Lawless notes that it appears momentum is slowing in some areas.
“Virtually every factor that has driven housing values higher has lost some potency over recent months. Fixed mortgage rates are rising, higher listings are taking some urgency away from buyers, affordability has become a more substantial barrier to entry and credit is less available.”
Mr Lawless believes affordability is causing the slowdown in Australia’s more expensive locations, which is why there is still strong growth in Adelaide and Brisbane.
“Relative to the larger cities, housing affordability is less pressing, there have been fewer disruptions from COVID lockdowns and a positive rate of interstate migration is fueling housing demand,” Mr Lawless said.
“On the other hand, Sydney and Melbourne have seen demand more heavily impacted from affordability pressures and negative migration from both an interstate and overseas perspective.”
CoreLogic says the rise in the number of homes available for sale is a key factor driving the slowdown in capital growth.
Nationally, the number of new listings added to the market over the four weeks ending November 28th was tracking 15.7% above the five year average - the highest level since late 2015.
In the past month, total stock available for sale across Adelaide was - 32.0% lower than the five year average, and -33.9% lower across Brisbane. Across Sydney and Melbourne however, stock levels have become far more normalised in recent weeks, with Sydney total listings sitting just -2.6% below the five year average, while stock levels across Melbourne are 7.9% above the five year average.
Mr Lawless says that new listings will continue to weigh on momentum in the coming months, particularly on the East Coast.
“Fresh listings are being added to the market faster than they can be absorbed, pushing total active listings higher. More listings imply more choice and less urgency for buyers,” Mr Lawless said.
“Although inventory levels are rising, the upwards trend is from an extremely low base. The total number of active listings has increased by 67.3% since early September, but stock levels remain -24.0% below the five year average for this time of the year. We expect inventory levels will continue to normalise into 2022 which should see selling dynamics gradually shift away from vendors, providing buyers with some additional leverage at the negotiation table.”
CoreLogic says the days it takes to sell a property are also on the rise around the country, increasing from 21 in May to 25. While auction clearance rates have also been falling in recent weeks.
“The rise in listings and softening of key vendor metrics implies the housing market may be moving through peak selling conditions, however, it will be important to see if this trend towards higher listings continues after the festive season,” Mr Lawless said.
Looking forward, CoreLogic feels that the outlook for Australian housing markets remains positive, however, the pace of capital gains has lost momentum across most regions since April.
Notably, stock levels are rising in many markets along the east coast while fixed rate mortgages are also slowly increasing ahead of any changes from the RBA. Variable mortgage rates are less inclined to rise until the cash rate lifts, which is still expected to be more than a year away. Low mortgage rates will continue to support housing demand, but probably not to the same extent as seen through 2021.
We’ve also recently heard from APRA, who have noted that rising house prices do represent risk to the economy, however, they have already moved to lift serviceability buffers in expectation of rate rises ahead.
CoreLogic believes we will continue to see slowing growth continue into next year and beyond with most of the factors that have been pushing housing prices higher having either diminished or expired.
