The turnaround in home prices has continued with the latest data from CoreLogic showing a 0.6% uptick over the month of March.
Once again, the larger capital cities have led the turnaround, with Sydney recording a 1.4% jump in values. Melbourne was also higher, increasing 0.6% while Perth (0.5%) and Brisbane (0.1%) were the only other capital city markets to record a rise.
The smaller cities all struggled last month with Hobart recording a 0.9% decline in prices, while Canberra dropped 0.5% and Darwin 0.4%.
CoreLogic’s Research Director, Tim Lawless, said the rise was due to a combination of low advertised stock levels, extremely tight rental conditions and unprecedented demand from overseas migrants.
“Although interest rates are high and there is an expectation the economy will slow through the year, it’s clear other factors are now placing upwards pressure on home prices,” Mr Lawless said.
“Advertised supply has been below average since September last year, with capital city listing numbers ending March almost -20% below the previous five-year average. Purchasing activity has also fallen but not as much as available supply; capital city sales activity was estimated to be roughly -7% below the previous five-year average through the March quarter.”
Source: CoreLogic
Mr Lawless said the rental crisis was now also starting to push would-be renters to buy which was putting upward pressure on prices.
“With rental markets this tight, it’s likely we are seeing some spillover from renting into purchasing, although, with mortgage rates so high, not everyone who wants to buy will be able to qualify for a loan. Similarly, with net overseas migration at record levels and rising, there is a chance more permanent or long-term migrants who can afford to, will skip the rental phase and fast track a home purchase simply because they can’t find rental accommodation.”
Mr Lawless said the lift in housing values has been most evident across the upper quartile of Sydney’s housing market, which were up 2% in March and the upper quartile of the Sydney unit market was 1.4% higher over the month.
“Sydney upper quartile house values fell by -17.4% from their peak in January 2022 to a recent low in January 2023, the largest drop from the market peak of any capital city market segment,” he said.
“We may be seeing some opportunistic buyers coming back into the market where prices have fallen the most.”
According to the data, regional housing markets have mostly shown firmer housing conditions as well, with the combined regionals index rising 0.2% over the month.
Housing values across Regional WA and Regional SA remain at cyclical highs despite 10 rate hikes. SA’s Fleurieu-Kangaroo Island SA3 sub-region led capital gains over the month with a 2.6% rise in dwelling values followed by Dubbo, NSW (2.5%), Wellington, Victoria (2.4%) and Mid West, WA (2.1%).
Housing values across every capital city and broad rest-of-state region remain higher compared to March 2020. Melbourne values are the closest to pre-COVID levels, with only a 0.6% buffer (up from a 0.03% buffer a month ago). At the other extreme is Adelaide where housing values remain a stunning 41.2% above the levels recorded at the onset of COVID, and Regional SA where values remain at a record high, 49.2% above March 2020 levels.
The flow of new listings has held at below-average levels since September last year, while the five largest capitals are also recording a total listing count lower than this time last year.
New listings are likely to trend lower in the cooler months, Mr Lawless said, which is normal for this time of the year, before ramping up into spring.
“Given that new listing counts have trended below average since spring last year, it’s reasonable to assume there is some pent-up supply that has accumulated behind the scenes. Whether the flow of new listings starts to pick up with improved housing confidence will be a trend to watch,” Mr Lawless said.
Meanwhile, rents across all areas of the country continue to move higher. Capital city house rents are up 24.8% since the onset of the pandemic in March 2020, while unit rents are up a smaller 19.5%, although they are quickly catching up.
“As rental affordability becomes more pressing we are likely to see group households reforming, reversing the trend towards smaller households seen through the pandemic,” Mr Lawless said.
“Additionally, tenants are likely to be maximising their tenancy, sacrificing the spare room or home office to spread rental costs across a larger number of tenants.
“CoreLogic data has also shown a continued lift in rental hold periods, suggesting tenants may have a preference for holding onto their existing lease, rather than braving the search for a new rental.”
Notably, rents fell for Darwin houses (-1.5%) and units (-0.4%) as well as ACT houses (-1.3%) over the past three months. After historically being one of the most expensive rental markets in the country, the quarterly decline now has Canberra recording an annual reduction in house rents, down -0.8% over the past 12 months.
Mr Lawless said, although the recent trend in housing markets is looking increasingly positive, he is still cautious about calling a trough in the cycle.
He said there are still a number of headwinds for property owners to contend with including the full impact of higher interest rates is yet to flow through to borrowers as well as the looming fixed interest rate cliff that will see hundreds of thousands of fixed rate loans roll off to much higher variable rates. Also, credit conditions remain tight while sentiment is still weak at the moment.
However, with inflation winding down and the unprecedented level of immigration that is taking place, there is reason to think that prices might stabilise going forward.
Property prices bounced back in February, however, there could be more downside ahead according to experts.
The latest data from CoreLogic showed property prices experienced the smallest monthly fall since May 2022, with national property prices down only 0.14% in February.
Sydney lead the rebound with a 0.3% increase in median price, however, all other capital cities recorded falling values, with Hobart suffering the most significant drop, tumbling 1.4%. Melbourne and Brisbane both declined 0.4%, Canberra was down 0.5%, Darwin 0.4%, Adelaide 0.2% and Perth 0.1%.
CoreLogic’s research director, Tim Lawless, said the stabilisation in housing values over the month was helped by consistently low advertised supply levels and a rise in auction clearance rates.
"The February housing market performance suggested some renewed strength in market conditions, while the flow of new listings has been at below-average levels since September last year, which has helped to support a reduction in the pace of value falls," Mr Lawless said.
"But, it’s probably too early to call a trough in the cycle considering there are several factors which could trigger a ‘re-acceleration’ of housing value declines over the course of the year."
Mr Lawless said the past four weeks saw the flow of new capital city listings track 17.0% lower than a year ago and 11.9% below the previous five-year average, which has been a trend that has been occurring since September last year.
Auction clearance rates also bounced back last month, reaching the high 60% range through the second half of the month, while Sydney clearance rates rose to above 70% for the first time since February 2022.
The upper end of the market in the capital cities drove this month’s stabilising trend, increasing by 0.1% in February. While still falling, declines across the lower end of the market also stabilised, down 0.1%.
Over the month, there was a seasonal rise in weekly listing volumes, with roughly 11,250 more new listings advertised compared to January, bringing the number of new listings to 38,118.
Despite the jump, this is still 12.6% below the previous five-year average for this time of year, and the total volume of listings counted nationally was approximately 143,500, which is 26.3% lower than the previous five-year average.
Against relatively low advertised stock levels, the estimated volume of sales recorded a strong seasonal bounce back in February.
Mr Lawless said while the monthly volume of sales is subject to revision, this lift in sales backs up the theory that purchasing demand may have been stronger than supply throughout the month.
Source: CoreLogic
According to Mr Lawless the highest rental growth is now occurring in the unit sector across the three largest capitals, with Sydney unit rents jumping 16.7% over the past year.
According to Mr Lawless, rising immigration has been a major reason behind the rise in rents and plunging rental vacancy rates.
"Several factors may be contributing to the surge in unit rents, including rental affordability pressures, a transition of demand towards higher density rental options, and a strong rebound in foreign student and international migrant arrivals, particularly in inner city precincts and areas within close proximity to universities and transport hubs,” he said.
Mr Lawless warned that despite the recent trend towards stabilisation, housing risks remain skewed to the downside.
He said that it is too early to call a trough in the cycle as several factors could trigger a ‘re-acceleration’ of housing value declines over the course of the year, including the expected rate hikes, a further decline in borrowing capacity, and challenges to serviceability due to an ongoing increase in interest rates, rising unemployment, and a higher cost of living.
"On the back of the latest increase in the cash rate, there are still more rate hikes expected over the course of the year, and a further decline in borrowing capacity is on the cards, which could reaccelerate housing market declines," he said.
"Low advertised stock levels are likely to persist as homeowners resist selling in a declining market.
“However, there may be a small portion of prospective vendors who become more motivated or are forced to sell amid growing challenges to serviceability."
Mr Lawless said longer term, the market is poised for recovery and despite the headwinds accumulating for the housing market in 2023, there is no denying the fundamental under-supply of housing stock.
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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."
Source: CoreLogic
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.
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."
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.
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.
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."
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.
