Australian property prices have risen for the second month in a row, suggesting a downturn in the nation’s housing market has come to an end as interest rates appear to have stabilised.
Key points:
- House prices across capital cities rose for a second month, increasing by 0.5 per cent in April
- Sydney is leading the housing market recovery, with median prices increasing by 3 per cent since January
- Rents have also risen by 1.1 per cent, with weekly rent for units outpacing rents for standalone houses
CoreLogic data shows the median value of homes sold across the country increased by 0.5 per cent in April, and follows a 0.6 per cent increase in March.
The growth is largely from a 1.3 per cent increase in Sydney house prices, with the median property price sitting comfortably above $1 million — the only capital city in the country with a median price in the seven-figure range.
Next are the three largest capital cities of Melbourne, Brisbane and Perth, which all experienced monthly rises under 1 per cent.
Adelaide also reported a marginal increase, while the smaller capital cities of Hobart and Canberra recorded no increase to house prices, while Darwin’s median value fell by 1.2 per cent last month.
CoreLogic’s research director, Tim Lawless, said that, despite the divergence, the figures suggest Australia’s housing market downturn has passed.
“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,” he 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 Sydney house prices, in particular, have rebounded strongly, increasing by 3 per cent since reaching a low in January.
CoreLogic’s figures have also been supported by PropTrack, a monitoring service owned by the REA Group.
PropTrack’s data shows national home prices increased in April, with Sydney’s housing market leading the recovery.
Mr Lawless said that, with the growing expectation that interest rates have stabilised — with both banks and financial markets widely expecting the Reserve Bank of Australia (RBA) to keep rates on hold at Tuesday’s meeting — the short but sharp downturn has led to an increase in demand for housing.
“This could be contributing to a broader perception that the market has bottomed out, and for those attempting to time the market, that it is considered to be a good time to buy,” he said.
“As interest rates stabilise, there is a good chance consumer sentiment will improve, bolstering housing market activity from both a purchasing and a selling perspective.”
It has been more than a decade since house prices rose in an inflationary environment.
“The last time we saw housing values trending higher through a rising interest rate environment was during the mid-to-late 2000’s when the mining boom was underway,” Mr Lawless said.
“This period was also characterised by surging net overseas migration that contributed significantly to housing demand.”
However, CoreLogic analysts said that, until interest rates fall, credit policies ease or housing focus stimulus is introduced — or a combination of all three — house prices would not rise significantly.
It also pointed to high debt costs, high debt levels and cost-of-living pressures keeping consumer sentiment towards home buying at “below-average levels, at least until interest rates come down”.
Acute rental pressures remain
Despite house prices rebounding, rents have continued to increase, with a 1.1 per cent rise recorded across the capital cities in April, led largely by growth in unit rents.
CoreLogic data shows unit rents were up 1.6 per cent in April, compared to a 0.9 per cent rise in house rents.
That continues to reverse the trend seen in the pandemic, where there was weaker growth in unit rentals as more people wanted more space to live and work remotely.
Mr Lawless said the increase in rents for units compared to houses was largely about affordability.
“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.”
He also said a lack of supply was behind the increase in unit rents, and he forecast a “chronic undersupply” in coming years.
“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,” Mr Lawless said.
Mr Lawless said there was likely little reprieve for renters, suggesting prices were likely to continue rising in coming years.
“Until we see rental demand and rental supply becoming more evenly balanced, rents are going to keep trending higher,” he said.
“The unfortunate reality for renters is there doesn’t seem to be any material lift in rental supply over the short term, while demand side pressures are likely to rise further as migration stays high.”
Low vacancy rates lead to ‘fast-tracking’ home buying
Not only is migration partly responsible for rising rents, Mr Lawless said, it was also having an impact on rising house prices.
He said the worsening imbalance with housing supply and demand, plus record-low vacancy rates, are prompting more people to buy property.
“While overseas migration would normally have a more direct correlation with rental demand, with vacancy rates holding around 1 per cent in most cities, it’s reasonable to assume more people are fast-tracking a purchasing decision, simply because they can’t find rental accommodation,” Mr Lawless said.
However, even with lower house prices, CoreLogic notes that the housing market remains out of reach for many.
It points to median values of a capital city home being around 12 per cent — or $83,000 — higher than before the COVID-19 pandemic started in March 2020.
“The dwelling value-to-income ratio was just under 8 at the end of September last year, compared with a ratio of 7.2 at the onset of COVID,” it notes.
“Serviceability costs have continued to rise, with approximately 42 per cent of the median capital city household income required to service a new mortgage on the median value home in September last year.”
It follows the federal government’s expansion of the National Home Guarantee Scheme, announced on Sunday, in an attempt to address the housing affordability crisis.
The changes would see the eligibility criteria expanded for the First Home Guarantee, the Regional First Home Buyer Guarantee and the Family Home Guarantee.
Under the changes, friends, siblings and other family members would be able to jointly apply for the First Home Guarantee and Regional First Home Guarantee from July 1.
CoreLogic also notes that the lag of past interest rate hikes prompted by the Reserve Bank of Australia to contain inflation has meant the full effect has not flowed through to households yet entirely.
It said the lag affecting households would also take longer, because a larger portion of fixed-rate borrowers have been shielded from rate rises so far.
“As more borrowers feel the impact of higher interest rates, it’s likely we will see more evidence of distress, including a rise in mortgage arrears [albeit from record lows] and, potentially, a lift in motivated listings,” CoreLogic’s analysis noted.
CoreLogic also does not foresee a major risk in distressed selling, because unemployment hovers around 3 per cent.
The firm notes that the housing market outlook depends on interest rates, and house prices are likely to rise once rate cuts begin, although that timing is still uncertain.
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