After a record-setting 12 months of house price growth, there are signs that some of Australia’s largest property markets are starting to cool down.

The latest data from CoreLogic shows that both Sydney and Melbourne did not see house price growth in the month of February, while a number of other markets around the country have also started to see lower rates of growth.

Brisbane and Adelaide continue to be the standout performers from the capital city markets with increases of 1.8 per cent and 1.5 per cent last month, while Hobart also powered forward with growth of 1.2 per cent.

While regional values have continued to appreciate, with a sharp 1.6 per cent increase in dwelling values in February - significantly outpacing the combined capital cities that increased by just 0.3 per cent.

Canberra and Darwin grew by 0.4 per cent while Perth had a 0.3 per cent increase in dwelling values.

Sydney and Melbourne saw the softest conditions in the country with values falling by -0.1 per cent in Sydney and remaining flat in Melbourne.

Source: CoreLogic

According to CoreLogic’s director of research, Tim Lawless, all areas are now recording a slowing trend in value growth.

“Sydney and Melbourne have shown the sharpest slowdown, with Sydney (-0.1 per cent) posting the first decline in housing values since September 2020, while Melbourne housing values (0.0 per cent) were unchanged over the month, following similar results in December (- 0.1 per cent) and January (+0.2 per cent),” he said.

“Conditions are easing less noticeably across the smaller capitals, especially Brisbane, Adelaide and Hobart, where housing values rose by more than 1 per cent in February. Similarly, regional markets have been somewhat insulated to slowing growth conditions, with five of the six rest-of-state regions continuing to record monthly gains in excess of 1.2 per cent.”

Regional 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.”

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.