Australia’s housing market is firmly in recovery mode as prices continue to rise, with cooling inflation and the likely peak of interest rates set to entice more buyers and sellers in the coming months.
Key points:
- CoreLogic’s Home Value Index rose by 0.8 per cent in August
- Brisbane saw the highest increase in home values, followed by Sydney and Adelaide
- The pace of rent increases has started to slow but vacancy rates continue to tighten
CoreLogic’s national Home Value Index saw an increase of 0.8 per cent in August, meaning property prices have risen for six consecutive months, and have increased by 4.9 per cent — or $34,301 — since February.
August’s growth rate is slightly higher than the 0.7 per cent increase in July, but remains below the 1.1 per cent rise in June and 1.2 per cent jump in May.
Rival property data firm PropTrack, owned by real estate advertiser REA Group, saw a modest 0.3 per cent increase to house prices in August.
CoreLogic’s August figures saw Brisbane record the highest increase in home values of 1.5 per cent, followed by Sydney and Adelaide both seeing home values rise by 1.1 per cent.
“Sydney has led the recovery trend to date, with a gain of 8.8 per cent since values found a floor in January this year,” said CoreLogic’s research director, Tim Lawless.
“Brisbane has also posted a strong recovery with values up 6.2 per cent since bottoming out in February.”
The ACT saw a modest rise of 0.3 per cent in August, while Hobart was the only capital city to see a fall in values in August — although Mr Lawless said the Tasmanian capital’s result was best described as “flat”.
“Hobart home values [are] unchanged since stabilising in April, while values across the ACT have risen only mildly, up 1.0 per cent since a trough in April,” he said.
“These are also the only two capital cities where advertised supply is tracking higher than a year ago, suggesting a rebalancing between buyers and sellers is a key factor contributing to the stability of values in these regions.”
Comparatively, PropTrack reported that Adelaide led the monthly home value gains with 0.6 per cent, followed by Sydney and Perth.
Short supply keeps prices high
House values are typically recovering at a faster rate than units in capital cities, CoreLogic found, with house prices in the combined capitals 6.3 per cent higher than they were in February, while unit values have only risen by 4.9 per cent.
“Most cities are showing a larger rise in house values compared with units, however, Sydney stands out with the most significant difference through the recovery cycle to date, possibly due to the more substantial decline in house values, which fell by 15 per cent through the recent downturn,” Mr Lawless said.
The property research firm attributes a lack of advertised homes for sale as a major factor in keeping upwards pressure on prices, with advertised supply 15.5 per cent lower than this time last year.
CoreLogic said there was an “unusual” number of vendors active during winter, which is typically a less busy period for property purchases, but the ongoing recovery in the property market in August occurred despite “relatively thin levels” of properties being purchased.
“Rising stock levels will be one of the most important factors to watch over the coming months,” the report said.
“The past two months has seen a subtle rise in total listings in some regions which has supported a deceleration in value growth.
“Spring and early summer have historically been more active months for property listings and if the winter months are anything to go by, the spring selling season is likely to be more active than last year.”
CoreLogic also noted that more households will be facing mortgage stress with interest rates unlikely to fall until “well into 2024”.
Mortgage arrears remain only slightly above record lows, it said, but forecasts the proportion of borrowers falling behind on their repayments will likely increase throughout the rest of the year and into 2024.
“This risk increases as more borrowers navigate the transition from low fixed home loan rates to substantially high refinanced rates,” it said.
However, inflation falling faster than expected means cost of living pressures are becoming “less significant”, and the risk of future interest rate rises has “subsided”.
“The combination of lower inflation and a growing expectation that interest rates have peaked should gradually boost consumer sentiment, helping to support high commitment decision making such as buying or selling a home,” the report said.
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Rents remain high but growth has started to slow
The national rental index also increased in August by 0.5 per cent, making it the 36th straight month of gains — however it was the smallest month-to-month increase since November 2020.
The slowdown in the national rental index was evidence that parts of the country were “clearly losing momentum” in the pace of rental growth, with Melbourne and Perth seeing increases for house and unit rents, respectively.
CoreLogic said the deceleration came despite rental vacancy rates continuing to tighten, with data showing the vacancy rate dropped to 1.1 per cent in the combined capital cities, while the regional vacancy rate reached 1.4 per cent.
Every capital city also saw fewer total rental listings in August, and CoreLogic said that reinforced “ongoing concerns around a lack of rental supply”.
“With dwelling approvals continuing to trend lower, especially across the medium-to-high-density sector, the outlook for additional rental supply remains dim,” it said.
Gross rental yields, or the difference between amount of income landlords make in a month and their investment costs (i.e. mortgage), have been “edging consistently lower” since April, which CoreLogic said was a “symptom of housing values rising slightly faster than rental rates in May”.
“With housing values continuing to rise and rental growth easing, it’s looking increasingly like we have moved through a peak in gross rental yields,” Mr Lawless said.
“Considering the higher cost of debt alongside higher taxes in some states and less depreciation benefits, it’s likely net rental yields have compressed further.”
Property values around the country
Whether you live in a capital city or regional area, here’s a breakdown of property prices around the country according to CoreLogic.
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