Australia's soaring property market still rising, but losing momentum: CoreLogic

Australia’s soaring property values have increased by another five-figure sum in the space of a month with several capitals at fresh record highs, but new data show the property boom could be showing signs of slowing down.

Dwelling values are now up 13.5 per cent over the past year, having jumped another 1.9 per cent – about $11,000 – in June to a median of $645,454, the latest Core Logic Home Value Index, released on Thursday, shows.

It is the strongest annual growth seen since April 2004, said CoreLogic’s research director Tim Lawless, with houses leading the charge. Houses recorded more than double the capital growth of units.

House values are now up 15.6 per cent annually, and the growth rate has topped 20 per cent in multiple cities and regional areas – including Darwin, Canberra and regional New South Wales and Tasmania — while unit values nationally are up 6.8 per cent.

There has also been strong house price growth in Sydney (19.3 per cent) and Hobart (19.2 per cent) over the past year, the bulk of which has been recorded in 2021. Despite Melbourne’s real estate market being closed for part of last spring, house values are up 8.9 per cent in a year.

“It is quite startling to see how much house values have risen in the space of six months especially,” said Mr Lawless. “It’s due to this ongoing shift in preferences away from anything with density … there definitely seems to be more people wanting to live in a detached home [as a result of the pandemic].”

Median dwelling values were up across all the capitals in June, with Hobart recording the largest increase. Its median jumped 3 per cent to $607,960. Sydney was next with a 2.6 per cent jump to a median of $994,298, followed by Canberra (2.3 per cent), Brisbane (1.9 per cent), Adelaide (1.6 per cent) and Melbourne (1.5 per cent).

Values in Perth and Darwin climbed by 0.2 and 0.8 per cent, respectively, though Darwin still had the highest annual growth rate of all the capital, with its median dwelling value up 21 per cent over the year.

Meanwhile, regional areas continued to outperform the capital cities, but only slightly, with values rising 2 per cent, as more Australians looked to relocate away from big cities.

Record low interest rates, above-average consumer sentiment, and housing stimulus measures rolled out in the wake of the pandemic were behind the strong growth, Mr Lawless said. Cheap debt has seen transaction activity soar over the past year to its highest level since 2004, he added, and while new listings have risen, total stock levels remain low, with homes snapped up quickly.

But there are signs the property boom could be losing steam, with growth slowing in all capital cities bar Canberra and the national increase down slightly from the  2.2 per cent recorded in May.

“We have already probably moved through the peak rate of growth, which was back in March for most capitals, and the second half of this year won’t be as strong,” Mr Lawless said.

He expected growth to gradually slow in the months to come, as affordability constraints reduced buyer activity and consumer sentiment eased off the back of recent lockdowns. The potential for rising mortgage rates and tighter lending conditions could further shift market dynamics, with early signs of more conservative home loan assessments.

“When you consider household incomes aren’t rising all that much, maybe 1.5 per cent annually, we’ve seen that rate of growth in house prices in the space of a month, so you have to expect that with housing prices rising so much more quickly than household incomes there are going to be fewer people able to participate,” he said.

“As demand starts to reduce, we will start to see listing numbers start to normalise, and it will give buyers a chance to negotiate a bit more as FOMO (the fear of missing out) starts to dissipate.”

Despite a potential slow down, Mr Lawless said it was reasonable to expect double annual double digit growth right across the country by the end of the year.

“Earlier this year our view was that we could see housing values rise somewhere between 10 and 15 per cent over the year, clearly that looks like we were being a bit bearish at the moment given how much prices have risen already, but we should see some rebalancing in the months ahead.” 

Mr Lawless said price growth was easing across the board, even at the top end of the market, which was less impacted by affordability challenges.

Values at the high end of the capital city markets – the top 25 per cent of dwelling values – have pulled back for the first time in nine months. However, this segment still saw stronger growth than other price points, with 8 per cent growth over the June quarter, down from 9.2 per cent over the three months to May.

Mr Lawless said the most recent lockdowns were unlikely to have much impact on values, noting previous lockdowns had resulted in short, sharp falls in sales and listings, which limited price falls, and were followed by a swift recovery in transaction activity.

“It all comes back to the duration of the lockdown, though,” he said.  “The wildcard this time around [if we do move to an extended lockdown] is the absence of any major fiscal support … I think that would be very important if we were to move through another period of extended disruption.”

While the housing market continues to outperform units, the gap between the two was likely close to a peak, said Domain senior research analyst Nicola Powell, with demand and unit price growth likely to pick up pace in the months to come as the housing market slipped out of reach for more Australians.

Affordability constraints and the end of incentives like HomeBuilder, along with the increase in homes hitting the market, would see demand and price growth ease in the months ahead, Dr Powell said.

“One of the big things that was really accelerating price growth, was that demand was outstripping the rate of new listings coming onto the market, creating unusually strong conditions particularly in Sydney, where the monthly clearance rate was above 80 per cent early in the year,” Dr Powell said. “We’ve started to see more sellers coming onto the market… and clearance rates starting to ease.”

Recent rises in fixed-term mortgage rates would also have more buyers considering future interest rate hikes, and limit how much they were able or prepared to borrow.