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.

Tight supply

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.

Looking forward

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.