National property prices continued to climb last month, despite the Reserve Bank of Australia (RBA) continuing to hike the cash rate.
However, the pace of growth has slowed across most markets.
According to CoreLogic, national property prices increased 1.1 per cent in June, down slightly from the 1.2 per cent gain recorded in May.
Once again it was Sydney that saw the strongest growth, with prices increasing 1.7 per cent for the month, while Brisbane values grew 1.3 per cent.
Prices in Perth and Adelaide were both up 0.9 per cent, while Darwin (0.5 per cent) and Canberra (0.4 per cent) saw smaller increases.
Hobart was the only capital city market where prices fell, down 0.3 per cent for the month.
CoreLogic Research Director Tim Lawless said a lack of supply continued to place upwards pressure on housing values.
“Through June, the flow of new capital city listings was nearly 10 per cent below the previous five-year average and total inventory levels are more than a quarter below average,” Mr Lawless said.
“Simultaneously, our June quarter estimate of capital city sales has increased to be 2.1 per cent above the previous five-year average.”
Mr Lawless said although housing values continued to record a broad-based upswing, the pace of growth across most capitals eased in June.
“A slowdown in the pace of capital gains could be a reflection of a change in sentiment as interest rate expectations revise higher,” he said.
“Higher interest rates and lower sentiment will likely weigh on the number of active home buyers, helping to rebalance the disconnect between demand and supply.”
Mr Lawless said regional home prices were also higher last month, increasing 1.2 per cent.
“After regional population growth boomed through the worst of the pandemic, internal migration trends have normalised over the past year, resulting in less housing demand across regional markets,” he said.
“Additionally, housing demand from overseas migration is skewed towards the capital cities rather than the regions.”
Supply remains tight
According to Mr Lawless, the trend in advertised supply helped to explain the rebound in housing values.
The number of capital city homes advertised for sale over the past month was almost 20 per cent lower than at the same time last year and 26.4 per cent below the average for this time of the year.
Regional listings also trended lower through the month, tracking 32.9 per cent below the previous five-year average.
He said the imbalance between supply and demand has seen selling conditions turn in favour of vendors rather than buyers.
“Auction clearance rates across the combined capitals held in the high 60 per cent range through June, in stark contrast to late last year when clearance rates were generally below 60 per cent,” he said.
“Outside of auction markets, vendors have become less flexible on their price expectations, with capital city discounting rates tightening from -4.3 per cent late last year to -3.6 per cent in June.
Mr Lawless said sales volumes had also fallen heavily from the pandemic boom back to normal five-year average levels.
Rents decelerating
In good news for renters, Mr Lawless said there was growing evidence that rental growth was easing.
According to CoreLogic, rents increased 0.7 per cent in June, which was the smallest monthly rise since January 2023 and reflects a continued deceleration in rental prices.
“Despite such tight vacancy rates, it’s likely the trend in rental appreciation will continue to moderate, simply due to rental affordability pressures forcing a change in rental household formation,” Mr Lawless said.
“The early signs of a rebound in the average household size can already be seen in data published by the RBA.”
Prices facing headwinds
Looking forward, Mr Lawless said the trajectory of interest rates would be a critical factor in the housing market’s performance.
“Forecasts on where the cash rate will land and how long it will stay elevated vary, but it’s likely there is at least one more rate hike to come, potentially more,” he said.
“It’s hard to imagine the recent pace of growth in housing values being sustained while sentiment is close to recessionary lows and the full complement of borrowers are yet to experience the rate hiking cycle in full.”
Mr Lawless said the looming fixed-rate mortgage cliff and tougher lending conditions will likely weigh on prices.
“As we saw through the periods of tighter macro-prudential policies and higher serviceability assessments, credit availability plays an important role in housing markets, so further reductions in available credit will likely weigh on buyer demand,” he said.
He said low inventory levels have arguably been the most important factor placing upwards pressure on housing prices.
“A change in the supply dynamic could become evident in spring when the flow of listings would typically ramp up,” he said.
“We could also see more listing flow onto the market if mortgage stress becomes widespread.”
Mr Lawless said at the moment we aren’t seeing any signs that advertised housing stock is rising, at least at a macro level.
“Some areas, such as Hobart, have seen listings rise to above average levels, but from a low base,” he said.
“This will be a key trend to watch moving forward.”
