Australia’s property market is showing cautious signs of recovery, with house prices across the combined capitals increasing in the March quarter for the first time in a year.
Released today, Domain’s House Price Report shows house prices rose 0.4 per cent across the combined capital cities to $1.02 million in the March quarter.
The combined regionals were also up 0.7 per cent to $570,073 in the first three months of the year.
House prices rose in Sydney, Adelaide and Perth, with the Harbour City leading the way with a 1.3 per cent quarterly jump in house prices to $1.459 million.
Perth recorded a 1.2 per cent rise to $672,177, while Adelaide rose 0.4 per cent to $795,364.
House prices remained relatively steady in Brisbane (down 0.1 per cent) while Melbourne (down 0.5 per cent), Canberra (down 2.5 per cent), Hobart (down 2.9 per cent) and Darwin (down 3.1 per cent) all recorded falls.
Domain Chief of Research and Economic Dr Nicola Powell said the property market had returned to pre-pandemic conditions.
“Australia’s housing market has now fully reverted back to a multi-speed market, meaning different markets are growing at different rates as they were pre-pandemic,” she said.
“This provides opportunities for both buyers and sellers in different locations.
“The shift is being led by our larger capital cities which normally lead the property market recovery given that historically, they hit a peak price earlier and fall faster.”
Dr Powell said one of the backbones underpinning pricing was the unseasonally weak flow of new listings since spring last year.
The pullback from sellers has been greater than from buyers, resulting in total homes for sale edging almost 15 per cent below the five-year average for the combined capitals.
In addition, interest rates remain at an 11-year high placing a significant dent in borrowing capacity and escalating the cost of debt.
The recent pause to interest rate hikes could be the sentiment changer needed for Australia’s housing market.
“Although lower listings are creating rising competition between buyers and helping to improve prices in certain markets, high-interest rates and tight serviceability requirements are still keeping many on the sidelines,” Dr Powell said.
“As prices lift in certain areas, it’s a timely reminder that interest rates are not the only factor influencing housing activity and prices.
“Population growth is rebounding faster than anticipated, with record levels of overseas migration playing a driving role in our housing markets.
“Extremely tight rental markets are also making purchasing more attractive and may shift some to buy, given the current challenges of securing a lease.”
The unit market
The Domain report also showed unit prices had risen among the combined regionals, climbing 0.3 per cent in the March quarter to $436,129.
But it showed the combined capitals saw unit prices drop 1 per cent, with five of the eight major cities recording a quarterly drop in prices.
This is in contrast with the latest CoreLogic figures which showed unit prices rose for the first time in 11 months in March.
According to CoreLogic, national unit values increased 0.6 per cent over March, with six of the eight capital cities recording a rise in prices.
Sydney recorded the strongest monthly growth in unit values across the capitals, up 1 per cent, followed by a 0.4 per cent lift in Melbourne.
CoreLogic Economist Kaytlin Ezzy, said excess demand from the extremely tight rental market, strong overseas migration, and the tonal shift and subsequent pause in rate hikes from the RBA, had likely put upward pressure on demand while total unit listing levels remain well below average.
“It’s looking increasingly like we have moved through a trough in unit values, however a number of headwinds are still apparent, including further rate rises, an expectation for weaker economic activity through the year and the potential for a lift in advertised stock levels,” Ms Ezzy said.
“However, as we move through a possible inflection point, it can be useful to compare the current unit downswing to both previous periods of value decline and to the cumulative value drops seen in the house market.”
Ms Ezzy said the decline in unit values had held up well compared to houses during the most recent downswing, with national unit values declining just 6.1 per cent.
Accordion to Ms Ezzy, the increase in unit values was geographically broad-based, with both the combined capitals (0.6 per cent) and combined regional (0.2 per cent) markets recording a monthly rise in values.
After recording a mild 0.1 per cent increase in unit values through February, Sydney recorded the strongest monthly growth in unit values across the capitals, up 1.0 per cent, followed by a 0.4 per cent lift in Melbourne. Brisbane, Adelaide, and Perth unit values all saw a 0.2 per cent rise in March.
While Canberra recorded a mild 0.1 per cent increase. Hobart (-0.4 per cent) and Darwin (-0.6 per cent) were the only capitals to record a monthly decline in unit values, with the pace of decline holding steady.
“Given that upper quartile markets typically lead both the up and down swing, it’s unsurprising that Sydney unit values are recording the strongest growth among the capitals,” Ms Ezzy said.
“With a median value of more than $775,000, units across Sydney are more expensive than the median house values of Brisbane ($772,020), Adelaide ($694,818), Hobart ($691,859), Perth ($593,385) and Darwin ($582,415).”
Across the rest-of-state regions, Regional Tasmania (1.5 per cent) and Regional NSW (0.7 per cent) both saw unit values rise in March.
Unit values across Regional Queensland held flat over the month, while Regional WA, Regional Victoria and Regional SA recorded declines of 0.8 per cent, 0.1 per cent and 0.1 per cent respectively.
Despite the flow of newly advertised capital city unit listings rising 1.7 per cent above the previous five-year average over the four weeks to April 2nd, the total stock of capital city unit listing held approximately 10.7 per cent below average.
“While it’s typical to see the flow of new listings rise ahead of Easter, the four weeks to April 2nd was the first time the capital city unit trend rose above the previous five-year average since mid-September last year,” Ms Ezzy said.
“This is likely to be a seasonal peak in the new listing trend, with listing activity typically cooling through winter before ramping up again in spring.”
Unit rents on the rise
National unit rents continue to rise at roughly twice the pace of house rents, up 1.6 per cent and 0.8 per cent over the month and 3.9 per cent and 2.0 per cent, respectively, over the first quarter according to CoreLogic.
Driven by the surge in overseas migrants and international students, the combined capitals recorded its strongest quarterly increase in unit rents on record, rising 4.4 per cent over the three months to March, equivalent to a $23 per week increase in the average rental value ($550).
“The mismatch between rental supply and demand has seen capital city rental growth reaccelerate, which will be unwelcome news to many tenants already struggling to find affordable rental accommodation,“ Ms Ezzy said.
She said capital city unit rental listings are down 43.2 per cent or 27,332 from the average level typically seen this time of year thanks to the huge increase in immigration.
According to CoreLogic, Sydney (5.3 per cent) and Melbourne (4.3 per cent) recorded new record peaks in their quarterly rental growth trend, with the majority of overseas migrants settling in the two largest cities.
Unit rents in Perth, Brisbane, Hobart and Adelaide rose by 4.6 per cent, 3.5 per cent, 3.4 per cent and 2.2 per cent over the first quarter.
While Canberra recorded a mild increase of 0.5 per cent and Darwin saw unit rents decrease 0.4 per cent over the three months to March.
“While units across each of the capitals and rest-of-state regions still offer a more affordable rental alternative compared to houses, the stronger rental growth seen in the medium to high-density sector, in part due to their relative affordability, has seen the gap narrow,” Ms Ezzy said.
“At the capital city level, the gap between the median house and unit rental value has narrowed from $85 this time last year to $65 in March.”
Ms Ezzy said that while rents will likely continue to see upward pressure, prices might not rise until something changes.
“If this month’s improvement in values isn’t a false start, it’s likely we won’t see much momentum in the recovery phase until a catalyst for a new growth phase becomes apparent,” she said.
“For example, a decrease in interest rates, renewed fiscal stimulus such as first home buyer incentives, or an easing in credit policies such as a reduction to APRA’s serviceability buffer could see an increase in housing demand.”
