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Property prices across the country fell another 1.2% last month, marking six months of consecutive declines for homeowners.

This month it was Brisbane that experienced the largest decline, with values down 2%, followed by Sydney at 1.3% and Hobart with a 1.1% fall. Melbourne and Darwin both saw a fall of 0.8% while values in Canberra dropped 1%. Falls were less severe in Adelaide and Perth with just a 0.3% and 0.9% drop respectively.

CoreLogic's Research Director, Tim Lawless said it is probably still too early to claim the worst of the decline phase is over.

"Despite the easing in the pace of decline, with Australian borrowers facing the double whammy of further interest rate hikes along with persistently high and rising inflation, there is genuine risk we could see the rate of decline re-accelerate as interest rates rise further and household balance sheets become more thinly stretched," Mr Lawless.

"To date, the housing downturn has remained orderly, at least in the context of the significant upswing in values."

"This is supported by a below-average flow of new listings that is keeping overall inventory levels contained.

There's also tight labour market conditions, an accrual of borrower savings and a larger than normal cohort of fixed interest rate borrowers, who have so far been insulated from the rapid rise in interest rates."

Following a 25.5% rise through the recent upswing, housing values have fallen -6.5% across the major capital cities. Sydney home values are down -10.2% since peaking in January (after a 27.7% rise) and Melbourne values down -6.4% since February (after rising 17.3%).

House values have continued to fall at a faster rate than unit values across most regions with capital city house values down -1.2% in October compared with a -0.7% decline in unit values.

Mr Lawless said the smaller decline in values across the unit sector can be attributed to the more affordable price points across the medium to high density sector.

"The gap between median house and unit values increased to record levels through the COVID upswing," he said.

"With borrowing capacity being hit hard as interest rates rise, it's likely more housing demand has been diverted towards more affordable sectors of the market."

Change in dwellings - index results as at 31 October, 2022

Source: CoreLogic

Listings still tight

On the demand side, the estimated number of home sales has held reasonably firm through the first two months of spring. Capital city home sales were -16.6% lower than a year ago and 3.8% above the previous five-year average for this time of the year.

"The number of home sales is well down from the highs of late last year, however the fact that sales activity is still above the five-year average over the past three months reflects a base level of demand for housing," Mr Lawless said.

"Housing finance data shows subsequent buyers, such as upgraders, down sizers or movers, have been the most resilient sector of the market since interest rates started to rise.

"As interest rates rise further, it's likely sales activity will also trend lower as borrowing capacity is reduced."

The flow of new listings started to trend higher in October, but the traditional spring selling season remains well below levels at the same time last year and relative to the previous five-year average. Over the four weeks ending October 30th, the number of newly listed capital city dwellings was tracking -25.2% below a year ago and almost -19% below the previous five-year average. The trend in total advertised listings is holding relatively firm, tracking -5.0% below levels a year ago and -18.2% below the previous five-year average.

Rental growth slowing

Meanwhile, rental growth continues to slow down, with national rents rising another 0.6% in October, led by 1.1% rise in unit rents while house rents increased by 0.5%.

Mr Lawless said a gradual slowdown in rental growth in the face of low vacancy rates could be an early sign that renters are reaching an affordability ceiling.

"Since the onset of COVID, capital city rents have risen 17.7% and regional rents are up 25.5%" he said.

"Although rents are likely to continue to rise, it's likely renters will be progressively seeking rental options across the medium to high density sector, where renting is cheaper, or maximising the number of people in the tenancy in an effort to spread higher rental costs across a larger household."

Outlook remains soft

Mr Lawless said housing values are likely to continue trending lower until interest rates find a ceiling.

"The bad news for homeowners is most economists have recently revised their cash rate forecasts upwards due to higher than expected inflation outcomes," he said.

"Although housing risks remain skewed to the downside, there are a few tailwinds that should help to keep this downturn orderly and stave off a material rise in distressed listings.

Factors include tight inventory, strong employment and overseas migration, should limit any extreme falls in house prices.

The rate of property price falls are starting to slow down across the country despite interest rates continuing to increase.

According to CoreLogic, national property prices slipped 1.4% in September, a slight reprieve from the 1.6% fall in August.

Sydney continues to be the hardest-hit capital market, with values falling 1.8% in September, followed by Brisbane at 1.7%. Hobart prices dropped 1.4% while Melbourne fell 1.1% and Canberra 1.6%.

Notably, both Perth and Adelaide markets, which has been holding up well, have now also started to trend lower, dropping 0.4%, and 0.2% respectively.

Index Results as at 30 September, 2022

Source: CoreLogic

CoreLogic's research director, Tim Lawless said it is too early to suggest the market has moved through the worst of the downturn.

"It's possible we have seen the initial shock of a rapid rise in interest rates pass through the market and most borrowers and prospective home buyers have now 'priced in' further rate hikes." Mr Lawless said.

"However, if interest rates continue to rise as rapidly as they have since May, we could see the rate of decline in housing values accelerate once again."

Mr Lawless said the slowdown in the rate of decline came alongside an improvement in other indicators. "Auction clearance rates also trended upwards, albeit subtly, in September and consumer sentiment nudged a little higher as well on the back of strong labour market conditions," he said.

"We've also seen the flow of fresh listings continue to slide through the first month of Spring, which is uncommon for this time of year."

After rising 25.5% over the past few years, housing values across the capital cities are now 5.5% below the recent peak.

Regional markets which recorded stronger growth through the upswing (41.6%) are now seeing values drop also, down -3.6% through to the end of September.

Most cities continue to see a substantial buffer between current housing values and where they were at the onset on COVID-19 in March 2020.

At the combined capital city level, housing values would need to fall a further 13.5% before wiping out the gains of the recent growth cycle.

Mr Lawless said there are still very different market conditions across different areas of the country.

"We are still seeing some resilience to value falls around the more affordable areas of Adelaide and Perth, as well as some regional markets associated with agriculture, mining, and tourism," he said.

The largest falls have been concentrated in areas of Sydney's Northern beaches, including Warringah, Pittwater, and Manly, where housing values are down at least 14.5% since moving through a peak in early 2022, as well as flood-affected areas across Richmond - Tweed.

"These areas saw housing values rise between 38% and 62% through the growth cycle, so most home owners are still well ahead in terms of equity in their home," Mr Lawless said.

Mr Lawless said one key reason for the slowing falls in property prices is because listings haven't continued to surge.

The number of new listings added to capital city housing markets over the four weeks ending September 25th was 12% lower than the same period a year ago, and now 10% below the previous five-year average.

Darwin and Canberra are the only exceptions, with both cities recording higher listings over the past four weeks.

"It seems prospective vendors are prepared to wait out the housing downturn, rather than try to sell under more challenging market conditions," Mr Lawless said.

"We haven't seen any evidence of distressed sales or panicked selling through the downturn to date; in fact, it has been the opposite, with the trend in newly listed properties continuing to diminish at a time when freshly advertised stock levels would normally be moving through a seasonal ramp up."

While the flow of new listings is seasonally low, total advertised inventory is holding firm or rising in most regions. Across the combined capitals, total advertised stock levels are tracking 7% higher than the same time last year, but are still 15% below the previous five-year average.

Higher than average stock levels in some cities is more a reflection of less demand, than too much supply being added to the market, according to Mr Lawless.

Annual Change in Rents, House VS Units, September

Source: CoreLogic

Meanwhile, despite the tight vacancy rates around the country, the national rental index increased by only 0.6% in September, the lowest monthly rise in rents since December 2021.

According to Mr Lawless, the slowdown in rental growth is a little surprising given rental vacancy rates remain so low and overseas migration is ramping up, although there has been a subtle uptick in vacancy rates across some regions.

"A gradual slowdown in rental growth in the face of such low vacancy rates could be an early sign that renters are reaching their affordability ceiling," he said.

Since the onset of COVID, capital city rents have risen 16.5% and regional rents are up 25.1%.

"It's likely renters will be progressively seeking rental options across the medium to high density sector, where renting is cheaper, or maximising the number of people in the tenancy in an effort to spread higher rental costs across a larger household."

Further evidence of a shift of rental demand towards higher density options can be seen in the higher growth rate of uni rents over house rents.

"A material rise in rental supply seems a long way off, considering private sector investment activity is trending lower and a larger than normal portion of for sale listings are investor-owned properties," Mr Lawless said.

Mr Lawless said going forward, the most important factor influencing housing market will be the trajectory of interest rates, which remains highly uncertain.

"The cash rate has surged 225 basis points higher through the tightening cycle to-date; interest rates have not risen at this fast a pace since 1994, when households were arguably less sensitive to a sharp rise in the cost of debt," he said.

"In the September quarter in '94, the ratio of housing debt to household disposable income was just 46.8. The impact of a higher cost of debt is far more meaningful now, with a housing debt to household income ratio of 143.7 recorded in March 2022."

Financial markets are now pricing in a peak in the cash rate around 4.1% between June and August of next year, while private sector economists are generally less bearish, with Bloomberg recently reporting a median forecast of 3.35% as the peak cash rate in the first quarter of next year.

Once interest rates stabilise, housing prices are likely to find a floor. Considering most economists are forecasting rates to peak through the first quarter of next year, the coming months are likely to feature further declines in home values.

"We will be watching for any signs of market distress as the dual impact of higher interest rates and high inflation impact household budgets," Mr Lawless said.

"To date, the flow of new 'for sale' listings has actually trended lower as vendors retreat to the sidelines, a good indicator that home owner are weathering the downturn."

 

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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.

Change in Dwelling Values Index Results as at 31 August 2022

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.”

Listings rise in Spring

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.”

Rent growth slows

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

Interest rates are key

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.

 

 

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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.

Change in Dwellings - Index results as at July 31

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 on the Rise

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 Still Pushing Higher

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.”

Annual Change in Rents, Houses vs Units

Source: CoreLogic

Looking Forward

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.”

 

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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.

Change in Dwelling Index Results as at June 30, 2022

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.”

Buyer's Market

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.”

New and Total Listings, Rolling 28 Day Count - June 2022

Source: CoreLogic

Rents Still High

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.

Outlook

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.

April Change in Dwelling Values

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.

 

April New and Total Listings 28 Day Count

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.

 

Change in Dwelling Values - March 2022

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.

Rolling 3 month change in dwelling values - March 2022

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.

Blog - House Price Growth Begins to Slow

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 Prices Still Growing

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.”

Listings Still Below Average

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.”

Blog - House Price Growth Begins to Slow

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…

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