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Could the Housing Downturn Be Over?

Written by Rebecca Gillis
9 May, 2023
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After seeing home prices across the country fall 9.1%, there are now signs that the housing downturn could be over.

According to CoreLogic, home prices rose 0.5% in April, posting the second consecutive monthly increase, following a 0.6% rise in March.

Sydney is leasing the rebound in property prices, increasing 1.3% in April with dwelling values rising each month since February. Sydney values are now 3.0% higher than the recent trough recorded in January.

Brisbane prices increased 0.3%, Melbourne 0.1%, Adelaide 0.2% and Perth 0.6%. While Darwin was the only capital city market to record a decline, falling -1.2% throughout the month.

Change in Dwelling Values - Index Results as at 30 April, 2023

Source: CoreLogic

CoreLogic’s Research Director, Tim Lawless said it is becoming increasingly clear the housing market has moved through an inflection point.

“Not only are we seeing housing values stabilising or rising across most areas of the country, a number of other indicators are confirming the positive shift,” Mr Lawless said.

“Auction clearance rates are holding slightly above the long run average, sentiment has lifted and home sales are trending around the previous five-year average.”

Mr Lawless said rising immigration has been behind the rebound in demand.

“A significant lift in net overseas migration has run headlong into a lack of housing supply,” he said.

“While overseas migration would normally have a more direct correlation with rental demand, with vacancy rates holding around 1% in most cities, it’s reasonable to assume more people are fast tracking a purchasing decision simply because they can’t find rental accommodation.

“Many prospective vendors have stayed on the sidelines through the downturn, keeping inventory at below average levels and providing sellers with some leverage at the negotiation table.”

He said although housing conditions are looking more positive, values across most regions remain well below their recent cyclical highs.

Hobart, where values are yet to improve, is now recording the largest drop from the recent market peak, down -13%. Sydney dwelling values had recorded a -13.8% drop from the market peak to recent trough, however a 3% rise in values over the past three months leaves the market -11.2% below the recent high. Brisbane has recorded the third largest decline, with values holding -10.7% below their recent peak.

Supply remains tight

One of the main factors propping up the housing market has been the tight level of stock.

Mr Lawless said with the flow of new listings holding lower than normal, total advertised inventory was tracking -21.8% below the previous five-year average for this time of the year.

Advertised supply was well below average across every capital city over the past month, apart from Hobart where listing numbers have been rising, albeit from a low base.

“The flow of new listings is highly seasonal, typically trending lower through winter before rising into spring and early summer,” Mr Lawless said.

“At the moment it looks like this seasonal trend is holding true, with the flow of new listings once again falling into winter. This will be an important trend to watch.

“As market conditions improve we could see prospective vendors becoming more willing to test the market and beat the spring rush when competition among vendors is likely to be more apparent.”

Rental markets are still stretched

CoreLogic’s rental index recorded a further 1.1% rise across the combined capital cities in April, while regional rents were up a smaller 0.5%.

According to Mr Lawless, there are several factors contributing to the higher growth rates across the unit sector which has been surgeon compared to houses.

“It’s likely rental affordability is playing a role; in early 2022 unit rents were around $70 a week cheaper than house rents, however, with unit rents rising much faster than house rents, that gap has narrowed to just $20 a week in April,” he said.

“There is also the additional rental demand from overseas migration, especially students, which tends to be more pronounced in inner city areas as well as precincts close to universities and transport hubs that are typically associated with higher density styles of rental accommodation.

“Another factor playing out is a lack of new unit supply. Medium to high density dwelling approvals have mostly held below average since 2018, setting the scene for a chronic undersupply across the medium to high density sector a few years from now.”

Is the downturn over?

Mr Lawless said it looks like the Australian housing market has moved through what has been a relatively short but sharp downturn.

“Typically, we wouldn’t see housing values start a new growth cycle until monetary policy started to ease, credit policies loosened or some level of fiscal support was introduced. The shift towards more positive conditions has come about in the absence of these factors,” Mr Lawless said.

“The key drivers of this positive inflection seem to be the larger than expected rise in net overseas migration which has created additional housing demand at a time of extremely tight rental conditions and well below average levels of advertised supply.”

He said while the bottom of the downturn looks quite convincing, we aren’t expecting housing values to rise materially until interest rates reduce, credit policies ease or housing focused stimulus is introduced, or potentially a combination of these factors.

“This scenario, where interest rates fell and credit policy eased, was exactly what occurred in June/July of 2019 following the Federal election; a drop in interest rates that was shortly followed by an easing in APRA’s serviceability assessment rules,” he said.

“This saw housing values trend higher before being interrupted by the onset of the global pandemic.”

Rebecca Gillis

Rebecca works in the Digital Marketing field after graduating from James Cook University with a Bachelor of Business, majoring in both Marketing & Events Management. She has recently moved to the Gold Coast and enjoys getting outdoors to make the most of the great weather.

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