Key updates:

• The past year has seen Australian housing values increase by 20.6%, adding approximately $124,500 to the value of an Australian dwelling.
• February marked 17 consecutive months of home value growth for Australia, but it was also the lowest monthly growth since October 2020.
• Every capital city and broad ‘rest of state’ region is now recording a slowing trend in value growth, albeit with significant diversity as multi-speed conditions emerge.

Key updates:

• The pace of capital gains remains positive, but the trends are increasingly diverse and generally slowing across the various regions of Australia.
• With housing values continuing to show a broad based rise, three of the eight capital cities are now recording a median house value over the one million dollar mark.
• The outlook is for a further rise in housing values in 2022, although we are expecting the trend in appreciation to be softer relative to last year, with downside risk building later this year under higher interest rates and affordability constraints.

Key updates:

• Australian housing values continued to rise through December, but conditions are diversifying as stock levels rise and affordability pressures mount. Growth rates are slowing in most capital cities, except for Adelaide and Brisbane. Regional markets also saw an increase in monthly growth through November.
• Virtually every factor that has driven housing values higher has lost some potency over recent months. Fixed mortgage rates are rising, higher listings are taking some urgency away from buyers, affordability has become a more substantial barrier to entry and credit is less available.
• The outlook for Australian housing markets remains positive, however the pace of capital gains has lost momentum across most regions since April. This trend towards slowing growth is likely to continue into next year and beyond.
   

Key updates:

• CoreLogic’s October Home Value Index showed housing trends around Australia remain positive, as housing values increased 1.5% over the month. However, the rate of growth continues to lose momentum, following the peak monthly rate of growth in March 2021, when values were up 2.8%.
• We’re starting to see some divergence across the country and the slowdown in growth is a result of worsening housing affordability, increase in supply levels and less stimulus. House prices continue to outpace wages by a ratio of about 12:1, new listings have surged 47% since the recent low in September and property-related stimulus such as HomeBuilder and stamp duty concessions have now expired.
• Combining these factors with the subtle tightening of credit assessments, which went live on November 1, and it’s highly likely the housing market will continue to gradually lose momentum.

Key updates:

• CoreLogic’s national home value index rose another 1.5% last month, taking Australian housing values 17.6% higher over the first nine months of the year and 20.3% higher over the past 12 months. The annual growth rate is now tracking at the fastest pace since the year ending June 1989.
• Although growth conditions remain positive, it is becoming increasingly clear the housing market moved past its peak rate of growth in March when nationally dwelling values increased by 2.8%. Since that time, the monthly rate of growth has eased back to 1.5%. 
• While inventory levels remain low, the number of home sales is well above average. CoreLogic estimates the number of dwelling sales across Australia was 25.5% higher than the five-year average and 41.9% higher year-on-year at the end of September.

Key updates:

• Housing values continued to stage a broad based rise through August, up 1.5% nationally, although the rate of growth has lost some momentum since March.  In fact, the monthly rate of growth in August was the softest result since January 2021.
• The latest update takes Australian housing values 15.8% higher over the first eight months of the year and 18.4% above levels a year ago.  This is the fastest annual pace of growth in housing values since the year ending July 1989. 
• The trend through spring will be highly dependent on what happens with COVID and associated restrictions.  Any signs of an easing in restrictions should see a rise in advertised stock levels as the delayed spring listing season gets under way.  However, a worsening or broadening of the outbreak into other states will of course have some downside impacts.

Key updates:

• Australian housing values increased a further 1.6% last month, taking home prices 14.1% higher over the first seven months of the year and 16.1% higher over the past twelve months. 
• While the monthly pace of growth has slowed, dwelling values have still risen more in a month than incomes have increased in a year. This is creating greater affordability pressures, which is expected to see growth rates slow over the course of the year.
• Advertised listing numbers remain below average across most parts of the country. Recently there has been some volatility in new inventory levels, with the number of newly advertised properties falling sharply across Sydney and Melbourne amidst lockdowns. Chances there could be an active spring season as pent up demand is unlocked, but that of course depends on the timing of restrictions being lifted. 

Full transcript:

Welcome to CoreLogic’s housing market update for August 2021.

Australian housing values increased a further 1.6% last month, taking home prices 14.1% higher over the first seven months of the year and 16.1% higher over the past twelve months.  

The annual change in national housing values is the fastest pace of annual growth since February 2004.  However, in a sign the housing market is losing some steam, the monthly growth rate has been trending lower since March this year when the national index rose 2.8%. 

The gradual easing in the rate of housing value growth can probably be attributed to a combination of affordability factors and less stimulus.  With dwelling values rising more in a month than incomes are rising in a year, housing is moving out of reach for many members of the community.  Along with declining home affordability, much of the earlier COVID related fiscal support, particularly fiscal support related to housing, has expired.

On the flip side, demand is being stoked by record low mortgage rates and the prospect that interest rates will remain low for an extended period of time.  The number of home sales is tracking approximately 40% above the five-year average while active listings remain about -26% below the five-year average.  The mismatch between demand and advertised supply remains a key factor placing upwards pressure on housing prices. 

Although the pace of growth has slowed, housing values continue to rise at a rate that is well above average across most areas of the country.  

The previously stronger performance across regional markets relative to the capital cities has normalised through 2021.  After the combined regional areas of Australia recorded stronger housing market conditions through the second half of 2020, the first seven months of 2021 shows an almost equal rate of growth, with values up 14.5% across the regions and 14.0% across the capitals. 

In another broad trend, houses continue to record much stronger growth in values relative to units.  At the macro-level, national house values are up 18.4% over the 12 months ending July, while unit values have risen by less than half this amount, up 8.7%.  Clearly there has been a shift in buyer preferences away from higher densities, however with affordability pressures mounting across the detached housing sector, we could see more demand gradually deflected back towards higher density housing options.

Advertised listing numbers remain well below average across most parts of the country, despite the number of new listings added to the market trending higher than average.  Recently there has been some volatility in new inventory levels, with the number of newly advertised properties falling sharply across Sydney and Melbourne amidst lockdowns.  We have seen the same trend through earlier lockdowns, where both buyer activity and vendor activity reduce before recovering to pre-lockdown levels once restrictions are eased or lifted.

On the demand side, the number of home sales has held well above average over the year with CoreLogic estimating a 42% year-on-year lift in the number of sales.  The annual number of home sales has not been this high since the year ending January 2004, with the past 12 months recording nearly 600,000 dwellings sold across the country, which is approximately 140,500 more sales than the decade average.

With stock levels remaining tight and demand so high, selling conditions have been skewed towards vendors.  The combined capital cities auction clearance rate averaged 73% through July, and private treaty sales continue to record rapid selling times and low discounting rates.

Considering the tight advertised supply levels and high demand, prospective buyers are likely to be feeling a sense of urgency due to the level of competition in the market.  However, with affordability constraints starting to impact purchasing capacity, it’s possible market activity could reduce through the second half of the year, helping to rebalance the market and take some further heat out of the rate of house price growth.

Now for a roundup of housing market conditions across each of the capital cities.

Sydney has once again recorded one of the largest rises in housing values over the month, but it’s also the city which has recorded the sharpest reduction in the pace of capital gains from earlier highs.  The monthly rate of growth is down from a recent high of 3.7% in March to 2.0% in July.  Sydney is the most expensive capital city by some margin and it has also been the city where values have risen the most over the first seven months of the year.  Worsening affordability is likely a key contributing factor in the slowdown here, along with the negative impact on consumer sentiment as the city moves through an extended lockdown period.  Sydney house values are now up 23% over the past twelve months, while unit values are up less than half that rate, with a 7.6% rise in values over the year.

Melbourne’s housing market has moved through another solid month of growth with housing values rising 1.3% over the month to be 10.4% higher over the year.  While the annual rate of growth is about double the decade average, it’s the lowest annual increase across the capital cities. The softer performance relative to other regions is due to a few different factors. These include weaker unit market conditions, where values are up by 5.9% over the year, weaker demographic trends as population growth is negatively impacted by closed international borders and stronger migration to the regional areas of the state, and a more significant impact from COVID outbreaks and associated lockdowns.

The rate of growth across the Brisbane housing market has held firmer relative to the larger capital cities.  While there is some evidence that growth in housing values has slowed, the reduction is nowhere near as sharp as Sydney or Melbourne.  Similar to most regions around the country, house values are rising at a faster pace than unit values with an annual growth rate of 17.7% for houses and 7.0% for units.  The outlook for Brisbane is looking more positive though, with a strong demographic trend fuelled by interstate migration, a large infrastructure budget and a burgeoning level of excitement following the announcement that Brisbane would host the 2032 Olympic Games. It’s likely the strong market fundamentals, along with a lower price point and higher yield than the larger capitals will be attractive to investors going forward.

Adelaide housing values were up 1.7% in July, taking the annual growth rate to 15.7%, the highest level since the Global Financial Crisis.  Housing demand has surged across Adelaide, with the number of home sales over the past year the highest since 2002.  While demand is at the highest level in almost two decades, advertised supply levels are around record lows.  Active listings were tracking about 34% below the five-year average at the end of July, demonstrating a severe shortage of available supply that is keeping upwards pressure on housing prices.  Across the sub-regions of Adelaide, the pace of annual capital gains ranges from a 26.8% lift in values across Burnside through to a 3.4% rise across the inner-city precinct.

The Perth housing market continues to record a rise in values although the pace of growth has slowed.  In line with rising home values, the annual number of dwelling sales across the Perth market has reached the highest level since 2006, with approximately 49,500 houses and units sold over the year.  At the same time, the number of listings across the Perth region has trended lower, tracking roughly 26% below the five-year average at the end of July.  Rental markets are amongst the tightest of any capital, with house rents up 16.6% over the year and unit rents 14.6% higher. With housing values rising, strong rental conditions and high rental yields, along with improving demographic and economic conditions, it’s likely the Perth housing market will become increasingly more attractive to investors. 

Hobart housing values have recorded a further 1.7% lift in July, taking the annual growth rate to 21.9%; the second highest rate of annual growth across the capitals after Darwin at 23.4%.  Over the past five years Hobart has been a clear standout from the other capitals.  Housing values have increased by almost 11% per annum to be 65.9% higher since July 2016.  Such a substantial rate of growth is likely to be great news for home owners. However, housing affordability has become a significant hurdle, especially for younger buyers and first time buyers.  The worsening affordability challenges could be one reason why Hobart is the only capital city where unit values have recorded a higher rate of capital gain than houses.  Unit values have increased by 23% over the year compared with a 21.7% increase in house values.

Darwin stands out as the strongest housing market by some margin over the past year.  Dwelling values have surged 23.4% higher over the year. Normally such as rapid rate of growth would erode rental yields, however Darwin’s rental market has almost kept pace with the surge in housing values, with rents rising 21.8%.   With both housing values and rents rising so quickly, gross yields are nation leading, averaging 6.0% gross.  Darwin’s spectacular growth trajectory follows a long running decline in housing values between mid-2014 and mid-2019, where values were down 32.7% from peak to trough.  With housing values falling so remarkably, the local market still needs to see a further 15.3% lift in values before staging a nominal recovery.

Canberra has been one of the strongest capital city housing markets over the past five years, with housing values up 45.4% since July 2016.  The past twelve months has seen housing values rising even faster than the average pace, up 20.5%.  Similar to most of the other capitals, houses are showing a much stronger performance than units, with values up more than twice as much over the past year at 23.4% and 10% respectively.  While there has clearly been a national preference shift towards lower density housing options, the Canberra unit market has also been impacted by a large amount of new unit development that has probably contributed to the softer growth conditions across this sector of the market.  

Overall, Australia's housing market remains in a strong position, however signs of a slowing rate of appreciation have become more evident.  

The pace of capital gain has been tapering since April this year which can be attributed to growing housing affordability challenges along with less fiscal support.  It is likely recent COVID outbreaks and associated lockdowns have contributed to some of the loss of momentum as well, particularly from a transactional perspective in Sydney which is enduring an extended period of restrictions.

Previous ‘circuit-breaker’ lockdowns have generally seen housing values remain resilient to falls, but the number of home sales and listings activity has been more substantially disrupted in the most recent lockdowns.  Once restrictions are lifted, it’s likely pent-up demand will flow through to an increase in activity.  However, it is reasonable to assume the uncertainty associated with the duration and severity of Sydney’s lockdown could see a greater level of disruption relative to previous, shorter periods of restrictions. 

Although the rate of growth has eased, housing values are continuing to rise substantially faster than average.  Over the past 10 years, the average pace of monthly dwelling value appreciation has been recorded at just 0.4% compared with the last year with monthly growth has averaged 1.3%.

It’s likely the rate of growth will continue to taper through the second half of 2021 as affordability constraints become more pressing and housing supply gradually lifts.

Other potential headwinds are apparent, including the possibility of tighter credit policies and an earlier than expected lift in interest rates.

Tighter credit policies, should they be introduced, would likely have an immediate dampening effect on housing markets, however the trigger for another round of macroprudential intervention isn’t yet apparent.  APRA, the RBA and the broader Council of Financial Regulators are watching for any signs of a material slip in lending standards, as well as a more substantial lift in household debt or speculative activity.  While each of these metrics is on the rise, the level is likely to be insufficient to trigger a response from APRA. 

Similarly, a lift in the cash rate is likely to be some time away, but, depending on the trend in labour markets and inflation, we could see rates potentially rise earlier than the RBA’s 2024 forecast.   The recent spate of lockdowns is likely to see Australia’s economy once again contract through the September quarter, a factor that could keep rates on hold for a while longer, providing ongoing support for housing demand.

Over the short term, let’s hope the recent COVID outbreaks are contained so restrictions can be lifted.  Chances are we could be in for an active spring season as pent up demand is unlocked, but that of course depends on whether restrictions are lifted.  In the meantime, you can keep up to date with all things housing at corelogic.com.au.

Key updates:

• Australian housing values have risen 13.5% over the financial year, the highest increase in values since April 2004.
• Monthly growth rates are showing a slowdown in momentum, and signalling capital growth rates may have peaked for this cycle. The monthly uplift in June was 1.9%, down 30 basis points from the previous months and 90 basis points from a recent peak in March 2021. Each of the capital cities saw an uplift in dwelling values in June, ranging from a 3.0% rise in Hobart to a more subdued 0.2% lift in Perth.
• Sales volumes have remained elevated through to the end of the financial year. CoreLogic estimates there were approximately 582,900 house and unit transactions nationally over the financial year, which is the highest number of sales annually since February 2004.

Full transcript:

Welcome to CoreLogic’s housing market update for July 2021. The housing market ended the financial year on a high note, with Australian dwelling values rising 1.9% over the month, taking housing values 13.5% higher over the year; the highest annual rate of growth since April 2004, when the early 2000’s housing boom was winding down after a period of exceptional growth.

Each of the capital cities saw an uplift in dwelling values in June, ranging from a 3.0% rise in Hobart to a more subdued 0.2% lift in Perth. Values also trended higher across the regional areas of each state, apart from regional Western Australia where the market slipped 0.1%.

Darwin maintained the highest annual rate of growth across the capital cities, increasing 21.0% in value over the financial year, followed by Hobart at 19.6% and Canberra where values were up 18.1%.  Melbourne recorded the softest annual growth, reflecting a larger downturn in housing values through the third quarter of 2020 due to the extended lockdown period, along with a softer growth trajectory in 2021.

Across regional Australia, regional NSW recorded the highest annual growth in dwelling values, up 21.1%, followed by regional Tasmania at 20.8%. Regional Western Australia recorded the softest conditions with a rise of 2.2% over the year.

Despite another month of strong gains, there are signs that some heat is coming out of the market.

The 1.9% rise in Australian home values through June sits well above the decade average of 0.4%. However, this month’s growth rate is down 30 basis points from the previous month, and 90 basis points lower relative to the recent peak rate of monthly growth in March earlier this year.

The deceleration in housing value growth can be seen across most of the capital cities and regional markets. It can probably be attributed to worsening affordability as housing values rise at a substantially faster pace than household incomes.  Saving for a deposit and funding transactional costs are becoming larger barriers to entry for many prospective buyers.

Softer growth rates are also emerging at the ‘high end’ of the market. Across the top 25% of capital city dwelling values, growth in the June quarter was 8.0%, down from 9.2% in the three months to May. While this 8.0% uplift was still the highest seen among the value tiers, the growth rate also had the largest month-on-month deceleration. This easing in the pace of growth at the top end of the market is another clear sign of a shift in momentum. The rest of the market tends to follow movements at the high end, and this is the first time in nine months that the high-tier growth rate has not accelerated.

Sales volumes have remained elevated through to the end of the financial year. CoreLogic estimates there were approximately 582,900 house and unit transactions nationally over the financial year, which is the highest number of sales annually since February 2004.

Every greater capital city and rest of state region saw double digit growth in annual sales, with the exception of Hobart, where sales activity fell -0.6% over the year, and regional Tasmania where annual growth in sales was 8.6%.

New listings have risen alongside prices and buying activity, but total stock on the market remains low. CoreLogic estimates that there were approximately 130,000 fresh listings added to the market over the three months to June; almost 8% above the five-year average. However, in the same period, there were around 170,000 sales. The dynamic of sales out-stripping new listings has been a persistent trend through the year. The result is total advertised stock levels remaining approximately -25% below the five-year average.

With demand from buyers outweighing advertised supply, the market dynamic continues to favour vendors over buyers. Auction clearance rates remain well above average, although they have reduced from the highs of late Mach. Typical selling time for homes sold by private treaty remains close to record lows, averaging 29 days, up from a recent low of 25 days, and vendor discounting rates remain very tight at -2.7%.

As always, the market dynamic remains diverse from region to region.

The pace of capital gains remains nation leading across Sydney, with housing values rising a further 2.6% in June, taking the typical value of a Sydney dwelling 15% higher over the financial year.  House values were up 19.3% over the year compared with a much softer 5.1% lift in unit values. Such a significant surge in house values has pushed the median to just over $1.2 million. With affordability pressures mounting, its reasonable to assume housing demand will be deflected back towards the medium-to-high density sector where values are substantially lower. The difference between Sydney’s median house and unit value has never been this wide, at a bit over $430,000.  There are signs that some steam is coming out of the market though. Monthly growth in dwelling values has eased back from 3.7% in Mach earlier this year to 2.6% in June, clearance rates have reduced from the mid 80% range to mid 70% range and new listing numbers are tracking about 24% above the five-year average which should help to gradually lift advertised inventory levels if buyer activity slows.

Melbourne housing values were up 1.5% in June, slightly below the capital city average of 1.9%, however the financial year growth rate, at 7.7%, was the lowest of any capital city and well below the combined capitals average of 13.5%. House values have been rising at a faster pace than units, ending the financial year 8.9% higher compared with a 4.7% lift in unit values. The softer performance across Melbourne over the year can only partly be attributed to the extended lock down which ended in October last year. Housing values did fall through this period, but growth in housing values over the first six months of 2021, at 9.7%, has also been below average. The softer trajectory can probably be attributed to a variety of factors, including Melbourne’s larger exposure to stalled overseas migration and an outflow of residents to other states and regional areas of the state.

Brisbane housing values were up 1.9% in June, taking the financial year growth rate to 13.2%, which is slightly higher than the capital city average of 12.4% growth over the year. Like most capitals, Brisbane’s unit market has returned a softer result than houses. Unit values were up 5.7% over the financial year, while house values were up more than double that, increasing 14.8%. Sales activity has been trending well above average, demonstrating strong buyer demand. Our latest estimate of sales activity showed sales were 48% above the five-year average in June and 44% higher year on year. In fact, annual home sales haven’t been this high across Brisbane since the onset of the GFC in 2008.  Such strong demand has empowered vendors, with private treaty homes taking only 25 days to sell on average with discounting rates at a record low of 2.7%.

Adelaide housing values finished the financial year 13.9% higher, with house values substantially outpacing the unit sector with a growth rate of 15.2% and 5.6% respectively over the year. Adelaide has earned a reputation as a consistent performer, with dwelling values rising over 21 of the past 24 months. Buyer demand has remained high, with annual sales activity tracking about 31% above the five-year average in June.  While buyer demand is well above average, advertised supply remains extremely low. Approximately 5,200 homes were available for sale in June, almost 30% below the five-year average and equating to only 1.8 months of supply based on the run rate of sales.

The Perth housing market has shown a distinct softening trend over recent months, with the monthly pace of home value appreciation easing from a recent peak of 1.8% in March earlier this year, to just 0.2% in June. The slowdown is evident across both the house and unit market, and is relatively uniform across the upper and lower quartile of the market, implying a broad-based slowdown in the rate of appreciation. The easing in capital gains comes as housing market activity remains strong, with annual home sales up almost 60% compared with the previous financial year. A few factors that help to explain the slowdown are the sales to listing ratio and trends in housing credit. Over the June quarter, the sales to new listings ratio was recorded at 1.1, the lowest of any capital city, implying buyer demand and fresh stock levels were more evenly balanced than the other capitals. Home lending trends have also eased across WA, with the value of lending falling over two of the past three months. 

Hobart once again recorded the highest rate of monthly growth amongst the capital cities in June, with dwelling values rising a further 3.0%. The latest update takes Hobart housing values a stunning 15.5% higher over the first six months of 2021 and almost 20% higher over the financial year. The last time annual growth was this strong was in 2004. In fact, during the 2000-2004 boom in housing values, Hobart’s annual growth rate reached an eye watering 45.5% at its peak.  While housing values are surging, housing market activity has actually fallen over the year, down 0.6% compared with the previous financial year. The lack of sales activity has more to do with low advertised stock levels than buyer demand. Advertised supply is tracking around record lows and almost 40% below the five-year average. With listings low and demand high, the natural outcome is a substantial rise in values.

Darwin recorded a relatively soft monthly growth reading, with values up 0.8% in June, roughly half the national average. However, considering Darwin is a small market, with only around 150 sales each month, the trend provides a better reading on conditions. The quarterly rate of growth across Darwin remained strong over the second quarter, with housing values up 6.3%. The financial year saw Darwin housing values surge 21% higher to record the highest annual growth rate of any capital city.  Houses and units are showing similar performance, with values up 21.4% and 19.8% respectively over the year.  With such strong selling conditions, vendors are piling into the market. New listings are up 133% on last year and 55% above the five-year average, which is leading to a rise in overall advertised stock levels that could gradually take some heat out of the market. 

Canberra housing values were up a further 2.3% in June taking the values 18.1% higher over the financial year.  Only Darwin and Hobart recorded a larger capital gain over the year. The local market recorded a much stronger result for house price appreciation than units. House values were up 20.7% over the year, while unit values increased by less than half this rate, up 8.7%. With such as significant gain in house values over units, the percentage difference in values between the two housing types has grown to 70%, which is by far the largest difference between median house and unit values amongst the capitals.  With affordability becoming more challenging, its likely more housing demand will gradually divert towards the medium to high density sector where the entry point is lower and home ownership more achievable.

Overall, the housing market has shown a remarkable turnaround from a year ago when uncertainty was rife and housing values were under downwards pressure. The housing market has surged on the back of a stronger and earlier than expected economic recovery, along with record low mortgage rates and a range of stimulus measures that have now mostly expired.

However, the housing market has clearly lost some growth momentum. Persistently high rates of home price appreciation are proving to be unsustainable, from both an affordability perspective, and amidst renewed headwinds associated with outbreaks and spot lockdowns. 

We know that COVID-19 restrictions will impact transactional activity, but housing values have been relatively immune to the impact from the virus. Based on observations through previous circuit-breaker lockdowns, we can expect to see sharp falls in sales and listings, followed by a swift recovery in buyer and seller activity. There has been little impact observed on prices.

Outcomes for the housing market will depend upon how long lockdown conditions last across parts of the country, and whether some of the institutional responses offered through 2020 are reinstated if an extended lockdown occurs.

Affordability constraints and the potential for tighter lending conditions along with higher mortgage rates down the track, remain the primary headwinds for property market performance.

Even without recent developments of COVID-19 in Australia, it is clear that the housing market is losing momentum as affordability constraints build.

Through June, several of the major banks have forecast cash rate increases earlier than has previously been indicated by the RBA. A sooner-than-expected uplift in the cash rate would bring forward mortgage rate rises, and reduce demand for credit, as would other policy considerations such as higher serviceability buffers. More expensive credit, or credit that is harder to obtain, could further shift market dynamics back to more normal levels.

There’s a lot going on at the moment in the property sector. If you would like to stay up to date, make sure you are visiting the news and research pages at corelogic.com.au

Key updates:

• May 2021 saw the continuation of a the housing market upswing. The monthly increase in national home values was 2.2%; an increase on the April growth rate. However, May did not surpass the March increase of 2.8%.
• The housing market upswing  is not just strong, but broad-based. Home values rose in each capital city market, ranging from 1.1% rise in Perth through to a 3.2% jump in Hobart.
• In annual terms, the strongest value gains have been across Darwin (+20.3%), regional NSW (+18.6%) and regional Tasmania (+18.1%). The lowest housing value changes in the 12 months to May were across regional WA (0.0%) and Melbourne (5.0%).

Full transcript:

Welcome to CoreLogic’s housing market update for June 2021. 

Housing markets around Australia continued to surge last month with CoreLogic’s national Home Value Index up 2.2%.  The rise in May was a stronger result compared with the 1.8% lift in April, but weaker than the 32-year high recorded in March when values surged 2.8%.

Growth conditions remained broad based with home values up by more than 1% across every capital city over the month, with both house and unit values lifting across the board.  Of the 334 sub-regions analysed by CoreLogic, 97% of them have recorded a lift in housing values over the past three months.  Such a synchronised upswing is an absolute rarity across Australia’s diverse array of housing markets.

Across the capital cities, the monthly change in dwelling values ranged from a 1.1% rise in Perth through to a 3.2% jump in Hobart.  Across the non-capital city regions, conditions were more diverse. Regional NSW led monthly gains with a 2.5% increase, while values in regional WA had the weakest result dipping one tenth of a percentage point.

Despite the consistently strong headline results, the underlying trends have shifted over the past year.  The most expensive end of the market is now driving the highest rate of price appreciation across most of the capital cities, whereas early in the growth cycle it was the most affordable end of the market that was the strongest.

From a geographic perspective, it was the smaller capital cities that led the housing market out of the COVID slump, but now Sydney has risen through the ranks to record the largest capital gain over the past three months with values up 9.3%.

Another trend that is changing is the stronger performance across regional areas of Australia.  While regional markets led the early stages of the latest growth phase, the performance gap has narrowed substantially between the capitals and regional areas.  For the second time in three months, growth conditions in capital city home values outpaced the regional markets. The combined capital city index rose 2.3% in May compared with a 2.0% rise across the combined regional areas.  

Although housing values are now rising the fastest once again in Sydney, at least in trend terms, the annual growth rate is generally higher across the smaller capitals, as well as Regional New South Wales and Regional Tasmania.  Darwin cracked the 20% annual growth barrier in May, with values now 20.3% higher over the past 12 months. For Darwin dwellings, this is the strongest annual gain on record. Housing values across Regional New South Wales are up 18.6% while in Regional Tasmania values are 18.1% higher.

At the other end of the spectrum, the weakest housing markets over the past year have been in Regional Western Australia where values were flat, and also in Melbourne with a 5.0% lift in values.  In Melbourne the extended lockdown has created a more significant drag on the annual rate of growth. 

Low advertised housing supply remains a key factor in the housing market due to proportionately high demand.  Fresh listings added to the housing market have picked up over recent months, with the number of new listings tracking 15% above the five-year average.

Despite the increase in newly advertised residential properties, sales activity has also increased.  CoreLogic estimates sales activity over the three months to May was tracking about 37% higher than the five-year average.

The sales to new listings ratio remains around 1.1, meaning for every new listing there is more than one sale occurring.  This rapid rate of absorption is keeping advertised inventory levels extremely low, despite the rise in new listings.  As a consequence, vendors remain in a strong selling position while buyers have a weak position at the negotiation table.

With housing sales activity continuing to outpace the number of new listings added to the market, the total number of homes advertised for sale remains approximately 24% below the five-year average.

Low stock and high demand are keeping auction clearance rates high and private treaty metrics tight.  Auction clearance rates have held in the mid-to-high 70% range throughout May, fading a little from March when clearance rates were consistently finalising above 80%. Despite this slightly softer result, May clearance rates were still well above the decade average of 64%.  Median time on market remains around its record low of 25 days, while vendor discounting rates are also around record lows. The typical discount from original asking prices was recorded at -2.7% over the past three months. 

Now let’s take a look at conditions in some more detail across each of the capital cities.

Sydney’s housing market has risen through growth tables to once again become one of Australia’s strongest housing markets.  Dwelling values were up 3% in May, while the growth rate over the past three months reached 9.3% - the fastest pace of growth over a three month period since 1988.  The rate of growth remains higher for houses compared with units, with house values up 11% over the rolling quarter while unit values were 5.3% higher.  Similarly, we are seeing growth conditions skewed towards the more expensive end of Sydney’s housing market, with the upper quartile recording a 12% lift in value over the past three months compared with a 5.2% increase across the lower quartile. 

Melbourne’s housing market saw the pace of growth lift by half a percentage point between April and May, with values up 1.8% last month. This takes the three month gain to 5.5%.  The impact of the extended lockdown last year is still weighing on the annual returns for Melbourne, with housing values up a relatively small 5.0% over the past year, which is the lowest annual capital gain of any capital city.  The relatively low annual return is a symptom of the 5.6% drop in values recorded through the worst of the COVID period last year.  Like most capital cities, Melbourne’s unit market has recorded a lower rate of growth relative to houses.  With Melbourne moving through another temporary lockdown at the time of filming, we don’t anticipate this will have a material impact on housing market conditions, unless the lockdown is ongoing. The housing market has been resilient to shorter ‘circuit-breaker’ lockdowns in recent months. If COVID cases can be quickly traced and contained, we don’t expect another slump in Melbourne housing conditions.

Brisbane home values were up another 2% in May, taking the market 6.2% higher over the quarter and 10.6% higher over the past year.  The lift in values has been supported by a solid rise in demand, with our latest estimate of home sales tracking approximately 41% higher than the five year average in May.  At the same time, advertised inventory levels are 28% below the five year average. This mismatch between available supply and demand is a key factor pushing prices higher.  Local house values have risen at more than twice the pace of unit values, with houses rising in value by 11.9% over the past twelve months while unit values are up a smaller 4.2%.

Adelaide home sales are tracking almost 28% above the five year average, and homes are selling in just 32 days on average which is the fastest average selling time since 2007.  Such tight market conditions are pushing prices higher, with Adelaide house values up 6.1% over the past three months.  Unit values aren’t rising quite as quickly, rising by 1.3% over the same period of time.  While sales and values are rising at an above average rate, listing numbers remain well below normal levels.  At the end of May there were 5,460 residential properties for sale across Adelaide, which was 30% below average for this time of the year.

Activity across the Perth housing market has rebounded back to levels last seen during the boom times of 2013.  In May, CoreLogic estimates sales activity was tracking about 58% above the five year average as demand for housing surges.  Such strong demand has seen the average selling time of a Perth home fall to just 17 days. Vendor discounting rates are averaging 2.6%, which is close to record lows.  Housing values are responding to the strong selling conditions, rising 1.1% in May to be 8.5% higher over the past year.  The unit sector is showing a slightly milder growth rate than houses, with values up 6.0% over the past year compared with an 8.8% lift in house values.

Housing values across Hobart were 3.2% higher in May; the fastest monthly rate of growth of any capital city.  The latest surge in home values takes the annual growth rate to 16.5%, which is well above the capital city average of 9.4%.  Hobart is one of the few capitals where the unit market is performing in line with the house market; both housing types have recorded a similar rate of growth over the past twelve months.  Despite the strength in home values, the number of property sales is tracking almost 7% below the five year average. The slump in sales isn’t due to any lack of demand, rather it relates to the fact that advertised supply remains 33% below average levels.

Darwin housing values are recording the most rapid rate of annual appreciation of any capital city, rising at record speed to be 20.3% higher over the past twelve months. Such strong growth conditions come after a long running downturn where home values fell by 33% from their 2014 peak.  Despite the strong growth conditions, Darwin housing values remain 17.4% below their historic highs.  Home owners are taking advantage of the strong selling conditions, with new listing numbers tracking 32% above the five year average at the end of May.  However total listings remain about 33% below average due to high demand and a rapid rate of sale.

Canberra has maintained a consistently positive growth rate over the past twenty two months, taking housing values 15.6% higher over the past twelve months.  Along with higher values, the number of home sales is tracking 19% above the five year average.  Such strong housing demand is keeping advertised stock levels low.  Total listing numbers were 25% below average at the end of May, despite the new stock additions tracking 15.5% higher than average.  Both house and unit values are rising across Canberra, but house values are rising at double the pace of units, up 17.7% over the past twelve months compared with an 8.0% lift in unit values.

Overall, Australia’s housing market remains firmly entrenched in a housing boom across most regions of the country. 

The reduction in federal government fiscal support seems to have had little to no impact on housing demand or growth in home values to-date. While future COVID outbreaks presents both a health and economic risk, the strong recovery in the labour market has likely mitigated the impact of removing the JobKeeper’s program.

We are expecting housing values will continue to rise throughout 2021 and into 2022, albeit at a gradually slower pace. Domestic demand should continue to be supported by the expectation that mortgage rates will remain at their record lows for some time, as well as the ongoing high levels of consumer confidence as the economy expands at a faster than average pace.

A slowdown in dwelling price appreciation is expected as affordability constraints progressively impact market participation, and potentially tighter credit policies looms further down the track.  Messaging from the RBA has indicated they will be watching for any signs of a deterioration in credit standards that could be a trigger for tighter lending rules.

Worsening affordability pressures are likely to impact first home buyers more than other segments of the market, and there are already signs that first home buyer demand is pulling back.  Investors, on the other hand, are stepping up their activity across the housing market, motivated by prospects for continued capital gain and low interest rates.  The resurgence of investor participation, and high levels of activity in the owner occupier non first home buyer segment may account for the continued strength in dwelling markets despite affordability constraints

Over the medium term, a rise in housing supply together with the demand side impact of closed international borders is likely to be another factor that weighs on price appreciation.  House approvals are moving through record highs, but it will take some time for these approvals to transition through the construction phase to a completed dwelling.

Clearly there is plenty to keep an eye on between updates.  You can stay in tune with housing market news and research at our web site, www.corelogic.com.au

Key updates:

• Australian housing values lifted by 1.8% in April, with the monthly pace of capital gains easing from a 32-year high in March.
• Despite the slowdown, positive housing market conditions remain geographically broad-based with every capital city and ‘rest-of-state’ region continuing to record a lift in dwelling values over the month.
• Looking forward, we are expecting housing values will continue to rise throughout 2021 and into 2022, albeit at a gradually slower pace. Demand should be supported by an expectation that mortgage rates will remain at their record lows for an extended period of time, as well as ongoing high levels of consumer confidence as the economy expands at a faster than average pace.

Full transcript:

Welcome to CoreLogic’s housing market update for May 2021. 

Australian housing values lifted by 1.8% in April according to CoreLogic’s national home value index, with the monthly pace of capital gains easing from a 32-year high in March. Although growth conditions have slowed, housing values are still rising at a rapid pace, up 6.8% over the past three months to be 10.2% higher than the COVID low in September last year.

The slowdown in housing value appreciation is unsurprising given the rapid rate of growth seen over the past six months, especially in the context of subdued wages growth. With housing prices rising faster than incomes, it’s likely price sensitive sectors of the market, such as first home buyers and lower income households, are finding it harder to save for a deposit and fund transactional costs.

There is already some evidence of fewer first time buyers in the market, with the Australian Bureau of Statistics reporting a 4.8% fall in the value of first home buyer home loans through February and March.

Despite the slowdown, positive housing market conditions remain geographically broad-based with every capital city and ‘rest-of-state’ region continuing to record a lift in dwelling values over the month.  Darwin and Sydney recorded the largest month-on-month rise in dwelling values, while Perth values recorded the lowest rate of growth amongst the capital cities at 0.8%.

The four smallest capital cities recorded double digit annual growth, reflecting a smaller COVID-related disruption and an earlier start to the growth phase last year. Melbourne is recording the lowest level of annual growth due to a larger downturn, attributable to the extended lockdown period last year.

The broad trend of houses outperforming the unit sector continued through April as higher density styles of housing experienced less demand amidst elevated supply across some inner city precincts. At the combined capital city level, house values have risen at double the pace of unit values over the first four months of the year.

A preference shift away from higher density housing during a global pandemic is understandable, however a rise in flexible working arrangements also seems to be supporting greater demand for houses around the outer-fringes of capital cities and regional locations. Relatively weak investor activity, compounded by a supply overhang in some high-rise precincts, is also dampening price growth in unit markets.

In a further demonstration of the preference shift away from higher density styles of housing, the past six months has seen house sales tracking 19% above the decade average. Unit sales have also risen over the past six months but are only 6% above the decade average.

Strong selling conditions can be seen in auction clearance rates, which have held in the upper 70% range throughout April, alongside the fall in median selling times and vendor discount rates which have reduced to a record low median of just 26 days to sell a home along with a median discounting rate of just 2.7% across the combined capitals.

Let’s move on to the capital city trends.

Sydney continued to lead the pace of growth in housing values across the major capitals, recording a 2.4% rise in April. Recall Sydney housing values were up 3.7% in March, so the April reading marks a slowdown in the pace of growth, albeit from the fastest rate of growth since 1988. Sydney’s rapid pace of appreciation in skewed towards houses over units. Although values are rising across both sectors of the market, house values have surged 13.4% over the most recent six month period compared with a 3.7% lift in unit values. We are also seeing stronger growth conditions across Sydney’s premium valued properties. For houses, the most expensive quarter of the market recorded a 12.2% lift in values over the past three months compared with a 7.9% rise. The trend is similar, but less substantial for units, with the upper quartile recording a 6.0% lift in values over the past three months while lower quartile unit values were only 2.9% higher.

In Melbourne the pace of capital gains slipped from 2.4% in March to 1.3% in April. Considering housing values have risen at the average monthly pace of 0.4% over the past decade, the current growth environment can still be described as rapid. House and unit values are rising, but unevenly. House values have increased by 9.0% over the past six months compared with a 5.4% gain in unit values. Similarly, growth has been broad-based but diverse across the sub-regions of Melbourne, with the Mornington Peninsula substantially outpacing other areas of the city, with dwelling values up 13.1% over the past year. The next best performing region was the north eastern suburbs where values were up a smaller 4.6%.

Brisbane housing markets continued their upswing with housing values rising a further 1.7% in April to be 8.3% higher over the past twelve months. In line with the national trend, house values have been rising at a much faster pace than units, up 9.6% over the past year compared with a 2.4% lift in unit values. Selling conditions are well skewed towards vendors, with homes taking just 26 days on average to sell while discounting rates hold at record lows of just 3.0%. The tight selling conditions can be attributed the number home sales tracking 25% above the five year average at a time when total listing numbers remain 27% below average.

Adelaide was one of the few capital city housing markets where the pace of capital gains accelerated in April, rising from 1.5% in March to 2.0% in April. April marked the fastest pace of monthly appreciation since December 2007, just prior to the GFC induced downturn. Like every other capital city, Adelaide’s unit market has underperformed through the upswing. Unit values are 4.8% higher over the past year while house values have risen at more the double the rate, up 11.1%. Estimated sales volumes were tracking 36% above the five year average in April, while advertised listings were about 30% below the five year average. With demand strong and advertised supply levels so low, it’s likely we will continue to see housing values rise across the Adelaide housing market.

Perth housing values continued to rise in April, but the pace of gains slowed relative to earlier months. House values were up 0.9% in April taking the annual growth rate to 6.9% while unit values rose by 0.6% over the month to be 4.8% higher over the year. Selling conditions are extreme, with homes averaging just 17 days to sell; the fastest rate of sale across the capital cities and an equal record low with 2006 when selling conditions were as tight as they are now. More home owners are taking advantage of the strong selling conditions, with new listings added to the market in April tracking almost 25% higher than the five year average. Across the sub-regions of Perth, Mandurah is leading the pack, with values up 11.0% over the past twelve months.

Hobart housing values rose by 1.0% in April; the lowest month on month rate of growth since December when values rose by 0.7%. Despite the slowdown in growth, other indicators still indicate plenty of heat in the market. Homes are selling in just 21 days and vendor discounting rates are just 1.8% which is the lowest of any capital city as well as the lowest discounting rate on record for Hobart. Such tight selling conditions can be at least partially explained by the fact advertised listing numbers remain 34% below the five year average. Sales are actually tracking lower than average, which is likely a symptom of short supply rather than weak demand.

Darwin’s housing market is rebounding at an extraordinary rate with housing values surging 2.7% higher in April to be 15.3% higher over the year; by far the fastest rate of growth across the capitals. House values are rising at about double the rate of unit values, up 18.2% over the past year while unit values are 9.5% higher. Demonstrating the recovery in housing demand, estimated home sales were tracking 31% above the decade average in April while total listing numbers are about 40% below average. Despite such tight market conditions, the median time on market, at 48 days, remains higher than other capitals, which is likely a reflection of the stock overhang that accrued through the long running downturn.

Canberra remains one of Australia’s strongest housing markets.  Housing values rose 1.9% in April taking the annual rate of growth to 14.2%, which is the second fastest annual rate of growth across the capital cities after Darwin. Detached houses have been the primary driver of the strong capital gains, with house values up 16.0% over the past year compared with a 7.6% lift in unit values. Although housing values have been rising rapidly, the median house value in Canberra remains more than $300,000 lower relative to Sydney and almost $37,000 lower than Melbourne house values.

Overall, although conditions remain strong, there are mounting signs the housing market has moved through a peak rate of growth. Housing values over the past six months have been rising at an unsustainable rate and are now succumbing to a gradual slowdown in demand due to worsening affordability constraints, a rise in fresh inventory, higher levels of new detached housing supply and less government stimulus. 

We are expecting housing values will continue to rise throughout 2021 and into 2022, albeit at a gradually slower pace. Demand should be supported by an expectation that mortgage rates will remain at their record lows for an extended period of time, as well as ongoing high levels of consumer confidence as the economy expands at a faster than average pace.

The risks associated with the expiry of mortgage deferrals and less fiscal support have become far less significant. The proportion of home loans that remained on a deferral arrangement at the end of March was just 0.7%, comprising only 0.07% of bank mortgage books. Consequently, we are not expecting any material lift in distressed listings. For borrowers that remain in a distressed situation, the lift in housing values has reduced the risk of selling at a loss.  In the most recent Financial Stability Review, the RBA estimates only 1.25% of Australian properties are in a situation where the loan amount exceeds the value of the home.

The trend in labour markets will provide an important bearing for housing market outcomes. Labour markets have shown a ‘V’-shaped recovery through the COVID period to-date; although there may be some reversal in the trend due to the end of JobKeeper, this is likely to be temporary. Further tightening in labour markets post JobKeeper should help to keep consumer sentiment high and provide a positive flow-on effect for housing demand.

The possibility of tighter credit policies remains a key risk to the housing market outlook. The RBA and APRA have reiterated they are watchful for any signs of slipping credit standards, but have also noted there has been little evidence of a deterioration in lending standards to-date. A rise in the proportion of riskier types of lending or higher risk loans could be met with a new round of credit policies. We know from earlier periods of macroprudential intervention that this would likely dampen market activity and the pace of capital gains.

Clearly there are a lot of factors at play and uncertainty related to COVID-19, both here in Australia and abroad, will continue to exert some influence on economic activity. However I think it’s fair to say the risk factors have been become substantially less concerning amidst a faster than expected economic recovery. 

In the meantime, if you would like to stay up to date with all the housing market conditions make sure you visit the research pages at  www.corelogic.com.au

Key updates:

• Australian housing values are rising at the fastest monthly pace since the late 1980’s, with CoreLogic’s national home value index lifting 2.8% in March.
• Growth conditions are broad based, with every capital city and broad ‘rest of state’ region showing extremely strong housing market conditions.
• The surge in housing values is running in parallel with higher levels of housing market activity. CoreLogic estimates home sales are tracking 22% higher than a year ago, while advertised stock levels remain almost 26% lower than last year.

Full transcript:

Welcome to CoreLogic’s housing market update for April 2021. The heat in the housing market intensified last month, with our national home value index recording a 2.8% rise, the fastest rate of appreciation since October 1988 when values were up 3.2% over the month. These exceptionally strong growth conditions remain broad-based, with values rising by at least 1.5% across each of the capital cities over the month.

Sydney led the pack for capital gains, with values surging 3.7% over the month and 6.7% higher over the first quarter of the year. The last time Sydney housing values recorded a quarterly trend this strong was in June and July 2015. Following this brief surge, the pace of growth rapidly slowed as limits on investor lending kicked in to slow the market.

March marked several inflection points across the market. Sydney and Melbourne have now staged a full recovery from earlier downturns. With the acceleration in capital gains across Australia’s two largest housing markets, the larger capitals have started to outpace many of the smaller cities that were previously leading the charge in growth.

Additionally, for the first time in a year, growth in capital city housing values outpaced the regional markets. CoreLogic’s combined capital cities index recorded a 2.8% lift in March compared with the 2.5% gain seen across the combined regionals index. Housing values in regional areas are 11.4% higher over the past year, demonstrating the higher earlier stronger growth trend. Capital city values are now 4.8% higher on an annual basis with an acceleration in growth evident in March.

Victoria was the only state where regional housing values rose at a faster pace than their capital city counterparts. Regional Victorian values were up 2.6% compared with a 2.4% rise across Melbourne over the month.

Lower density housing has continued to outpace higher density housing for capital gains. Nationally, house values were 3.0% higher over the month while unit values were up a more modest 1.9%. Across the combined capitals, the quarterly growth rate for houses, at 6.5%, is more than double that of units at 3.1%. Despite the underperformance, it looks although unit markets have turned a corner, with Sydney recording two consecutive months of rising values, while the Melbourne unit market has seen values consistently rising since October last year, with the trend accelerating over recent months.

At the heart of these strong housing market conditions is a disconnect between demand and supply. 

On the supply side, total advertised listings remained extremely low throughout March. A count of national total listing numbers over the four weeks ending March 28 shows advertised stock levels were -25.5% below the five year average.

The main reason total listing numbers remain so low is that buyer demand is consistently outweighing new advertised supply. The ratio of sales to new listings is tracking at around 1.1, implying for every new listing added to the market, 1.1 homes are sold. Such a rapid rate of absorption is keeping overall inventory levels low and adding to a sense of FOMO amongst buyers.

The tight market conditions can also be seen in auction clearance rates, which have consistently held above 80% in March. This is also evident in rapid selling times, and lower discounting rates for private treaty sales.

Housing market conditions seem to be strong pretty much everywhere, but there is some diversity across the cities. 

Sydney dwelling values are now 2.6% higher than their July 2017 peak, a remarkable recovery considering the -14.9% drop in values through to May 2019 and the further -2.9% fall throughout the COVID downturn. The strong recovery trend can be mostly attributed to houses, rather than units, where values are up 10.8% over the past six months. Unit values are 1.8% higher over the same period of time, and still 2.1% below their 2017 peak. The typical house value rose to slightly more than $1.1 million in March. Home sales are estimated to be 15% higher than a year ago across Sydney, while listing numbers were 15% lower, highlighting the lack of advertised supply relative to demand, which helps to explain the upwards pressure on home values.

Melbourne housing values recovered from the -11.1% fall between 2017 and 2019, and the -5.6% drop in values through the worst of the COVID related downturn, to set a new record high for dwelling values in March. The median house value is approximately $860,000 while the median unit value reached $593,000. Local market activity has ramped up over the past six months. Over the March quarter, the estimated number of home sales is tracking 17% higher than the same time last year. This surge in activity is happening across a relatively low supply levels, where total listing numbers are only 1.5% higher than a year ago. Across the sub-regions of Melbourne, the Mornington Peninsula stands out with the fastest rate of growth. Housing values across the Peninsula were 8.6% higher over the March quarter alone.

The pace of capital gains has been accelerating across the Brisbane market since the COVID downturn found a floor in September last year. Local housing values were down 0.9% through the worst of the COVID period and have surged 7.0% higher over the past six months. Like most other cities, the unit sector is recording a milder growth rate, with values up 2.8% since September last year compared with a 7.9% rise in house values. The growth is occurring while advertised supply levels remain 27% below the five year average. Against this low supply, the number of homes sales is tracking 8% higher through the March quarter than last year. Brisbane inner city house values have led the pace of capital gains, with values up 7.7% through the March quarter.

Adelaide recorded a 1.5% lift in home values in March, taking the annual growth rate to 8.6%; well above the combined capitals average of 4.8% growth. The recent trend has been a little softer than the other capitals, which could be a sign of earlier market heat starting to cool. The trend in home sales has been easing since December, however the March quarter recorded sales activity that was estimated to be almost 22% higher than year ago.  Homes are selling in just 41 days, ten days shorter than a year ago, and discounting rates are around record lows at 3.0%. The latest data shows an acceleration in growth across the premium housing markets. For example, the sub-region of Burnside recorded the highest gains over the March quarter, where house values were up 6.8%.

The pace of capital gains has continued to accelerate across Perth, with dwelling values up 1.8% in March which was the fastest rate of appreciation since September 2006. Such a rapid pace of growth is seeing the market rapidly recover from the 22% peak-to-trough fall that ran between mid-2014 and mid-2019, followed by a 2.2% drop through COVID. Local housing values are still 15.9% below peak levels, highlighting the relative affordability of the market. The heat in the market is evident from our estimate of home sales over the March quarter, which is up 42% on last year’s numbers, while total advertised stock levels are down 23%. Homes are selling in just 27 days on average, the fastest rate of sale since 2014.

Hobart housing values have continued to rise at a rapid pace. Dwelling values were up 3.3% in March, which was the fastest monthly growth rate since 2003. The long term strength of the Hobart market is demonstrated through the 56% rise in housing values over the past five years. This is more than double the rate of growth in Sydney and Melbourne. It is also 22 percentage points higher than the capital city with the second highest growth rate, which is Canberra, at 34%. Hobart’s most affordable quarter of the market has been recording a higher rate of growth relative to other sectors, however the most expensive end of the market is accelerating, with the monthly rate of growth across the top quartile outpacing the lower quartile in March.

The housing trend in Darwin has been extremely strong.  Housing values are 11.2% higher over the past six months which is the fastest half yearly growth rate of any capital. Market demand has shifted upwards from a low base in the past 3 months, with the estimated number of homes sales 46% higher than a year ago. Meanwhile, advertised supply is 36% lower than a year ago, and 42% below the five year average. Homes are averaging 47 days to sell, which is the fastest rate of sale since 2010. Despite the strong gains, a recovery to previous highs is still some way off, with Darwin housing values remaining 21.6% below their 2014 peak.

Canberra housing values have been consistently rising over the past 20 months. Over recent months, growth rates have accelerated to the highest level since June 1992. House values have shown a much stronger rate of growth than units, rising by 13.9% over the past year while unit values are up 5.8%. Sales activity has eased since November last year though, with the number of homes sold over the March quarter estimated to be 1.8% lower than year ago. This slowdown in sales could be at least partially related to short supply levels, with the number of listings 31% lower than last year.

Overall, housing markets are continuing to respond to a broad range of positive factors including record low interest rates and recent economic conditions that have consistently beaten forecasts. In response, Australians are feeling optimistic and confident in making high commitment decisions related to the property market. 

The upswing in buyer demand has not been met with the same level of increase in inventory. This has resulted in strong selling conditions, amidst a palpable sense of urgency amongst buyers, putting upwards pressure on housing prices.

While we are expecting housing values to continue rising throughout 2021 and well into next year, it is reasonable to expect the pace of growth will slow. Earlier periods of similar exuberance have been previously quelled by factors such as rising interest rates, weaker economic conditions or changes to credit availability. 

As the housing market hits record high values, speculation is mounting as to what will trigger the next downswing phase of the cycle. 

Short term interest rates are unlikely to increase any time soon, and the economic recovery has some way to go. However housing affordability constraints, particularly for those who do not own a property, are mounting.

There will be substantially less fiscal support going forward for home owners and potential first home buyers, which will likely contribute to a tapering of demand. This is especially the case amongst first home buyers where demand has been brought forward by a range of incentives set to end this year.

The prospect of tighter credit policies is also on the radar, which we know from previous periods of credit tightening will likely have an immediate dampening effect on housing activity. The likelihood and timing of any change in credit policies is highly uncertain and largely dependent on a material lift in credit metrics such as debt to income ratios, loan to income ratios or high LVR lending. 

According to APRA, although each of these metrics rose in the final quarter of 2020, lending standards remain healthy enough to keep any credit intervention at bay for now.

As the economy transitions away from fiscal support and housing affordability becomes more challenging for some sectors of the market, it’s an important time to keep an eye on the trends. You can keep up to date with all the housing market and twists and turns via the CoreLogic research pages at www.corelogic.com.au

Key updates:

• Momentum continued to build across Australian housing markets in February, as values rise at the fastest rate in seventeen years. 
• Housing values are rising across each of the capital city and rest of state regions, demonstrating the diverse nature of this housing upswing.  A synchronised growth phase like this hasn’t been seen in Australia for more than a decade. 
• Housing price momentum looks to be skewed towards the upside, with the tailwinds of low rates, improving economic conditions and consumer confidence, low supply and high consumer demand likely to outweigh the headwinds associated with the coming wind-down of fiscal support.

Full transcript:

Welcome to CoreLogic’s housing market update for March 2021. 

Momentum continued to build across Australian housing markets last month, as values rise at the fastest rate in seventeen years. Our national index showed housing values surged 2.1% higher in February, which was the largest month-on-month rise since August 2003. Spurred on by a combination of record low mortgage rates, improving economic conditions, government incentives and low advertised supply levels, Australia’s housing market is in the midst of a broad-based boom. 

Housing values are rising across each of the capital city and rest of state regions, demonstrating the diverse nature of this housing upswing. A synchronised growth phase like this hasn’t been seen in Australia for more than a decade. The last time we saw a sustained period where every capital city and rest of state region was rising in value was mid-2009 through to early 2010, as post-GFC stimulus fuelled buyer demand.

Sydney and Melbourne were among the strongest performing markets, recording a 2.5% and 2.1% lift in home values over the month respectively, as Australia’s two largest cities caught up from a weaker performance through 2020. The quarterly trend however, is still favouring the smaller cities; Darwin housing values rose 5.5% over the past three months, Hobart values rose 4.8% and Perth was up 4.2%. 

Whether this new found growth in Sydney and Melbourne can be sustained is unclear. Both cities are still recording values below their earlier peaks, however at this current rate of appreciation it won’t be long before Australia’s two most expensive capital city markets are moving through new record highs. With household incomes expected to remain subdued and stimulus winding down, it is likely affordability will once again become a challenge in these cities.

Regional markets have continued to show a higher rate of capital gain relative to the capital cities, however the performance gap has narrowed compared with the earlier phase of the growth cycle. Regional areas generally recorded less of a decline in housing values through the worst of the COVID period last year, while also showing an earlier and stronger growth trend through the second half of last year. This regional preference is reflected in the annual growth trend, where the combined regionals index is 9.4% higher while the combined capital city index is up a much smaller 2.6%.

A housing market trend that has persisted through the COVID period to-date is the weaker performance of unit markets relative to detached housing. Across CoreLogic’s combined capitals index, house values have recorded a growth rate more than three times higher than that of units. There are some tentative signs this trend could become less obvious, with Sydney unit values recording their first month of growth since April last year and Melbourne unit values recording their largest gain since late 2019. 

One of the factors driving housing prices higher is low advertised supply levels. CoreLogic’s most recent measure of total listing numbers continues to see advertised supply significantly below that of recent years.  The number of properties advertised for sale nationally remained 25.3% below 2020 levels over the 28 days ending February 28^th. 

Whilst available supply remains at historically low levels, the quarterly number of home sales is estimated to be up 35.3% on 2020 levels, with regional dwelling sales 40.6% higher compared with a 32.0% lift in capital city sales. 

Housing inventory is around record lows for this time of the year and buyer demand is well above average. These conditions favour sellers and buyers are likely confronting a sense of FOMO which could limit their ability to negotiate. Vendor discounting rates were estimated at a record low of 2.6% in February, and auction clearance rates have consistently been in the high 70% to low 80% range, which is well above average.

Let’s take a look at housing market conditions across each of the capital cities.

Sydney dwelling values surged 2.5% higher in February, with house values rising by 3.0% while unit values continued to record a strong but slower pace of growth, up 1.2%. The trend towards a faster rate of appreciation in house values over unit values can be seen around the country, with demand shifting towards lower density styles of housing. As housing values rise, buyer demand has also increased, with CoreLogic estimating there were almost 24,000 sales across the Sydney metro area over the past three months, which is a 34% increase on the same time last year. The rise in buyer numbers has occurred while advertised stock levels remain 17.5% below the five year average. Such strong demand at a time of low available supply is contributing to the upwards pressure on housing prices. Sydney housing values remain 1.1% below their July 2017 peak, however at this rate of growth it won’t take long for Sydney housing values to reach new record highs.

Melbourne housing values recorded a 2.1% lift last month, with stronger capital gains skewed towards the detached housing sector. House values are 4.2% higher over the past three months compared with a 1.9% lift in unit values. Although values are on a consistent and strong recovery trend, Melbourne housing values remain 1.7% below their pre-COVID peak. Buyer activity has also been rising rapidly, with CoreLogic estimating the number of settled dwellings sales over the past three months was tracking 38% higher than a year ago. Listing numbers are only 2% higher than a year ago, implying demand is outpacing supply, contributing to the upwards pressure on prices. Across the sub-regions of Melbourne, the Mornington Peninsula stands out with the strongest capital gains, with values up 9.3% over the past twelve months. The Inner Eastern suburbs and Inner Melbourne have recorded the largest decline in values over the past year, however more recently the growth trend has turned positive.

The Brisbane housing market has continued to rise in value, with CoreLogic’s all dwellings index rising 1.5% over the month to be 5.0% higher over the past year. Similar to other cities, growth in values has been skewed towards houses, which have risen 5.9% compared with a 1.1% lift in unit values in the 12 months to February. House values reached a new record high in February, however units remain 10.3% below their 2010 peak value and roughly in line with 2007 levels. As market conditions improve, buyer demand has been rising. Our estimate for home sales over the past three months is tracking 25% higher than a year ago. This rise in demand is occurring while listing numbers remain 28% below last year’s level, demonstrating a mismatch between supply and demand. With market conditions favouring sellers, the median vendor discounting rate has fallen to a new record low of 2.8%, demonstrating a tough negotiating environment for buyers amidst such tight supply levels.

The pace of capital gains has eased off a bit across Adelaide. After the monthly growth rate reached 1.3% in November last year, conditions have eased back to a monthly gain of 0.8% in February. Houses have been leading the growth trend, rising in value by 3.1% over the past three months while unit values have recorded a lower 0.8%. Both house and unit values were at record highs in February. Across the sub-regions of Adelaide, the outer southern region of Onkaparinga has recorded the highest capital gains, up 10.8% over the past twelve months, while at the other end of the spectrum, Adelaide City is the only sub-region to record a decline over the past year, with values down 1.2%. Our estimate of sales activity over the past three months is tracking 19% higher than a year ago, but listing numbers are down 32% on last year. With demand high and supply low, we are expecting the market will continue to favour sellers over buyers, with further upwards pressure on housing prices.

Perth housing values have been rising at more than 1% each month over the past four months, resulting in the strongest three month trend in capital gains since 2009. While values are rising rapidly for both houses and units, it’s the detached housing sector recording the strongest capital gains. House values are up 5.0% over the past twelve months while unit values are 1.9% higher. The surge in housing values has been accompanied by a substantial lift in buyer activity, with CoreLogic estimating the number of home sales to be 44% higher than a year ago over the past three months. With conditions so tight, the amount of time it takes to sell a property is now averaging just 28 days compared with 51 days a year ago and discounting rates have reduced to just 2.9% compared with 4.0% at the same time last year. With demand so high and listing numbers tracking about 29% lower than last year, it looks likely that Perth’s housing market will continue to provide strong selling conditions in 2021.

Hobart housing values rose 2.5% in February, equal with Sydney as the fastest monthly rate of appreciation. According to CoreLogic listings data, there were only 743 homes for sale at the end of February, a drop of 24% compared with a year ago. Such tight supply levels are contributing to the upwards pressure on housing prices and contributing to quick selling times and low discounting rates. The typical home is taking just 27 days on average to sell, and discounting rates are at a record low of 1.6%. Similar to other cities, growth in the market is being led by Hobart houses where values are up 10.2% over the past year, while unit values have recorded a lower annual rise of 2.6%. 

Darwin housing values have been on a solid recovery trajectory, rising 5.5% over the past three months to be 13.8% higher over the year, by far the strongest appreciation in housing values across the capital cities. While housing values surge higher, so too are rents. House rents rose 15.2% over the past year and unit rents are up 12.2%. With rents rising faster than housing values, yields have also pushed higher, reaching 6.2% gross in February; only one basis point off the record high yields of 6.3% achieved in 2014. Although values are rising quickly, the market has a long way to go before recovering, with dwelling values remaining 23.4% below their earlier highs.

Canberra’s housing market has navigated the COVID period with hardly any disruption. Housing values have been rising for nineteen months straight. The quarterly trend in home sales is tracking 4.2% higher than a year ago, demonstrating a lift in demand while advertised supply levels have dropped by 31% relative to last year. The tight market conditions have pushed house prices 11.3% higher over the past year, while unit values are up a smaller 5.2%.  Across the sub-regions of Canberra, it’s the most expensive area, Woden Valley, where housing prices have shown the largest lift, up 13.5% in a year.

Overall, Australia’s housing market is now well entrenched in one of the strongest growth phases on record.  For housing values and activity to be surging during a global pandemic seems counter intuitive, however the factors driving this growth are significant and diverse.

Record low mortgage rates look set to remain in place for a prolonged period of time, providing confidence to buyers and historically low interest payment to income ratios. 

Economic conditions are consistently beating forecasts, with the RBA acknowledging Australia’s economy is likely to recover six to twelve months earlier than originally expected. The economic recovery is feeding into a solid rebound in consumer sentiment and encouraging households to reduce their savings buffer and spend more.

Advertised supply remains around record low levels, at a time when buyer demand is rising swiftly to above average levels. This mismatch between demand and supply looks set to remain a feature of the housing market for some time.

There are some headwinds ahead in the form of a reduction in fiscal support from the federal government, home loan deferral arrangements expiring and migration remaining stalled. The intensity of these headwinds have lessened over recent months. The economy navigated the earlier fiscal cliff relatively seamlessly, however the wind-up of JobKeeper and the COVID supplement for JobSeeker is likely to cause a temporary slowdown in the economic recovery which could slow some of the housing market exuberance.

Similarly, there has been a substantial drop in deferred home loans. Down from $195 billion, or 11% of all home loans in May last year, to $32 billion or 1.8% of all mortgages at the end of January. As the deferral program expires at the end of March we could progressively see a rise in forced sales across some sectors of the housing market.

Housing price momentum looks to be skewed towards the upside, with the tailwinds of low rates, improving economic conditions and consumer confidence, low supply and high consumer demand likely to outweigh the headwinds associated with the coming wind-down of fiscal support.

No doubt the coming months will provide more clarity on how Australia’s economy and housing market navigate the wind back of government support. You can keep up to date with all the housing centric news at www.corelogic.com.au

Key updates:

• After the housing market finished last year with strong foundations, housing values continued to rise through the first month of 2021. The January movement takes national home values to a fresh record high.
• Continuing a trend that became evident early in the pandemic, regional housing values rose at more than twice the pace of the capital city markets, while in the largest states, regional home values are rising at more than three times the pace of their capital city counterparts.
• Another broad trend that is becoming increasingly evident is the outperformance of houses over units. At a national level, house values have risen by 3.5% over the past six months while unit values are unchanged.  More recently, the past three months has seen every capital city record a stronger result for houses over units as housing preferences transition towards lower density housing options.

Full transcript:

Welcome to CoreLogic’s housing market updated for February 2021

After the housing market finished last year with strong foundations, housing values continued to rise through the first month of 2021 with CoreLogic’s national home value index up nine tenths of a percent over the month. The January movement takes Australian home values to a fresh record high, surpassing pre-COVID levels by 1.0% and national home values were 0.7% higher than the previous September 2017 peak.

Every capital city and broad rest-of-state region recorded a rise in housing values over the month, ranging from a 2.3% surge across Darwin to a relatively mild 0.4% rise in Sydney and Melbourne. 

Continuing a trend that became evident early in the pandemic, regional housing values rose at more than twice the pace of the capital city markets. CoreLogic’s combined regionals index was up 1.6% over the month, while capital city values were 0.7% higher. Since the onset of COVID-19 in March last year, regional housing values have surged 6.5% higher while capital city housing values are down -0.2% over the same time frame.

The largest states are seeing regional home values rising at more than three times the pace of their capital city counterparts. Home values across Regional Victoria and Regional New South Wales rose 1.6% and 1.5% respectively in January compared with a 0.4% increase in home values across Melbourne and Sydney.

Internal migration data shows more people are leaving Sydney and Melbourne for regional areas, resulting in a pivot of activity from the metro regions to the outer fringe and regional markets. This demographic trend is further compounded by the demand shock of stalled overseas migration. As Melbourne and Sydney historically receive around 75% of overseas migration to the capital cities, these metro areas in particular have been the hardest hit by restrictions to overseas travel.

Better housing affordability, an opportunity for a lifestyle upgrade and lower density housing options are other factors that might be contributing to this trend, along with the new found popularity of remote working arrangements.

Another broad trend that is becoming increasingly evident is the outperformance of houses over units. At a national level, house values have risen by 3.5% over the past six months while unit values are unchanged. More recently, the past three months has seen every capital city record a stronger result for houses over units.

Demand for units has diminished through COVID-19 amidst record low levels of investor participation and changing living preferences. At the same time supply levels are heightened in some precincts. While demand and supply remain imbalanced we are likely to see units continue to underperform relative to detached housing markets.

The rise in housing values is occurring against a backdrop of low advertised supply and rising buyer activity. Inventory levels started 2021 in a tight position. The number of fresh listings added to the market nationally in January was 2.4% lower than the same period a year ago and 12.9% below the five year average.

Although fresh stock being added to the market is close to the same levels a year ago, total advertised inventory started the year around record lows. Nationally, total listing numbers, which include new listings plus re-listed properties, were 26.4% lower than this time last year, tracking 28.3% below the five year average. Melbourne was the only city to record total listing numbers that were higher than last year, up 11.9%.

Another factor impacting available housing supply has been a strong rate of absorption from rising home buyer activity, especially in the detached housing space. CoreLogic estimates the number of national home sales over the past three months was 23.9% higher than the equivalent three month period from a year ago. The volume of regional home sales was estimated to be 26.8% higher than a year ago while capital city sales were up 22.1%.

On the latest estimates, the volume of capital city house sales were 11.8% above the decade average over the past six months while the volume of capital city unit sales were rising but remained 8.1% below the decade average.

With housing activity continuing to rise at above average levels while listing numbers remain well below average, the natural consequence is upwards pressure on housing prices. 

Now let’s take a closer look at each of the capital city markets.

Sydney recorded a fourth successive month of rising home values, with the index for combined houses and units up 0.4% over the month.  Although housing values are rising, Sydney home values remain 3.5% below their mid-2017 low, indicating homes are more affordable than they were four years ago. The trend towards higher values is confined to houses where the market is up 3.1% since finding a floor in September. In contrast, unit values have continued to fall, down a cumulative 3.7% since the onset of COVID. The diverging trend between houses and units can be attributed to stronger demand for lower density housing options, along with supply constraints outside of the unit sector. The Sydney sub-regions showing the strongest capital gains are the Northern Beaches, where values are up 4.4% over the past three months, and the Central Coast with a 4.1% lift in values over the same time frame. 

Melbourne’s housing market is in recovery mode after the double lockdown contributed to a 5.6% drop in values through the COVID related downturn. Since prices stopped falling in October last year, they have recovered by 2.1%. House values are up 2.4% since bottoming out, while unit values are showing a milder trend, up 1.5%. The market still has some way to go before recovering, with dwelling values remaining 3.7% below the pre-COVID high at the end of January. Annual sales activity slipped 7.9% lower compared with the previous twelve month period, however this was mostly a reflection of extended lockdown period. The past three months has seen market activity playing catch up, with home sales 26.1% higher than a year ago.  Across the sub-regions of Melbourne, the Mornington Peninsula stands out as one of the strongest markets nationally with values surging 7.4% higher over the past three months to be 8.0% higher over the year.

Both house and unit values are trending higher across Brisbane, although houses increased at more than twice the pace of units over the past three months, up 2.4% compared with a 1% lift in values across the unit sector. Rising home values have been accompanied by a significant lift in buyer activity at a time when available housing stock is close to record lows. While home sales were 11.8% higher than a year ago over the past three months, listing numbers in Brisbane are 29% below last year’s level. The mismatch between demand and supply is creating some urgency in the market and contributing to the lift in prices. Across the sub-regions of Brisbane, the strongest growth conditions over the past three months have been in the Moreton Bay region and Ipswich with both areas recording a rise in values around 3.5%.

Adelaide’s housing market has been extremely resilient to any downwards pressure on values. Apart from a 0.1% dip in home values last June, the market has been consistently rising to new record highs each month. The past six months has seen house values rising at almost double the pace of units, up 5.8% compared with a 3.2% lift in unit values. Home sales in the three months to January are tracking almost 23% higher than a year ago while total listing numbers are down 35% on last year. Such low supply is creating some urgency amongst buyers, and empowering sellers, which can be seen in faster selling times. Adelaide homes are averaging 37 days to sell compared with 43 days a year ago. Looking across Adelaide’s sub-regions, it’s the northern and southern suburbs that are driving the strongest growth rates, with home values across Adelaide’s North up 3.9% over the past three months while the south is up 3.6%.

Perth home values surged 1.6% higher in January which was the fastest monthly pace of growth in this market since 2006. Both house and unit values are rising across the western capital, but house values have risen at double the rate of units over the past year. House values were up 3.6% annually compared with a 1.8% rise in unit values. Despite the strong gains recently, Perth home values remain 18.6% below their 2014 peak, providing a relatively affordable entry point to a rapidly recovering market. Buyer demand has risen substantially over the past year, tracking 23.5% higher than a year ago. While buyer numbers have surged, stock levels have slumped. Total listing numbers were 29% below last year’s level at the end of January. With demand high and supply low, homes are averaging just 26 days to sell which is the fastest time on market for a January period since at least 2006.

Hobart housing values are continuing to rise rapidly, up 1.6% over the month of January to be 3.7% higher over the rolling quarter and 6.8% higher over the past twelve months. Similar to the other capitals, the strongest capital gain conditions are emanating from the detached housing market. House values are 4.4% higher over the past three months while unit values are up a more moderate 1.2%. Despite the strength in housing values, the number of home sales over the past 3 months is 12.9% lower than a year ago, which likely reflects tight supply levels rather than a lack of demand.  Listing numbers were 27% lower than a year ago at the end of January.

Darwin has gone from the weakest housing market to the strongest over the past twelve months. Housing values have surged by 6.6% over the three months ending January and Darwin is the only capital city to record double digit annual growth, up 11.4%.  Housing values are still 24% lower than their previous 2014 peak, providing an affordable entry point for first home buyers who are very active across the Darwin market, comprising almost 40% of owner occupier demand. Tight rental conditions are pushing yields higher to a nation leading 6.0%.  With such strong capital gains and high rental yields, the total annualised return across the Darwin is a stunning 17.3%. 

Canberra housing values haven’t fallen since mid-2019, recording consistently higher home values throughout the worst of the pandemic. Local values are now 11.7% above their previous cyclical high in April 2019. Houses are driving the most substantial capital gains, lifting 6.1% over the past six months compared with a 4.3% lift in unit values over the same period. Listing numbers remain extremely tight, with 40% fewer homes for sale at the end of January compared with a year earlier. The shortage of advertised supply is likely a key factor dragging the number of sales down by 4.0% over the three months ending January compared with the same period a year ago.

Overall, the January results from CoreLogic show the housing market has started the year on a firm footing, setting the scene for further price rises throughout the year.

Many of the housing market headwinds have dissipated as the Australian economic recovery consistently outperforms forecasts. Labour markets are continuing to improve even though JobKeeper is winding down, mortgage repayment deferrals have reduced to just 2.4% of all mortgages (down from 11% in May last year) and buyer activity is well above average, even though overseas migration has virtually stopped.

Low interest rates have been a key factor in supporting the housing market recovery. Mortgage rates are likely to remain at record lows for the foreseeable future, with little chance interest rates could rise this year. This is because inflation and unemployment are still a long way from reaching the RBA’s objectives of full employment and returning the annual inflation rate to the target range of between 2 and 3%. 

New headwinds for the housing market could be seen in the form of tighter lending policies, however a trigger for another round of macroprudential intervention is not apparent. A rise in lending activity regarded as ‘riskier’, such as higher proportions of interest only lending, loans with high debt, or loan value to income ratios, and loans to borrowers with small deposits, could be the catalyst for a tightening in credit rules.

The most significant risk to housing markets remains further outbreaks of the virus. The recent series of outbreaks, and subsequent border closures and restrictions through late December and January, had an immediate negative impact on consumer sentiment.  As we know from the Melbourne example, a sustained period of restrictions focused on containing the virus would likely see economic activity, including home buying and selling, temporarily stall. This could result in renewed downwards pressure on housing prices.

Looking forward, we are expecting housing values to continue trending higher, however the performance will depend on the course of the virus amidst the vaccination program, as well as evolving economic and demographic trends. You can keep up to date on all the twists and turns in the market via CoreLogic’s research pages at www.corelogic.com.au

Key updates:

• November saw a continued recovery trend in housing values, with Australian dwelling values up 1.1% in the three months to November.
• Regional markets outperformed the combined capital cities on both a quarterly and annual basis. Capital city market values were up 0.7% in the three months to November, and 2.4% in the year. Meanwhile, combined regional market values increased 2.8% in the three months to November, and 5.7% in the year.
• Seven of the eight capital cities recorded a rise in home values through the three months to November. The only capital city that saw a decline in home values was Melbourne, down
  -0.4% in the rolling quarter.
• Darwin has had the greatest uplift in dwelling values since the onset of COVID-19, with dwelling values 5.8% higher from March to November.

Full transcript:

Welcome to CoreLogic’s final housing market update for 2020

Australia's housing market continued along a recovery trend through November, with our national home value index recording a second consecutive monthly rise.  With dwelling values up 0.8% over the month, the new recovery trend follows a 2.1% drop in Australian home values between April and September.

At this rate of appreciation, we are likely to see CoreLogic’s national home value index surpass pre-COVID levels in early 2021. 

Although housing values look set to surpass their pre-COVID highs early next year, both Sydney and Melbourne home values remain at levels similar to those seen in early 2017. While rising, Perth values are similar to mid-2006 levels and Darwin values are in line with 2007 levels.  At the other end of the spectrum, housing values moved to new record highs in Brisbane, Adelaide, Hobart and Canberra through November.

House and unit values have diverged over recent months.  House values have driven gains in the combined capitals index over the past three months, rising 1.1%. While the rate of decline has eased, capital city unit values fell by -0.6% over the same period. 

This trend towards stronger conditions in detached housing markets is evident across most of the capital cities. Relative weakness in the unit market can be attributed to factors including low investment activity, higher supply levels in some regions, and weaker rental market conditions across key inner city unit precincts.

Melbourne’s unit market is the exception, where unit values have recorded a smaller than expected decline throughout the COVID period to-date and a more substantial recovery trend over recent months.  This resilience in Melbourne unit values is surprising given the high supply levels across inner city areas and the sharp decline in rental conditions.  We suspect the stronger trend in Melbourne unit values relative to houses could be short-lived unless overseas migration turns around sooner than expected which would help to shore up rental tenancy demand.

The stronger performance across regional areas of Australia continued in November, with CoreLogic’s combined regionals index recording a monthly growth rate double that of the combined capitals.  Regional home values were up 1.4% in November compared with a 0.7% rise in capital city values. Regional Queensland has led the rise in values over the past three months, posting a 3.2% lift, followed by regional NSW where values are up 3.1%.

Regional housing demand is being supported by a range of factors including the normalisation of more flexible working arrangements across some occupations, as well as lifestyle factors, lower housing prices and improved transport options. With many  employers embarking on ‘return to office’ programs and the price gap between the capitals and regional areas narrowing, this trend could gradually lose momentum, but we are expecting the regional lifestyle markets to remain in high demand for some time yet.

The lift in housing values comes as a range of other indicators point to a further improvement.

Inventory levels remain low across Australia at a time when demand is rising, leading to a market that is favouring sellers over buyers.  The number of properties advertised for sale remains 20% lower than this time last year, and 24% below the five year average.  Total listing numbers are low despite a sharp rise in fresh stock being added to the market.  The spring period saw a 42% rise in the number of new listings added to the market nationally, while the total number of listings dipped 0.6%.  This reflects a strong rate of absorption as prospective buyers continue to outnumber newly advertised supply additions.

The number of settled sales has held reasonably firm since July, with rising sales activity outside of Victoria offsetting the sharp drop in Victorian home sales caused by the recent lockdown period.  Nationally, CoreLogic’s settled sales estimates over the past three months were about 1% higher than the same period last year. This is partially due to stronger demand across regional areas where buyer activity has seen a more significant lift than their capital city counterparts.

Auction markets have strengthened as well, with November clearance rates holding around 70%, well above the decade average of 61%.  The strength in auction clearance rates comes as the number of auctions rises into the first half of December. Higher auction volumes will provide a timely test of the market depth prior to the seasonal slowdown through late December and January.

Private treaty measures are also tightening. The median selling time has reduced from 57 days in June to 42 days in November and discount rates have reduced from 3.9% in April to 2.8% in November.

Let’s take a closer looking at housing market conditions across each of the capital cities.

Sydney housing values recorded a second consecutive month of value rises in November, however housing values remain 1.9% below their pre-COVID levels and are still 4.6% below their earlier mid-2017 peak.  As the market moves into recovery mode, house values are rising at a faster pace than unit values, up 1.2% over the most recent three month period while unit values are down 1.8% over the same period.  Across the sub-regions, the Central Coast and Northern Beaches are recording the strongest appreciation, with home values up 3.2% and 2.4% respectively over the past three months, while the weakest conditions are in Ryde, were values are 2.5% lower over the past three months, and the City and Inner South which has recorded a 1.6% fall in values over the same period.

The November results saw Melbourne home values record their first month on month rise since March, posting a 0.6% rise in house values and a 0.7% lift in unit values.  Broadly, dwelling values remain 5% below their recent March peak.  Somewhat surprisingly, unit values have been more resilient than house values through to COVID period.  Since March, unit values are down 2.6% while house values have posted a larger 6.1% drop, mostly due to substantially weaker conditions across the more affluent areas of the market through the downturn.  It’s possible these trends will reverse over the short-term, with weak rental market conditions across the unit sector having a negative impact on values while premium detached housing markets bounce back as the market recovers.

Brisbane dwelling values rose to a new record high in November as the market recorded a third consecutive month of gains following a 0.9% fall in values between April and August.   Unit values have worn the brunt of the short-lived downturn, falling by 2.1% compared with a 1.3% fall in house values over the same period.  In fact unit values in Brisbane remain 11.9% below their previous peak which was way back in March 2010.  Each of Brisbane’s sub-regions is recording a rising trend in home values, with the strongest conditions evident across the Moreton Bay North region and Brisbane’s Eastern suburbs where values are up 2.8% over the past three months.  The lowest growth rate has been recorded across the Northern suburbs where values are 0.4% higher over the same period.

Adelaide housing values reached a new record high in November after recording five consecutive months of growth.  Adelaide’s housing market has seen minimal disruption through the COVID period so far, only recording one month where values dipped lower; a drop of only 0.2% in June.  House values have been rising at a faster rate than unit values, up 3.5% over the past three months compared with a 2.5% rise in unit values.  Similarly, across the broad valuation cohorts, it’s the most affordable end of the Adelaide market that is recording the strongest growth conditions, with lower quartile home values up 3.6% over the past three months while upper quartile values were 2.9% higher.  Geographically, it’s the most affordable regions driving the largest capital gains, with Onkaparinga up 6.4% in value over the past three months and Playford values rising 5.7%.

Perth’s housing market notched up a fourth straight month of rising home values, taking the market 2% higher since finding a floor in July following a 2.2% drop in values through the COVID related downturn.  Despite the recent growth, local values remain slightly below their pre-COVID highs and are almost 21% below their 2014 peak.  Both house and unit values have been trending higher over recent months, while from a geographical perspective the strongest conditions over the past three months have been across some of the most affordable markets, with Kwinana values up 6.8% and Wanneroo, where values are 4.7% higher.

Hobart housing values have gathered momentum over recent months, with housing values rising 1.4% in November.  Local values are now 3.7% above their pre-COVID peak.  House values are rising at a substantially faster pace than unit values, up 4.2% since March compared with a 2.7% lift in unit values over the same time.  While housing values are rising, rental markets have seen some volatility, falling sharply through the worst of the COVID period but rebounding by 1% in November as labour market conditions improve.  Despite the lift in rents through November, the good news for renters is that house rents remain 3.3% below levels in March and unit rents are down 5.2%.

Darwin housing values have been on a tear, rising by more than 1% over each of the past four months consistently 5.8% higher than the March reading.  Values are rising swiftly for both houses and units due to extremely low supply levels and rising demand.  The number of listings across Darwin was tracking 46% below the five year average at the end of November while home sales were estimated to be around 40% higher than a year ago, albeit from higher from a low base. No doubt buyers are taking advantage of the fact that housing values are at similar levels to what they were in early 2007.  Rents are also surging with house rents 6.1% higher since March and unit rents 5.3% higher. 

Canberra’s housing market has hardly been affected through the COVID pandemic.  Although the pace of growth slowed through the middle of the year, Canberra dwelling values have been consistently rising month to month since mid-2019.  Detached housing has been a little stronger than the unit market, with values rising by 5.8% since March, while unit values are trended 3.0% higher and remain almost 1% below their previous 2010 peak.  Rental markets have been more diverse, with house rents up 2.2% since March while unit rents have suffered from higher supply and lower demand, falling 0.7% since March.

In summary, housing demand is rising due to the broad range of stimulus measures and changes in market sentiment. Record low interest rates are only one of the factors supporting a lift in buyer numbers.

As demonstrated by the September quarter GDP figures, a stronger than expected improvement in economic conditions has flowed through to a surge in consumption,  tighter labour markets and lifted consumer spirits to higher than pre-COVID levels. 

State government incentives including changes to stamp duty and additional building grants are also supporting demand.

As buyer numbers rise, available inventory has remained low. This creates some urgency amongst buyers which in turn is adding to the upwards pressure on home values.  Buyer demand is mostly being fuelled by a surge in owner occupiers rather than investors, especially first home buyers which now represent more than one third of owner occupier demand.

The housing risks associated with less fiscal support and the expiry of mortgage repayment deferrals have lessened over recent months.  Job numbers continued to improve throughout October, despite the wind back of JobKeeper, and the large majority of mortgage repayment deferrals have already moved back onto a repayment schedule.  At the end of October, less than 4% of mortgages remained on a deferral arrangement, down from 11% in June.

Although the recovery trend is being led by owner occupiers, with prospects for capital gain becoming firmer, and more rental dwellings showing the potential for positive cash flow, its likely investor numbers will become more substantial in 2021.  Historically we have seen investor demand mostly concentrated within the largest capital cities, however with lower price points, higher yields and arguably better prospects for capital gains, the smaller capitals and regional centres may attract more investment attention in 2021.

Focussing on one of the riskier sectors of the market, inner city apartment precincts of Melbourne and Sydney remain exposed to weak rental demand and high supply.  Although the pipeline of high-rise apartment projects has reduced sharply, it will be some time before the large number of projects under construction work their way through to completion.  With rents and occupancy rates falling, the outlook for this sector remains weak.

As 2020 comes to an end, I would like to take this opportunity to wish you all the best for the festive season and good fortune in the New Year.  Let’s hope 2021 is a little less interesting than 2020.

Key updates:

• Following five months of consistent declines in residential property values, CoreLogic’s national home value index moved back into positive month-on-month growth through October, posting a 0.4% rise. The lift in home values was broad based, with every capital city apart from Melbourne posting a rise in values over the month.
• Regional housing markets continued to outperform the capital cities in October. The past two months have reversed the previous mild falls across the combined regional areas. In the seven months since March, regional dwelling values are up 1.7% while values across the combined capitals index have fallen by 2.3%.
• The recent lift in home values coincides with a range of other indicators that have also improved over recent months, including consumer confidence, rising clearance rates and an increase in valuations for property purchases. Alongside this we are seeing persistently low advertised stock, which has supported price growth.
• The stimulus of extremely low interest rates, together with the initiatives announced in the federal budget and state level incentives like stamp duty concessions and building grants, are likely to be enough to outweigh the headwinds facing the market. Ultimately, we should get some clarity on how those opposing forces play out over the coming months.

Full transcript:

Welcome to CoreLogic’s housing market update for November 2020

Following five months of consistent declines in residential property values, CoreLogic’s national home value index moved back into positive month-on-month growth through October, posting a 0.4% rise.  The lift in home values was broad based, with every capital city apart from Melbourne posting a rise in values over the month.

Dwelling values increased by more than 1% in each of the smallest four capital cities with Brisbane, Adelaide, Hobart and Canberra housing values reaching new record highs.

Although values were lower across Melbourne through October, the trend rate of decline has been easing since mid-September.  With a drop of 0.2%, this was the smallest month on month fall in values since the COVID related downturn commenced in April. 

The October results show early signs of a divergence between house and unit market performance.  The rise in capital city housing values over the month was entirely attributable to a 0.4% lift in house values which offset the 0.2% fall in unit values.  Through the COVID period so far, unit values have actually shown a smaller decline in values than houses, but this is likely to change.

Almost two thirds of Australian units are rented, and rental conditions have weakened, especially in the key inner city precincts of Melbourne and Sydney.  These areas have a higher concentration of unit stock, and historic exposure to demand from overseas migration. Low levels of investment activity, relatively high supply of unit stock in inner-cities and international border closures are key factors that imply units will under-perform relative to houses over the medium term.

Regional housing markets continued to outperform the capital cities in October.  Broadly, CoreLogic’s combined regionals index has held relatively firm through the worst of the COVID related downturn.  The past two months have reversed the previous mild falls across the combined regional areas. In the seven months since March, regional dwelling values are up 1.7% while values across the combined capitals index have fallen by 2.3%.

The newfound popularity of working from home is only one factor helping to support regional home prices. More affordable price points, lower densities and lifestyle factors, are also under-pinning the relative strength across many regional areas of the country.

The recent lift in home values coincides with a range of other indicators that have also improved over recent months.  Consumer confidence has consistently improved since the virus curve has flattened and Australians have responded positively to measures announced in the federal budget.  In October we saw a surge in consumer sentiment, rising clearance rates and an increase in valuations for property purchases. Alongside this we are seeing persistently low advertised stock, which has supported price growth.

Despite a surge in new listing numbers, total advertised inventory levels remain close to record lows.  The number of new listings added to the Australian housing market over the past four weeks rose by 25.2%, while total stock levels grew by less than 1%.  Persistently low total stock levels in the face of surging new listing numbers point to a strong rate of absorption, as buyer demand exceeds advertised supply levels.

Home sales were also higher through October with CoreLogic estimating a 7.0% rise in settled sales nationally over the month.  Over the past three months, nation-wide sales activity was roughly 1.5% lower than the same time last year, weighted down by an 18% drop in sales across Melbourne over the same period.

Auction results have also been strengthening with CoreLogic consistently reporting clearance rates above 60% over the past two months.  Sydney’s clearance rate breached the 70% mark in late October for the first time since early March, and auction volumes have been at similar levels as last year.  Melbourne, which is normally the largest auction market, saw the number of auctions held rise from virtually nothing in September to around 600 auctions over the final week of October.

Rental market trends are showing a more significant divergence between houses and units.  Between the end of March 2020 and October 2020, capital city unit rents are down a cumulative 4.8%, while houses have recorded a 0.4% rise in rents.  Every capital city region has seen house rents either rise more than unit rents, or fall by a smaller amount.  The difference between house and unit rental performance is most significant in Melbourne and Sydney where, since March, unit rents are down 6.6% and 5.8% respectively while house rents have seen a more mild reduction of around 1%.

The divergence in Sydney and Melbourne can be explained by a combination of supply and demand factors.  Both cities have a multi-year history of significant supply additions to the high-rise unit sector where the large majority of properties are owned by investors.  From the demand side, the evaporation of overseas migrants, including foreign students, has led to a sudden and material drop in the number of renters requiring accommodation.  Additionally, weaker labour market conditions across industries where workers are more likely to rent than in any other sector have further impacted rental demand.

Perth and Darwin stand out with the tightest rental market conditions.  Both house and unit rents are up through the COVID period to-date.  The stronger rental conditions come after a long period of weakness in rental markets; dwelling rents in Perth have only increased by 0.4% over the past five years while Darwin rents are 11.4% lower than they were five years ago.  The latest rise in rents can be attributed to the recent history of low private sector investment which has kept rental supply low.

Let’s take a deeper look at housing market conditions across each of the capital city regions

Sydney posted its first monthly gain in housing values after five months of consistent falls.  The October result was only slightly positive, up 0.1% over the month, with house values driving the gains, rising half a percent. Meanwhile, unit values continued to fall, down half a percent.   Through the COVID downturn, Sydney home value peak-to-trough decline was just -2.9%, but values are still 5% lower than their mid-2017 peak. This is a stark reminder of the two year downturn Sydney’s housing market experienced prior to mid-2019.   Home sales are up 18% over the rolling quarter and roughly level with the same time a year ago based on the three month trend in settled sales estimates.

Although values were lower across Melbourne through October, the trend rate of decline has been easing since mid-September.  With a drop of 0.2%, this was the smallest month on month fall in values since the COVID-19 related downturn commenced in April.   Since the announcement in late September that private home inspections were once again permitted, new property listings have surged, clearance rates have lifted and buyer activity is recovering. Based on this recent trend in housing values and activity, it seems likely we will see Melbourne follow the other capital cities towards a recovery over the coming month.  The impact of the lockdown has been severe on market activity over the past three months, with CoreLogic estimates showing a 34% drop in settled sales compared with the same period a year ago.

After values fell by almost 1%, the past two months have seen Brisbane housing values rising.  The recent increase has pushed dwelling values to a new record high, although we are still seeing some divergence between Brisbane houses and units in terms of growth.  Unit values slipped 0.1% lower in October and remain 12% below their 2010 peak.  Sales activity has also shown a lift with our estimate of settled sales rising almost 10% over the month.  In trend terms, the number of home sales across Brisbane is still about 1.6% lower than year ago.  The rise in sales activity can also be seen in the extremely low number of home available for sale across Brisbane.  Total listing numbers have drifted lower despite an almost 80% rise in new listing numbers since early May. 

Adelaide’s housing market has moved from strength to strength over recent months, with home values reaching a new record high in October.  Dwelling values were 1.2% higher in October, which was the largest monthly gain since early 2008, just before the GFC induced correction.   Relatively low housing prices, an effective flattening of the virus curve and the stimulus of low interest rates are likely to be the main factors behind the growth in housing values.  From a geographical perspective, every sub-region of Adelaide has recorded a rise in values over the past three months. The strongest growth conditions were in Onkaparinga, where housing values are estimated to be 5.4% higher over the rolling quarter.

Perth’s housing market is back on a recovery trajectory, with home values posting a third straight month of rises.  Values are up 0.8% over the past three months, which wasn’t enough to reverse the earlier 2.2% drop recorded through the early months of COVID.  Housing market activity has also been tracking higher, with CoreLogic’s estimate of settled sales over the past three months 13% higher than a year ago.  Perth continues to show the lowest median house value of any capital city, at $475,200.  Such low housing prices, along with record low mortgage rates, improving economic conditions and government incentives are some of the factors supporting renewed price growth.  Rental markets are amongst the tightest of any capital city, with the lift in rents through the COVID period to-date the highest amongst the capitals.

Hobart housing values continued to rise through October, up 1 percent over the month.  The pace of capital gains has only seen a mild interruption through the COVID period to-date.  Despite values falling in March, April and July, the recent run of growth has reversed the falls and pushed Hobart dwelling values to a new record high in October.  Growth in home values has been most concentrated around the affordable end of the housing market, with the lower quartile of the market rising 3.8% over the rolling quarter. Meanwhile, the upper quartile has recorded a 0.3% lift in values.  Rental markets have shown the opposite trend, with rents falling after a sustained run up in rents over the past five years.  Since March, Hobart house rents are down 4.3% and unit rents are 6.1% lower.

Darwin’s housing market seems to have shaken off its pre-COVID weakness, with values rising by more than 1% each month over the past three months.  The 3.9% lift in home values over the three months ending October places Darwin at the top of the list for capital gains over the rolling quarter.  Both house and unit values were up over the three month period, while rents were also rising.  House rents are 4.4% higher since March and unit rents are 3.3% higher.  Housing market activity has stepped higher as well, with the estimated number of settled home sales 17% higher over the rolling quarter and 21% higher than the same time last year. Darwin property has a lot of gains to be made, following a 6-year correction that leaves values almost 30% below their 2014 peak.

Canberra is the only capital city where housing values haven’t recorded a single month of declines through the COVID period so far.  In fact, values are up 3.3% since March and 5% higher over the year to date which is the largest rise of any capital city.  House values reached a new record high in October, but, despite consistent rises over the past six months, unit values remain 1.2% below their 2010 peak.  Sales activity is trending higher and is currently tracking roughly level with the same period last year.

In summary, it’s clear that housing markets are responding to the stimulus of low mortgage rates and improved sentiment related to measures announced in the federal budget and the low number of new virus cases.

Housing values are either rising or stabilising across each of the broad regions around the country. The volume of home sales is rising, and inventory levels are generally being absorbed faster than the rate of new additions. 

Market activity is on the rise, with measures of real estate agent activity across CoreLogic’s RP Data platform up 11.5% over the month and the number of valuations for home purchasing across the Valex platform 11.2% higher over the month. 

The announcement that interest rates have been cut even lower is likely to provide a further boost to housing activity. Record low mortgage rates are a key factor supporting housing market activity.  Historically cuts to interest rates have fuelled housing market activity and generally aligned with upwards pressure on dwelling prices.   With the trend in housing values already rising around most areas of the country, there is a good chance lower rates could see momentum building across the nation’s most valuable asset class. 

The recent housing market growth trajectory comes amidst the winding down of fiscal support programs such as JobKeeper and coinciding with the majority of home loan repayment deferrals expiring.  So far, this period of uncertainty hasn’t impacted on housing market performance, however it will be important to monitor changes in inventory levels and vendor metrics at a geographically granular level, watching for any sign of distressed stock.

The stimulus of such extremely low interest rates, together with the initiatives announced in the federal budget and state level incentives like stamp duty concessions and building grants, are likely to be enough to outweigh the headwinds facing the market. Ultimately, we should get some clarity on how those opposing forces play out over the coming months.

You can stay up to date on how the trends evolve at the CoreLogic research pages at www.corelogic.com.au

Key updates:

• Housing values were slightly lower through September, down 0.1% nationally, with lower home values in Melbourne and Sydney continue to weigh down the national market while the remaining capitals recorded a lift in home values through September.
• Apart from Melbourne, the performance of the housing market is consistently improving.  Most of the capitals and regional areas of Australia are recording rising home values, or in Sydney’s case a reduced rate of decline.  The improved performance comes after only mild value falls, with capital city home values down only 2.6% since March.
• To-date the support of low interest rates, scarce inventory, fiscal policy initiatives and government incentives, together with relatively successful virus containment, have insulated the housing market from larger falls in value and activity.  
• Unsurprisingly, the markets where the virus has been well contained and economic activity is less restricted are faring the best.  At the other end of the spectrum, the considerably weaker conditions across Melbourne provide an example of the impact of severe restrictions related to a virus breakout.

Full transcript:

Welcome to CoreLogic’s housing market update for October 2020.  Last month we saw lower home values in Melbourne and Sydney continue to weigh down the national market while the remaining capitals recorded a lift in home values through September. 

Despite the national index nudging one tenth of a percent lower, September marked a striking turn in housing market sentiment.  Consumer confidence increased, new listings rose, and six of the eight capital cities recorded a rise in home values over the month. However, falling values in Melbourne and Sydney, which make up an approximately 40% of Australia’s housing stock by number and 55% by value, pushed the national reading into a fifth straight month of decline. But even where values still declined nationally, it was the smallest fall since values started to reduce in May this year.

Melbourne remains the main drag on the headline results, recording the weakest result across the capital cities.  Values were down 0.9% in September, and since peaking in March, Melbourne values have reduced by 5.5%. With restrictions starting to lift, private home inspections re-commencing and on-site auctions to be permitted later this month, we expect to see activity lift in October.

The rate of decline across Sydney’s market has been consistently easing since July, and the remaining capital cities have all returned to some level of growth.

Regional markets have continued to out-perform relative to the capital cities.  At a broad level, the combined regionals index is up 0.8% since March while capital city values have fallen by 2.6% over the same period. 

The resilience in regional values can be attributed to a number of factors.  From a cyclical perspective, regional areas weren’t recording the same strong growth conditions pre-COVID, so home values in these markets are often more affordable, and don’t have a high base to fall from. Anecdotally we are also observing a transition of demand away from the cities towards the major regional centres, particularly those that are adjacent to the larger capitals where residents can commute back to the cities if required.  Remote working arrangements are no doubt a factor in supporting demand in these markets, but lifestyle opportunities, lower price points and a desire for lower density housing options are also playing a part.

Low advertised stock levels are another key factor supporting housing values.  Nationally, new listing numbers remain 22% lower than a year ago, and 25% below the five year average.  Similarly, total advertised stock levels were 19% below last year’s level, and 23% below the five year average.

Such tight inventory levels at a time when demand is recovering is creating some urgency in the market.  We aren’t seeing any signs of a rise in distressed listings or stock starting to pile up in the market.  In fact, the opposite seems to be true, where new listings are being absorbed by the market faster than the rate at which they are being added. 

This trend will be important to monitor over coming months as fiscal support tapers and the financial situation of borrowers taking a repayment holiday is assessed by their lender.  A rise in urgent or distressed listings would provide a further test for the resilience of housing values.

Auction markets have also shown some strength, with the capital city clearance rate holding around 64% through September, which is on par with the decade average.  Melbourne’s auction market performance has been much weaker, with record low levels of activity and a high withdrawal rate.  Due to the extremely low number of Melbourne auctions held, the impact on the combined capital cities reading has been negligible. 

The performance of the rental market has diverged substantially between houses and units.  Between the end of March and September, national house rents have risen by 0.4% while unit rents are down 3.3%.  Every capital city has seen house rents hold up better than units rents, however, the biggest difference between the two property types can be seen in Sydney and Melbourne where unit rents are down 5.0% and 5.5% respectively while house rents have fallen by a much smaller 1.3% and 1.0%.

The significant difference in rental performance is due to a combination of supply and demand side factors.  Investment grade apartment markets have seen significant supply additions over the past decade, with a large portion of new apartments built in Sydney and Melbourne.  The supply side has been further impacted by short term rentals transitioning to long term rentals. 

While supply has surged, COVID-19 brought about a significant demand shock from international and state border closures. Overseas migrants comprised a material component of tenant demand across inner Melbourne and Sydney, with many of these foreign students.

Add to this the fact that industry sectors such as food, accommodation services, the arts and recreational services have been hardest hit by job losses and lower working hours.  Workers in these sectors are more likely to rent than in other industries, which has also negatively impacted rental demand.

With high supply and weak rental conditions likely to persist, at least until international borders re-open, inner city, investor-owned unit values are likely to remain under significant downside risk.

Focussing on the capital city trends in more detail, we can see there is growing disparity in housing market trends between the cities.

Sydney home values were down for a fifth consecutive month, however the rate of decline has been reducing since values fell nine tenths of a percent in July.  The September result was down 0.3% which was the smallest drop in values since the pandemic induced downturn commenced.  Since March, Sydney housing values have dropped by only 2.4%, demonstrating some resilience in the face of uncertainty.  Based on the current trend, we may see the Sydney housing market stabilise or even move into positive growth territory over the coming months.  Rental markets haven’t been as resilient, with Sydney rents down 2.8% since March, with most of the downwards pressure coming from the unit sector. Since March unit rents have dropped 5% compared with a 1.3% decline in house rents.

Melbourne housing market conditions remained subdued through September, with values down 0.9% over the month.  Although this was by far the weakest result across the capitals, it’s a smaller decline relative to the previous three months where values were down more than 1% on a month to month basis.  With the virus curve flattening earlier than expected, restrictions across Melbourne are being eased which is likely to see housing activity start to pick up through October. Early indications from CoreLogic platforms are already showing a rise in pre-listings activity as prospective vendors prepare to make the most of a late spring selling season.  Rental markets have also weakened, with unit rents bearing the brunt of the downturn.  Unit rents have fallen by 5.5% since March while house rents are only 1% lower.

Brisbane home values edged back into positive growth in September, following four straight months of decline.  Values were up half a percent over the month, with both house and unit values lifting.  Brisbane housing values are only half a percent lower than their pre-COVID high, although the historical underperformance in the unit sector means unit values remain almost 12% lower than they were in early 2010.  Rental conditions have seen some divergence between houses and units, with house rents rising 0.2% over the past six months while unit rents are down 1.6%.  The trend towards weaker unit rents can be seen across the other capital cities and can be attributed to both higher supply levels and a demand shock from less migration.   

Adelaide home values have remained relatively resilient to falls through the COVID period so far. Although conditions have lost some steam relative to the pre-COVID trend, we have seen only one of the past six monthly results post a decline in values.  Between March and the end of September, Adelaide home values have risen 1.6%.  Adelaide’s resilience to lower values can be attributed to the low number of virus cases, but also some insulation from overseas migration as a source of housing demand as well as very affordable housing prices.  Houses are seeing some modest upwards pressure on rents, rising almost 1% over the past six months, while the unit sector has seen rents holding reasonably firm, slipping only one tenth of a percent over the same period.

Perth housing markets moved back into recovery mode. After values reduced between May and July, the market stabilised in August and values pushed 0.2% higher in September.  Preliminary volumes estimates show sales activity was tracking 11% higher over the September quarter compared with the same period a year ago and 19% higher than the June quarter.  Perth rental conditions are also bucking the national trend of soft to falling rents, with house rents rising 3.3% over the past six months while unit rents are 1.5% higher.  Perth house values remain the lowest of any capital city, with a median value of $463,600.  No doubt this relatively healthy affordability position, along with low interest rates and large amounts of federal and state government stimulus is helping to attract buyers to the market.

Hobart home values posted a 0.4% rise in September, pushing local values to a new record high.  Market conditions have remained reasonably firm through the COVID period to date. Although conditions have lost momentum relative to the pre-COVID trend, the past six months has seen housing values rise by 1.4%.  The rental market has been less resilient, with Hobart rents posting the largest falls of any capital city.  House rents are down 3.9% over the past six months while unit rents have fallen by a larger 5.6%.  Weaker rental conditions come after a multi-year surge.  The past five years has seen Hobart rents rise by close to 30% which is more than four times the national average rate of rental growth. 

Darwin’s housing market is showing a positive trajectory, with values rising over four of the past six months to be 2.7% higher through the COVID period to-date.  The improving conditions come after the Northern Territory has kept virus cases to a minimum, helping to support economic conditions and market activity.  Housing remains extremely affordable, at least relative to other cities, with a median house value of $485,000 and a median unit value of $272,000.  Rental conditions have also tightened with both house and unit rents trending higher over the past six months.

Canberra home values have managed to avoid a decline through the COVID period so far, rising 2.2% over the past six months.  The relatively strong market conditions come amidst low virus case numbers and a resilient full time jobs market.  The latest rise takes house values to a new record high, while unit values remain 2% lower than their previous record high way back in 2010.  Rental markets haven’t been as resilient, with Canberra house rents falling 1% over the past six months while unit rents are down 1.5%. The two tiered performance between dwelling purchasing values and rent values come from varied performance in different parts of the labour force. ABS payroll data suggests jobs in food and accommodation services have fallen 25% across the ACT since the pandemic, which is an industry with a higher proportion of renters. But in the financial and insurance services industry for example, where workers are more likely to buy a house or have a mortgage, payroll job numbers have actually risen 2%.

In summary, apart from Melbourne, the performance of the housing market is consistently improving.  Most of the capitals and regional areas of Australia are recording rising home values, or in Sydney’s case a reduced rate of decline.  The improved performance comes after only mild value falls, with capital city home values down only 2.6% since March.

To-date the support of low interest rates, scarce inventory, fiscal policy initiatives and government incentives, together with relatively successful virus containment, have insulated the housing market from larger falls in value and activity.   Unsurprisingly, the markets where the virus has been well contained and economic activity is less restricted are faring the best.  At the other end of the spectrum, the considerably weaker conditions across Melbourne provide an example of the impact of severe restrictions related to a virus breakout.

Looking forward, the market will be contending with a mixture of headwinds and tailwinds.

Headwinds will be evident as fiscal support winds down and distressed borrowers come to terms with their repayment commitments.  It is logical to assume there will be a rise in urgent or distressed listings over the coming months, however so far we have seen new listings rapidly absorbed by the market.

The expectation for persistently weak labour market conditions, low rates of overseas migration and minimal wage growth are other factors adding to downside risk. As businesses become more embracing of technology, and less-labour intensive practices, lingering unemployment could constrain housing demand. 

On the upside, we are expecting a new round of government spending initiatives and stimulus measures to be announced on budget night next week.  These policies are likely to be aimed at supporting jobs growth and consumption, incentivising business investment and productivity improvements.  Some potential initiatives may include a substantial lift in infrastructure spending, bringing forward income tax cuts, extending incentives for residential construction and more funding for social and community housing.

Additionally, the treasurer recently announced a plan to relax lending laws.  If enacted we could see credit flows become more streamlined and available by early March next year.  Credit availability has historically shown a close relationship with activity in the housing sector.

The prospect of lower interest rates later this year also presents some upside for housing market conditions.

With the federal budget announced this month, along with a wind down of JobKeeper and potentially lower interest rates, there is a lot happening in the economy and housing sector.  Make sure you stay up to date on the latest property market trends at www.corelogic.com.au

Key updates:

• Australian housing values record a fourth month of decline, down 0.4% in August, with trends beginning to diverge across the cities
• Although housing values continued to trend lower the rate of decline has eased over the past two months and five of the eight capitals recorded steady or rising values through the month.
• More recently we have seen a clear divergence between regions where the virus curve has steepened, and where the virus remains well contained. This highlights the broad economic impact of renewed social distancing policies, border closures and weaker consumer sentiment.  

Full transcript:

Welcome to the CoreLogic housing market update for September 2020.  Australian home values moved through a fourth month of COVID-induced falls, with the CoreLogic home value index recording a 0.4% decline in August.  Although housing values continued to trend lower from their pre-COVID highs, at least from a macro perspective, the rate of decline has eased over the past two months, and five of the eight capitals recorded steady or rising values through the month.

The Melbourne housing market is the main drag on the headline results.  Following a similar decline in July, Melbourne home values fell by 1.2% in August. This was the largest fall recorded amongst the capital cities, demonstrating the impact of a worse viral outbreak relative to other cities, along with a larger demand side impact from stalled overseas migration. Through the COVID period to date, Melbourne home values have fallen by 4.6%.

Outside of Melbourne, the remaining capital cities all recorded slightly better conditions relative to July. The rate of decline eased across Sydney and Brisbane, while home values held firm or showed a subtle rise across the remaining capitals.

The performance of housing markets are intrinsically linked with the extent of social distancing policies and border closures which also have a direct effect on labour market conditions and sentiment. It’s not surprising to see Melbourne as the weakest housing market considering the extent of the virus outbreak, and subsequent restrictions, which have weakened the economic performance of Victoria.

Regional markets have continued to outperform their capital city counterparts across the largest states.  While CoreLogic’s combined regionals index has lost momentum relative to the pre-COVID trend, the index has held virtually flat since May.

There are a variety of factors helping to support regional housing market conditions.  Unlike their capital city counterparts, which last year received around 85% of net overseas migration, most regional markets have avoided the drop in demand caused by the pause in migration. Regional markets may also be appealing for their relatively low density and lower price points. Additionally, the normalisation of remote work through the pandemic could make proximity to major cities less of a factor in home purchasing decisions.

Home sales and advertised stock levels have continued to follow the lead of consumer sentiment. After plunging through late March and April, consumer sentiment readings posted a partial recovery through May, June and July before falling again in August due to the new round of social distancing restrictions in Victoria, and concerns about a renewed spread of the virus, which has weighed heavily on purchasing decisions. 

The trend in listings and housing turnover has followed a similar path.  The number of new property listings halved between mid-March and the first week of May before rebounding 48% over the next three months.  The recent trend has again seen new listing numbers decline, falling by 11.5% over the past four weeks.

Home sales also fell sharply in April, down by a third from March.  The estimated volume of home sales had bounced back 49% by the end of June, but has since trended slightly lower as weaker sentiment and lower listing numbers again weigh on market activity.

The low level of total advertised inventory is another factor helping to insulate home values.  Through the COVID pandemic to-date, active listing numbers have remained extremely low, demonstrating both a lower than average amount of fresh stock being added to the market, and a strong rate of absorption.  So far there has been no evidence of urgent or distressed listings starting to pile up.

This could potentially change however as fiscal support starts to taper at the end of September and distressed borrowers taking a repayment holiday reach their six month check-in period around the same time.  The timing of these two events could be the catalyst for a gradual rise in distressed listings which will be an important trend to monitor. If we do see active listing numbers rising to be higher than previous years, it could signal that vendors will need to offer up greater discounts in order to sell their home.

Focusing on each of the capital cities in more detail highlights the diversity across the market.

The rate of decline in Sydney home values eased in August, with values down half a percent over the month compared with last month’s drop of 0.9% and a 0.8% fall in June.  Clearly home values are still falling, just not as quickly as they were previously.  Auction markets are also pointing towards stabilising market conditions, with the number of auctions held consistently rising since mid-May and clearance rates holding firm around the decade average at 63% through August.   The most expensive quarter of Sydney’s housing market has continued to show weaker returns relative to lower value homes, with the top quartile of the market down 3% in value since the end of March while lower quartile values are only 0.2% lower.

Melbourne home values and market activity are being adversely affected by stage four lockdown conditions. Home values were down 1.2% in August following a similar result in July, taking the cumulative decline to 4.6% through the COVID period so far.  Similarly, our estimate of home sales has fallen by 20% compared with June, demonstrating the impact from lower household confidence and social distancing policies that prevent inspections and on-site auctions.  The upper quartile of Melbourne’s housing market is wearing the brunt of the downturn with values down 7% since March. Meanwhile, the lower quartile of the market has recorded a smaller 1.7% drop.  Despite the weaker conditions, Melbourne housing values remain 5.9% higher than they were a year ago, demonstrating the strong capital gains that were present prior to COVID-19.

Housing values were virtually steady across Brisbane in August, down by one tenth of a percent over the month while the estimated number of home sales was up 0.3%.  Brisbane home values have been resilient to major falls. Since moving through a recent peak in April, home values have fallen by 0.9%, with larger falls across the unit market where values are down 2.1% compared with a 0.7% fall in house values.   Similar to other cities, Brisbane’s upper quartile housing market is recording larger falls, with values down 2.2% across the upper quartile since March while lower quartile home values have held firm over the same period and the broad middle of the market has recorded a 0.6% lift in housing values.

Housing values across Adelaide were unchanged in August. Through the COVID period to-date, values across the capital have slipped by only one tenth of a percent.  Houses and units have returned the same result over the past three months, with both sectors of the market down 0.1% in value.  Lower value properties have shown slightly better performance relative to other sectors of the market.  Lower quartile property values are up 1.3% since March compared with a 0.6% lift in upper quartile property values.  Geographically the quarterly growth rate across Adelaide’s sub-regions ranges from a 1.3% lift in values at Unley and Adelaide Hills to a 3.2% drop in values in the CBD.

Perth’s housing market has staged a turnaround since the early months of coronavirus.  Home values fell 1.6% between May and June, with the rate of decline more than halving through July and values holding firm in August.  The levelling out in the rate of decline was accompanied by a lift in the estimated number of sales, in fact home sales over the past three months are tracking about 10% higher than a year ago across Perth.  Perth is also showing the tightest rental market conditions of any capital city with rents up 2% since the end of March.  Perth housing values remain the lowest of any capital city, with a median house value slightly less than $462,000.  No doubt the healthy levels of affordability, together with low interest rates and a generous mix of federal and state incentives are helping to buoy demand.

Hobart home values have risen over three of the past four months and dwelling values are only 0.1% off record highs.  Most of the strength is apparent in the detached housing sector where values are up 0.4% over the past three months, while unit values have slipped 0.1% lower over the same period and are tracking 1.3% lower over the year to date. Rental market conditions haven’t been as resilient, with Hobart rents falling the most of any capital city through the COVID period to-date.  House rents are down 3.1% since March while unit rents are down a larger 5.1%.  The weak rental conditions together with relatively stable home values has caused gross rental yields to compress, declining from a 2019 high of 5.3% to 4.7% in August.

Darwin home values posted an impressive 1% rise in August following a 0.3% dip in July.  The value indices for Darwin show higher volatility than other cities due to the smaller population of dwellings and relatively low number of observations, so the trend results provide a more intuitive read on the market. The past three months has seen Darwin home values rise by 1%, demonstrating an improving trend following a sustained downturn over previous years.  Houses continue to be the main driver of growth, with the unit sector is showing persistently weaker conditions.  Over the year to date, Darwin house values have posted a 4.5% rise while unit values are down 3.5%.

Canberra home values remained at a record high in August, defying the broader downturn that has been evident across most other capitals.  Housing values have consistently trended higher through the COVID period, reflecting some resilience in housing demand despite wavering confidence nationally.   Estimated sales activity over the past three months are tracking 5% higher than a year ago, providing further evidence of Canberra’s resilience.  Rental markets haven’t been quite as strong, with Canberra rents down 0.8% since March, with a larger 1.5% drop in unit rents recorded.

In summary, housing markets are showing greater diversity relative to earlier stages of the pandemic.  The early phase of COVID-19 saw housing markets react similarly, with both listings and home sales falling sharply and home values starting a modest downward trend.  As the virus curve was brought under control, restrictive policies lifted, state borders opened and conditions bounced back to resemble almost ‘normal’ levels of activity. 

More recently we have seen a clear divergence between regions where the virus curve has steepened, and where the virus remains well contained. This highlights the broad economic impact of renewed social distancing policies, border closures and weaker consumer sentiment. 

As we move into the first month of spring, the market is likely to be less active than normal this year. Spring is a period where transaction activity rises, from both a sales and listings perspective.  Heading into spring, the trend in advertised listing numbers and home sales is trending in the opposite direction; new and total listing numbers are reducing and sales activity slipped by an estimated 1.9% in August. 

So far there has been no evidence that large numbers of distressed properties are coming on the market, however this could change towards the end of the year and into next year as fiscal support tapers and lenders become less lenient on distressed borrowers.  Considering fiscal stimulus polices are set to reduce at the end of this month and lenders will be conducting six month check-ins with borrowers taking a repayment holiday, the downside risk to home values remains high. 

The Federal Budget, to be announced on October 6^th, should help to provide further guidance on the direction of housing markets.  Additional policy measures aimed at stimulating housing activity could help to support Australia’s economic recovery.

Looking forward we are likely to see a diverse outcome for housing markets around Australia, depending on how well the virus is contained and the regions exposure to other factors such as its reliance on overseas migration as a source of housing demand.

With so much happening between these monthly updates, make sure you stay up to date on the latest property market trends at www.corelogic.com.au

Key updates:

• Australian housing values continue to drift lower, falling 0.6% in July as the Covid-driven housing downturn moves through a third month of orderly decline.
• Across the capital cities, only Canberra (+0.6%) and Adelaide (+0.1%) posted a rise in dwelling values over the month, while Melbourne (-1.2%) and Sydney (-0.9%) led the decline, recording the largest month-on-month falls in July.  
• Regional markets are generally showing more resilience to falling values.  
   

Full transcript:

Welcome to CoreLogic’s housing market update for August 2020.  Last month we saw Australian housing values rack up a third consecutive month of declines, with CoreLogic’s home value index dropping 0.6% over the month. This was a slight improvement from June, when the national series was down 0.7%.

Across the capital cities, only Canberra (+0.6%) and Adelaide (+0.1%) posted a rise in dwelling values over the month, while Melbourne (-1.2%) and Sydney (-0.9%) led the decline, recording the largest month-on-month falls in July. 

Regional markets are generally showing more resilience to falling values.  Across the combined regional areas, housing values were unchanged in July compared with a 0.8% fall across the combined capital cities.  Regional Victoria, where values were down half a percent, and regional Western Australia, down 3.2%, were the only non-capital city markets to record a fall in values over the month.  

The impact from COVID-19 on housing values has been orderly to-date, with CoreLogic’s national index falling only 1.6% since the recent high in April and housing turnover has recovered quickly after it’s sharp fall in late March and April.

Record low interest rates, government support and loan repayment holidays for distressed borrowers have helped to insulate the housing market from a more significant downturn.  Additionally, advertised supply levels have remained tight, with the total number of properties for sale falling a further 4.3% in the 4 weeks to July 27^th, sitting 15% below where they were this time last year.  Additionally, increased demand driven by housing specific incentives from both federal and state governments, especially for first home buyers, have become more substantial.

New listings numbers continued to rise through the month, up 46% from the recent lows of early May, to be slightly higher than a year ago.  The rise in fresh listings implies home owners have become more willing to test the market.  While new listings are ramping up, the total listing count remains 15% below last year’s level nationally and 12.5% lower across the combined capitals.  The diverging trend between new and total listing numbers implies a strong rate of absorption where demand for established housing stock is outweighing advertised supply.

In line with the strong rate of absorption, sales activity has trended higher since May.  After home sales plunged by about one third in April, sales activity has consistently improved.  CoreLogic estimates for national sales over the past three months were tracking 2.9% higher than the same period in 2019. The rebound in CoreLogic estimates of sales activity is validated by the strong rate of listings absorption, a similar lift in purchase related valuations and improvements in consumer sentiment. However, the recent slump in sentiment amidst a new wave of the virus could interrupt the rise in home sales until restrictions are lifted and confidence returns.

Additionally, auction markets showed a temporary recovery through June and early July but have since weakened as Melbourne moved back into lockdown.  Auction volumes have been tracking higher than a year ago since late June and auction clearance rates were hovering  around the decade average (61%) since the second week of May.  Since early July, clearance rates have trended lower due to a substantial rise in withdrawn auctions in Melbourne.

Conditions have varied across each of the capital cities.

Sydney’s downturn accelerated in July, with dwelling values down 0.9% over the month, following a 0.8% drop in June and 0.4% fall in May.  Since peaking in April, Sydney home values are down a cumulative 2.1%, with larger falls across the upper quartile of the market.  Despite the recent weakness, Sydney home values remain 12.1% higher than a year ago.  Despite the drop in values, our estimate of sales activity over the past three months is only 4% lower than the same period a year ago. This is due to a rise in sales over the past three months following a sharp drop in April.  Sydney rents are also trending lower as a shortage of demand drives up vacancy rates.  House rents are down 1.1% since March and unit rents down a more substantial 3.2%.

Housing values in Melbourne moved through a fourth month of decline, racking up a cumulative 3.5% decline between the recent March peak and end of July.  The decline in home values has been more significant across the top quartile of the market, where values are down 4.5% over the past three months alone.  Housing market conditions have been weaker than other capitals, which can be attributed to the impact of the virus, but also Melbourne’s exposure to overseas migration and foreign students as a source of demand.  Rents have fallen as well, down 1.8% since the end of March, with larger falls across the unit market.  Despite the weak conditions, buyer activity has improved over the past three months, after sales fell by around 41% in April.  Estimates of market activity show the number of sales over the past three months was 1.9% higher than the same period a year ago, but still 13% below the decade average.

Brisbane home values have recorded only a modest decline through the COVID period, with dwelling values down 0.9% since peaking in April.  Unit values have fallen at a faster rate than houses, down 1.8% since a recent peak, while house values have fallen by less than half that rate, down 0.7% from their recent peak.  While home values have drifted lower, sales activity has shown a solid recovery since dropping sharply through March and April.  Estimates for the past three months show Brisbane home sales are tracking 16% higher than the same period in 2019 to be roughly equivalent with the decade average.  Brisbane rents recorded a subtle rise in July, up 0.1%, but have trended slightly lower since March, mostly due to a 1% fall in unit rents.

Adelaide home values have held reasonably firm through the COVID period to-date, up slightly over the month to be 0.3% higher over the rolling quarter, with a similar steady trend evident across both houses and units.  The lower quartile of the market has recorded a slightly weaker result, with values edging 0.1% lower over the past three months, while value across the upper quartile rose by 0.3%.  Although home values are generally steady, the estimated number of home sales over the past three months is down 7% compared with the same time last year.  The reduction in sales activity can be attributed to both low stock levels as well as less buyer activity.  Adelaide remains one of the few capital city rental markets to record a rise in rents, with rental prices trending slightly higher since March, rising 0.4%.

Perth’s rate of decline eased in July, with values down 0.6% over the month following a 1.1% drop in June.  The reduced rate of decline comes as sales activity rebounds from the recent April low.  There is very little difference between the performance of house and unit values, with houses down 2.2% over the rolling quarter while unit values were down 2.1%.  The past three months have seen our estimate of sales activity recover to levels that are slightly higher than the same period a year ago, but still below the long run average.  Total listing numbers remain 26% lower than last year, despite new listings tracking almost 13% higher than last year.  The shortage of advertised supply is another factor keeping a lid on turnover. Rental markets have also tightened, with CoreLogic’s rental index rising 1.3% since March. This is the strongest growth in rent values of the capital city markets since the onset of the pandemic.   

Hobart’s housing market has performed reasonably steadily through the COVID period, with housing values only 0.2% lower than last month’s record high.  The rental markets haven’t been as resilient, with house rents falling 2.5% since March. This is the largest drop in rents amongst the capital cities. The recent rental weakness comes after a sustained run-up in rents. The past five years has recorded a 31% lift in rents, which is substantially higher than any other capital city.  Housing turnover was heavily impacted through April, with CoreLogic’s estimate of sales activity halving over the month.  Turnover has partially recovered over the past three months to be only 1% lower relative to the same period a year ago.

Darwin’s housing market has been on a roller coaster ride over the past decade, recording significant capital gains between 2003 and 2014 before values plummeted by close to one third in value.  Prior to COVID it looked like Darwin home values were on a path to a slow recovery.  More recently home values have again been drifting lower, falling 1.6% over the past three months.  The unit sector continues to underperform relative to houses, with unit values down 3.5% over the rolling quarter while house values were only 0.7% lower.  Home sales have trended slightly higher over recent months but remain 23% below the decade average.

Canberra is the only housing market where dwelling values remained at a record high through July.  Values were 0.6% higher over the month and 1.3% higher over the rolling quarter.  The resilience to falling home values can probably be attributed to the stronger labour market conditions across the ACT, along with extremely low numbers of coronavirus cases.  Rental markets haven’t been as resilient, with unit rents down 1% since March while house rents have edged 0.4% lower.  Despite the resilience to lower home values, CoreLogic’s estimate of turnover over the past three months is tracking almost 12% lower than the same time a year ago. 

In summary, housing markets have weathered the COVID storm much better than originally anticipated.  So far, the decline in home values has been orderly, with only modest reductions in most areas.  Turnover has recovered quickly and is tracking higher than a year ago at a national level, although that is a relatively low benchmark, where this time last year was around the trough of the previous cycle. However, demand is evident, as advertised stock levels are being absorbed faster than fresh stock is being added to the market. 

The unprecedented level of fiscal support from the federal and state governments, distressed borrower repayment holidays and record low interest rates are the key factors supporting demand and insulating home values. 

While interest rates are set to remain at their current lows for the foreseeable future, the government’s fiscal response will start to taper in October and repayment holidays are set to expire at the end of March next year. 

The removal of this support will test the market’s resilience.   As stimulus measures wind down and mortgage repayment holidays can no longer be extended, it’s logical to expect a rise in distressed properties coming onto the market.  The extent to which this causes additional downwards pressure on home prices depends on how the Australian economy is travelling at that time.  Further virus outbreaks present a clear and present danger to the depth and length of the recession, and the performance of the housing market.

To stay up to date property market performance in a rapidly changing environment, you can tune into regular research updates from CoreLogic at www.corelogic.com.au

Key updates:

• Housing values decline for a second consecutive month in June, as turnover recovers from the April low
• Each of the five largest capital cities recorded a decline in home values over the month, ranging from a drop of 1.1% in Melbourne and Perth to 0.2% in Adelaide. 
• Despite values being down in June, estimates of market activity showed a further improvement from the April low.
• Recent value falls represent an interrupted upswing across most regions, reflected in high annual growth rates. 
   

Full transcript:

Welcome to CoreLogic’s July housing market update.  The past month has seen a further improvement in housing market activity from both a sales and listings perspective, but home values continued to drift lower across most capital cities.

Nationally, value declines have been mild to date, but the pace of the downturn is accelerating. Following a 0.4% decline in May, our national index fell for a second consecutive month in June, down 0.7%.  Each of the five largest capital cities were down over the month, ranging from a drop of 1.1% in Melbourne and Perth, to 0.2% in Adelaide. The indices for Hobart, Canberra and Darwin each recorded a subtle rise in values over the month.

A variety of factors have helped to protect home values from more significant declines, including persistently low advertised stock levels and significant government stimulus.  Additionally, low interest rates and forbearance policies from lenders have helped to keep urgent sales off the market, providing further insulation to housing values.

The recent value falls interrupted the pre-COVID upswing that was evident across most regions, reflected in high annual growth rates.  The twelve month change in home values remains in positive double digit territory across Sydney, at 13.3% and Melbourne, at 10.2%. The only capitals where values have declined on an annual basis are Perth and Darwin, but even across these cities, the market was early into a recovery phase pre-COVID.

Despite values being down in June, estimates of market activity showed a further improvement from the April low.  After a revised 22% surge in sales activity through May, CoreLogic’s estimate of home sales in June was up a further 30%. 

A variety of peripheral housing market indicators have started to look more positive through June.

Real estate agent activity is now tracking higher than the same time last year. We measure activity based on the number the number of reports generated across CoreLogic's RP Data platform, which has more than three quarters of Australian real estate agents as subscribers. In the lead up to the Easter Long weekend, report volumes sunk to 60% below where they were at the previous year. By the end of June, the amount of reports generated tracked 5.4% higher than this time last year. This real estate agent activity is highly correlated with new listings activity, with a two week lead.

Subsequently, this rise in real estate agent activity is flowing through to more fresh real estate listings.  The rolling 28 day count of new listings remained lower than a year ago, but was 42% higher relative to the recent low in early May.  While new listings are ramping up, the total listing count has continued to trend lower, indicating a strong rate of absorption.

Additionally, auction markets have shown a partial recovery, with the combined capital city clearance rate averaging 60% through May and June.  Clearance rates reached a record low of 30.2% through April as a result of the temporary ban of on-site auctions. This saw withdrawal rates peak at 56.0%, and more than 80% of successful auction sales were negotiated prior to the auction rather than under the hammer.  Since late May, as the ban on auctions has lifted, withdrawal rates have normalized and the large majority of auctions are selling under the hammer rather than before or after the event. 

Consumer sentiment readings provide a further signpost for improving housing market activity.  After plunging in late March and early April, consumer sentiment readings have rebounded, demonstrating the ability of consumers to make high commitment decisions.   Consumer sentiment readings show a high correlation with housing market activity.  Although these readings remain well below the long run average, improved consumer sentiment helps to explain the rise in listing numbers, and a strong rate of absorption via a higher rate of turnover.

Across each of the capital cities, the housing market story is playing out a little bit differently.

Sydney home values slid for a second month in June, down a cumulative 1.2% since a recent peak in April.  The largest falls are occurring across the top quartile of the market, where home values have dropped 1.3% over the June quarter while the least expensive quarter of the market has recorded a subtle rise, up two tenths of a percent over the same period.  While home values are trending lower, rents have also declined, falling by 0.8% over the month to be 1% lower over the year.  The weakest rental conditions are confined to the unit market, where rates are down 2.1% over the June quarter.  From a more positive perspective, our estimate of sales activity is up by around 40% from the April low and auction clearance rates have averaged 61% through June. This implies an improvement in buyer demand and a better fit between buyer and seller pricing expectations.

Melbourne housing values recorded a third consecutive month of declines in June, resulting in a 2.3% drop in values over the quarter.   Melbourne’s top quartile properties are recording the largest declines, down 3.7% over the second quarter. Lower quartile values fell by only half a percent.  Previous phases of the housing market have shown a similar trend, with the most expensive segment of the market leading the growth phase as well as downswings.  Melbourne rents were down six tenths of a percent in June, with the unit sector recording more substantial downwards pressure on rents than houses.  Despite lower values, housing demand has gathered pace across Melbourne; after sales dropped by a third in April, our estimate of sales in June was almost 60% higher than the April low.

Brisbane’s housing market has been holding up better than the larger cities, with home values recording less downwards pressure.  Despite the relative resilience, dwelling values have slipped by two tenths of a percent over the June quarter. Unit values were down a larger 0.8%, while detached house values held firmer, down 0.1%.  Brisbane rents have also recorded a mild downturn, falling by 0.6% over the June quarter. However local rental yields remain well above the combined capital city average, tracking at a gross 4.2% for houses and 5.2% for units.  In a positive sign for housing demand, sales activity has shown a sharp rise over the past two months, up by an estimated 74% since activity plunged in April.

Adelaide remains one of the most stable capital city housing markets.  Dwelling values were down by 0.2% in June, which was the first month on month fall since the market bottomed out from a mild downturn in August last year.  Adelaide rents have continued to rise through the COVID period, up one tenth of a percent over the June quarter. The detail in the data shows unit rents have recorded a 0.2% decline over the quarter while house rents were up by 0.2%.  Across the broad valuation cohorts, Adelaide’s more expensive properties have recorded a slightly higher growth reading than lower value properties. The upper quartile values rose 0.9% over the June quarter, while lower quartiles were up a smaller 0.7%.  A similar trend can be seen across Adelaide’s sub-regions, with the Western suburbs recording a 2.1% rise in values over the quarter, while at the other extreme, values across the Southern region of Adelaide are down -0.1% over the same period.

Perth’s long awaited recovery has been interrupted by COVID-19, with values falling over both May and June to be 1.4% lower over the quarter.  Prior to COVID, Perth home values has avoided a fall for six months straight.  Although home values have dropped a bit, housing activity has shown a sharp rise over the past two months, with our estimate of sales more than doubling from the low base set in April.  Rents have continued to rise through the June quarter as well, up almost 1% to be one of the few capital cities where rents continue to rise.

Hobart housing values have firmed over the past two months, rising by 1.1% to a new record high after falling in March and April.  There is little difference between the performance of houses and units, with both product types up around 1% in value over the quarter.  While home values seem to be tracking slightly higher, Hobart rents have been under downwards pressure, down 2.3% over the quarter. Buyer demand has shown a solid improvement after diving almost 40% in April, with our estimate of sales in June rising to pre-COVID levels.

Darwin remains a thinly transacted market with sales activity showing a subtle upwards trend, but holding well below the long run average.  The city has averaged around 145 dwelling sales per month over the past six months.  Monthly returns have been volatile, however the trend has seen housing values rise over four of the past six months, suggesting local conditions have shown a subtle improvement from recent years where values were consistently falling on a monthly basis.  Darwin rents have been trending lower since 2014, however recent months have seen rental markets start to stabilise with dwelling rents virtually flat, with a 0.1% fall over the quarter.

Canberra has been the best performing capital city market over the first half of 2020, with values rising 2.4% over the first six months of the year.  House values have shown a stronger performance relative to units, with values up 2.8% and 0.6% respectively over the year to date.  Rental markets haven’t been as strong, with the June quarter showing a 0.4% decline in rents.  The downturn in rents is a bit steeper across the unit market where rents are 0.7% lower over the June quarter while house rents are down a smaller 0.3%. 

So far, the impact from COVID-19 on housing markets has been milder than initially anticipated.  Home values are drifting lower, but not crashing, and transactional activity has shown a remarkable recovery after plummeting in April. 

Part of this resilience in values and improved market activity can be attributed to the massive amount of government stimulus and to the mortgage repayment holidays on offer, but other market driven factors are also at work. 

A scarcity of advertised supply is one factor helping to insulate home values, with CoreLogic estimating the sales to listing ratio is tracking around 1.3, meaning for every additional new listing added to the market there are 1.3 sales. 

Another factor is the improving economic environment.  Social distancing measures have been relaxed or removed earlier than anticipated, supporting a lift in economic activity.  According to the RBA governor, the trajectory of the Australian economy is somewhere between the best case scenario and the central case scenario.  A shallower recession and early return to growth should see consumer confidence record a further improvement.

Despite the early signs of improved economic activity and a lift in housing turnover, the downside risk remains significant.  The recent rise of active virus cases in Victoria are a reminder that the potential risk of a second wave remains a stark reality.  If we see the virus curve steepening rather than flattening, a return to restrictive policies is highly likely.

Another key risk relates to the eventual removal of stimulus measures and borrower repayment holidays.  Eventually, banks will be working to ensure customers can repay their loans, and the government will wind back fiscal policies.  This is when we could see a rise in mortgage arrears and the potential for a lift in urgent or forced sales.

The longer term outlook for the housing market remains largely dependent on how well the economy is tracking when these support measures are removed. The good news is that the economy seems to be on a better than expected trajectory to recovery at the moment.

We will be updating our monthly summary at the same time in August, but in the meantime you can keep up to data on all our housing market research at www.corelogic.com.au

Key updates:

• Housing values edge lower in May, while transaction activity partially recovers from a sharp drop in April
• The national index was down 0.4% over the month, with five of the eight capital city regions recording a fall in values. 
• The reduction in values through May comes as transaction activity in the market shows more positive signs. The CoreLogic estimate of sales activity bounced back by 18.5% in May after a (revised) drop of 33% in April.
• Regional markets have been more resilient to value falls, with the combined regional index holding firm through May.  
   

Full transcript:

Welcome to CoreLogic’s housing market update for June 2020.  It’s great that, as a nation, we have flattened the virus curve back to virtually nothing over the past month and subsequently many of the social distancing policies that have impacted on housing market and economic activity have been either relaxed or lifted.  Some states have opened up their borders, and, in most areas, the number of home sales has shown a substantial improvement relative to the sharp fall in April.

The downwards pressure on home values became more broad based in May.  The national home value index was down 0.4% over the month, with five of the eight capital city regions recording a fall in values.  Considering the weak economic conditions associated with the pandemic, a fall of less than half a percent in housing values over the month shows the market has so far remained resilient to a material correction. 

With restrictive policies being progressively lifted or relaxed, and economic conditions showing some early signs of improving, the downwards trajectory of housing values could be milder than first expected.

Across the state capitals, Melbourne’s housing market has posted the largest falls over the month, down 0.9% in May, following a 0.3% reduction in April.  Values were also down over the month in Perth, Sydney, Brisbane and Darwin, but rose in Adelaide, Hobart and Canberra.  Regional markets have been more resilient to value falls, with the combined regional index holding firm through May.

Although housing values are currently slipping or stabilising, recent history implies most home owners have some level of buffer that will help protect against negative equity.  National home values remain 8.3% higher than they were a year ago, with Perth and Darwin the only capital cities where values remain lower than at the same time last year.

The high annual capital gain is mostly attributable to the earlier growth trajectory of housing values across Sydney and Melbourne, with the remaining capitals showing a more sustainable history of price rises.

Despite the loss of momentum in housing value growth, buyer numbers have shown a solid rise in May.  After housing market activity fell by around one third in April relative to March, sales activity bounced back by an estimated 18.5% in May.  Housing market activity remains well below average, however the rise in sales through May coincides with a consistent rise in consumer sentiment and eased social distancing policies through the month.

With consumers feeling more confident, households are better equipped to make high commitment decisions such as buying or selling a home.  A lift in housing market activity should also support broader economic activity, with housing turnover providing positive flow-on effects to other sectors including retail, construction and banking.

Improved confidence is also flowing through to a rise in new listing numbers.  The number of fresh property advertisements bottomed out at historic lows in early May, with the rolling 28 day count up 22% compared with the end of April.   Although new listings numbers are trending higher, the total listings count, which includes new listings as well as re-listed properties, has continued to trend down, implying a healthy rate of absorption as buyers become more active.

The relationship between new listing numbers and total listings will be a key trend to watch; if total stock levels become elevated, this indicates that supply levels are outweighing demand. Currently, this does not look to be the case.

Auction market indicators provide another confirmation point of improving conditions.  The combined capital city clearance rate bounced back from a low of 30.2% in late April, to 62.7% in the week ending 24th of May.  As policies preventing open homes and on-site auctions eased during May, there was a clear improvement across auction markets. We have seen a sharp reduction in the number of auctions being withdrawn, and more vendors are testing the market under auction conditions rather than accepting an offer prior to the auction.

As always, housing market conditions vary remarkably from region to region and across the product types.

Sydney home values recorded their first month on month decline in a year, with values down 0.4% in May. Weakness was mostly evident across the top quartile of the market where values were down 0.6% over the month compared with a 0.1% rise in lower quartile values.  Softer conditions across the most expensive end of the market come after a solid over performance. The past twelve months has seen top quartile home values surge 16.5% higher while growth across the lower quartile was substantially lower at 9.6%.  Despite the fall in values, there were some more positive signs that housing markets were responding to an easing in restrictions.  Buyer activity was up 29% over the month, partially recovering a 41% drop in activity through April, and auction clearance rates had improved from the low 30% range in mid-April to the mid 60% range by late May.

Melbourne home values were 0.9% lower in May, following a slight fall in April, taking the cumulative drop in values across the city to 1.2% from the record high in March 2020. Similarly to Sydney, Melbourne’s weakest housing market conditions are confined to the most expensive quartile of the market where values were down 1.3% over the month and 2.1% lower over the past three months.  Although values are falling faster at the most expensive end of the market, this is also the sector that has shown the strongest growth trajectory over the past year, with values still 14% higher than they were a year ago compared with a 9% lift in values across the most affordable quartile.  Although values are trending lower across Melbourne, the number of home sales was up 13.5% in May as listing numbers rose and home buyers became more active.

Brisbane home values have lost their upwards momentum through 2020, but have held reasonably firm over the past few months.  The monthly pace of growth has faded from a recent high of 0.8% late last year to slip into negative territory in May, down 0.1%.  The local unit market continues to show a weaker trajectory for home values.  The unit sector recorded a 0.6% drop in value last month while house values were steady.  Similarly, the past twelve months has seen house values rise by 4.3% while unit values are up a smaller 1.6%.  In a positive sign of buyer confidence and an easing or removal of some of the COVID related restrictions, sales activity jumped 22% in May.

Adelaide was one of the few housing markets to record a rise in housing values through May.  Over the month the Adelaide market recorded a rise of 0.4%, with both house and unit values recording a similar lift.  The strongest conditions over the month have come from the Western suburbs where values were 1.1% higher in May, while the more affordable northern suburbs was the only sub-region to record a drop in home values, down 0.2% in May.  Overall, the Adelaide housing market looks to be tracking with relative stability, following a period of moderate gains through late 2019 and early 2020. Historically, the Adelaide dwelling market has been far less volatile than the larger, more expensive capital city housing markets. This stability in asset growth, coupled with relatively strong yields, are a drawcard for this dwelling market. However, headwinds for this market include weak labour force conditions, with South Australia presenting the highest rate of seasonally adjusted unemployment in April at 7.2%.

Perth home values were down 0.6% in May, breaking a six month streak where housing values avoided a fall.  Each of Perth’s sub-regions recorded a fall in home values over the month, ranging from a 1.7% drop in Mandurah to a virtually flat 0.1% fall across the most expensive Inner region of the city.  While housing values slipped lower over the month, activity recorded a solid rise, entirely recovering the April fall.  Improving commodity prices, low advertised stock levels and a trend towards rising interstate migration should help to support Perth housing prices over the medium to long term.  Rents bucked the weakening trend, rising 0.4% in May, pushing Perth’s gross rental yield to the highest level since October last year.

Hobart housing values were up 0.8% in May, more than reversing the earlier 0.3% drop across March and April.  The rise in values was across both houses and units, however the longer term trend has seen stronger growth conditions for detached homes where values are up 6.7% over the past year compared with a 4.4% lift in unit values.  May marked the third consecutive month of rental value declines, where rents are now down a cumulative 1.9% from March.  About 13% of the Hobart workforce is concentrated in arts and recreation and accommodation and food services, which are sectors that have seen some of the largest job losses in the past few months as a result of COVID-19. Workers in this industry tend to be young, on lower incomes and are more likely to rent, which explains some of the weakening in rental markets.

Darwin housing values reversed some of the gains seen earlier this year, with housing values falling 1.6% in May, but remaining 2.1% higher over the past three months.  Darwin was showing some early signs of recovery after values has been consistently trending lower since mid-2014, however the market and local economy remain in a fragile state.  Rental rates are still trending lower, down a further 0.2% in May to be 1.3% lower than a year ago.  Despite the weak rental conditions, Darwin’s rental sector continues to show rental yields well above the other capital cities, with house yields averaging 5.3% gross and units 6.8% gross.

Canberra housing market conditions have remained amongst the most resilient across the capitals.  Housing values have continued to trend higher, rising half a percent in May to be 1.2% higher over the rolling quarter and 5.1% higher over the year.  House values have seen a much stronger growth trajectory relative to unit values.  House values are up 6.3% over the past twelve months while unit values are up just 0.9%.  Rental conditions look to have lost some steam though.  Canberra rents were up 0.4% in May but that wasn’t enough to reverse the 0.7% drop in rents through April.

Overall, the broad theme we are seeing in much of the housing data is a mixture of resilience and recovery.  In the context of weak economic conditions and the broader COVID-19 related disruption, housing values have been relatively resilient through May. If history is anything to go by, housing values have generally weathered periods of extreme uncertainty quite well, and the trend to date looks very similar. Buying and selling activity was heavily impacted in April, but the month of May saw this trend reverse in line with a flattening of the virus curve, eased social distancing measures, and improving consumer sentiment. As more vendors have tested the market, listings figures suggest more buyers are also coming to the market, indicated by the strong absorption of new stock. 

While downside risk remains, the trajectory of the housing market is looking more positive than what we were expecting a bit over a month ago. 

While the immediate indicators are showing resilience or improvements, the longer term view of housing market conditions is much less certain.  Once stimulus measures start to taper and repayment holidays expire, this is where we could see a rise in mortgage arrears, and the potential for a lift in distressed sales.

Despite the recent recovery in certain indicators from very low levels, it is hard to ignore job losses of almost 600,000 across the economy over April. With the cash rate at its effective lower bound, improved employment conditions will be a factor in steadying purchasing capacity for housing, and the servicing of mortgage debt.

Central to the outlook for distressed sales will be what shape the Australian economy is in late this year.  Encouragingly, the RBA governor recently noted in his evidence to the Senate Select Committee on COVID-19, that the economic downturn may not be as severe as earlier thought, with the current economic trajectory somewhere between the RBA’s best case and base case scenarios.

No doubt the coming months will provide more guidance on how the housing market and economic conditions are playing out.  The implications of grants and stimulus for new housing construction and renovations should also become clearer as more details are released through June.  Keep up to date with all this news and more at the research pages of the CoreLogic web site.  www.corelogic.com.au

Key updates:

• Housing activity plummets while housing values stabilise in April
• Australian housing values have not seen any evidence of a material decline in April, despite a sharp drop in market activity and a severe weakening in consumer sentiment.
• The capital city markets generally showed a weaker performance relative to the regional markets, with the combined capital cities index up 0.2% in April compared with a 0.5% rise across the combined regional markets.  
• Although most regions recorded a rise in home values through April, the national monthly pace of growth more than halved, dropping from 0.7% in March to 0.3%.  
• Sydney and Melbourne arguably show a higher risk profile relative to other markets due to their large exposure to overseas migration as a source of housing demand, along with greater exposure to the downturn in foreign students, stretched housing affordability and already low rental yields that are likely to reduce further on the back of rising vacancy rates and lower rents.
   

Full transcript:

Welcome to CoreLogic’s housing market update for May 2020.  As the world focuses on containing the COVID-19 pandemic I hope that you and your families remain well and safe. 

Housing markets have been impacted by the sudden weakness in economic conditions and a plunge in consumer sentiment, however there is a significant contrast between housing values, which have shown some resilience to falls, and market activity which has dropped sharply from the second half of March and through April.

Most regions recorded a rise in home values through April, however the monthly pace of growth more than halved, dropping from 0.7% in March to 0.3% in April, which was the smallest month on month movement since July last year, when the national index was flat over the month.  The six months prior to March saw national housing values rising at the average rate of 1.1% per month, highlighting how fast growth has left the market.

Although housing values were generally slightly positive over the month, the trend has clearly weakened since mid-to-late March, when social distancing policies were implemented and consumer sentiment started to plummet.

The sharpest reversal in growth conditions can be seen in Melbourne, where values nudged into negative territory through April, down 0.3%. Growth in Sydney values also slowed sharply but remained positive, rising 0.4% over the month. To provide some context, the six months prior to March saw both cities averaging a nation leading monthly growth rate around 1.7%.

Hobart was the only other major region to record a decline in home values over the month, down 0.1%.  Hobart has the most exposure of any capital city, at least proportionally, to the industry sectors most heavily impacted by COVID-19 in terms of employment, with 12.7% of the workforce employed within accommodation & food services, and the arts & recreation sectors.

Despite the weakening in housing market conditions, some cities have outperformed the six-month average pace of change.  Perth values were up 0.2%, Adelaide was up +0.4% and Darwin values were 1.7% higher.  Each of these cities has shown a larger gain relative to the six month average in April, demonstrating some resilience to weaker conditions.

Other indicators of housing market conditions have not been so resilient.  CoreLogic estimates of settled sales plunged by around 40% in April as buyers retreated to the sidelines and listing numbers dried up. 

The substantial drop in sales activity is supported by a similar fall in the number of mortgage related valuation events across CoreLogic valuation platforms, which account for around 85% of lender valuation instructions.

Additionally, activity across CoreLogic’s ‘RP Data’ platform, where the large majority of Australian real estate agents undertake their research to prepare a property for sale, was down by around 60% prior to Easter, providing a firm signal that industry activity has been hit hard by the drop in active buyers and sellers as well as policies preventing open homes and on-site auctions.  Encouragingly, real estate agent activity showed a partial bounce back after Easter to level our around 40% below the same time last year.

The decline in real estate agent activity is also showing up in the number of new listings being added to the market which was tracking 35% lower at the end of April relative to the same time a year ago and 43% below the five year average.  The reduction in advertised stock levels at a time of low demand is one factor that should help to insulate housing values from a more material downturn.

Let’s take a look how housing market conditions played out across each of the capital cities.

Sydney has seen the rate of capital gains drop from an average of 1.7% over the six months to March down to 0.4% in April, continuing a weakening trend that became apparent around mid-March.  Policies restricting open homes and on-site auctions have recently been lifted, which could see activity across the local market pick up, however some downside risk remains due to Sydney’s exposure to overseas migration as a source of housing demand as well as the likelihood that consumer confidence will remain at low levels.  Rental markets are likely to see weaker conditions due to the reduction in migration rates and less student demand, as well as short term rental stock transitioning into the permanent rental pool. Sydney rents were down 0.7% over the month, dragging the gross rental yield to a new record low of 2.9%.

Melbourne home values were down 0.3% in April; the first month on month fall since May last year.  The monthly fall comes after a strong rebound in housing values since June last year which saw Melbourne dwelling values reach a new record high in February. Melbourne has a relatively high exposure to overseas migration which is likely to be one of the factors behind Melbourne’s weakness, along with the policies restricting on site auctions and open homes.  Melbourne rental rates were also down over the month, falling by half a percent. Rental markets are likely to experience weaker conditions than home values due to higher supply of rental properties, and less demand.

Brisbane home values continued to edge higher in April, up 0.3% over the month.  Although values were higher, the rate of growth has halved relative to the six month average rate of growth prior to COVID-19.  With less reliance to overseas migration as a source of housing demand and the largest number of interstate migrants, the Queensland market may be less exposed to downwards pressure in housing values.  Rental markets have started to see some weakness though, with rents down 0.4% in April, reflecting a rise in rental supply as well as a reduction in demand.

Adelaide was one of the few capital city housing markets where the pace of capital gains in April was higher than the six month average.  Values ticked 0.4% higher over the month, continuing what has been a relatively steady and sustainable pace of growth that has been evident since September last year.  The rise in values was broadly based, with each of Adelaide’s sub-regions recording a rise in home values over the month, led by Adelaide West where values were nine tenths of a percent higher in April.  New listing numbers were down 38% compared with a year ago, reflecting a substantial drop in advertised supply levels, and rental markets softened, with rents slipping 0.1% in April.

Perth home values have avoided a fall for six consecutive months which is the longest run of growth since the market peaked in mid-2014.  The April figures showed a 0.2% lift in values over the month taking the market 1.1% higher over the year to date.  Local rents also edged higher, rising 0.1% in April with Perth the only capital city to avoid a drop in rents over the month. Despite the positive monthly reading for values and rents, it’s clear that activity has reduced.  New listing numbers are down about 46% compared with a year ago and our estimate of buyer numbers has more than halved over the month, suggesting both buyers and sellers have retreated to the sidelines.

The Hobart housing market has recorded two consecutive months where values have slipped lower, down 0.2% in March followed by a 0.1% fall in April.  From an economic perspective, Hobart’s labour force has the highest exposure of any capital city to the most disrupted industry sectors, with almost 13% of the workforce employed within the accommodation and food services sector or the arts and recreational services sector.  The previously strong rental conditions have also reversed, with Hobart rents down 1.1% in April; the largest monthly drop in rents across the capital cities.  The weaker rental condition may be attributable to a supply shock associated with the large supply of short term rental properties transitioning to permanent rentals.

Darwin home values bounced higher in April, up 1.7% which followed a 2% lift in March. Considering the weak trend that was previously evident across Darwin as well as the challenges related to COVID-19, an abrupt shift to a significant positive change is unlikely, with the recent lift in home values probably more attributable to volatility resulting from low sales than actual gains.  If the CoreLogic indices continue to show a positive turn in the Darwin conditions over coming months, which may provide firmer evidence of a market turn around.  Our measure of new listing numbers is down almost 60% compared with a year ago, reflecting a significant reduction in advertised supply levels.

Housing values held firm across Canberra in April, with a 0.1% rise in house values helping to offset a 0.4% fall in unit values.  As consumer sentiment weakens we have also seen a drop in new listing numbers, which were down 18.5% in April compared with the same time a year ago, and our estimate of sales activity was down 38% over the month.  Looking forward, Canberra may navigate the COVID-19 disruption better than other cities due to only a small proportion of the workforce being employed within heavily impacted industry sectors.  Only 7.9% of Canberra’s population are employed within the accommodation and food services sector or the arts and recreational services sector.

In the context of rapidly weakening economic conditions and the broader COVID-19 related disruption, the April housing market result looks remarkably resilient. 

The Australian version of this global health and economic crisis is only a month-and-a-half old, and it looks inevitable that there will be some downwards pressure on housing values over the coming months.  The magnitude of falls depends on a broad range of factors with most hinging on the timing and extent of social distancing policies being lifted.

The good news is that Australia has managed to flatten the spread of the virus more effectively and efficiently than expected and we are already seeing an easing of social distancing policies in some states.   An early return of economic activity should support a lift in consumer spirits which in turn should see housing market activity sparking back to life.

Plenty of downside risk remains for housing values, however, there are a variety of factors that will help to insulate home values from a material downturn. 

A key factor is the leniency provided to distressed borrowers affected by COVID-19 by Australian banks.  Eligible borrowers can take advantage of repayment holidays over a six month period, by which time the economy will hopefully be in better shape.  This policy is central to limiting the flow of distressed properties onto the market, which could have otherwise been a source of more significant downwards pressure on home values.

Additionally, the anticipated high rate of unemployment is likely to be most impactful on areas of the workforce that have lower rates of home ownership, which is another factor that should help to keep the number of distressed properties to a minimum. 

There is also the unprecedented level of stimulus to consider, which will help to keep businesses afloat and workers in a paying job.  A sharp reduction in advertised supply levels is another factor helping to safeguard home values amidst a fall in buyer demand, as well as record low interest rates.

No doubt the coming month will provide more clarity about the direction of housing markets.  One of the most important indicators to follow will be measures of consumer sentiment.  If consumer spirits start to bounce back to more normal levels, this will be a firm sign that consumers will be more able to make high commitment decisions like buying or selling a home.

CoreLogic will be tracking all the twists and turns in the housing data on daily basis.  You can tune into our research at  www.corelogic.com.au

Key updates:

• Housing values continued to rise in March - conditions expected to cool over comings months as buyers and sellers wait for confidence to return
• The trend in housing values remained positive throughout March, with the CoreLogic national hedonic index rising 0.7% over the month. The second half of the month experienced a weakening in the growth trend as confidence slumped and social distancing policies took effect. 
• Although Australia’s housing markets have begun to enter a period of disruption, they are coming from strong foundations.
• Over the month, housing values rose across every capital city apart from Hobart.
   

Full transcript:

Welcome to CoreLogic’s housing market update for April 2020. It’s been a tumultuous few weeks and no doubt we are all still grappling with the ongoing COVID-19 pandemic and what it means for us, our families and our way of life.  In bringing you our latest housing statistics for March, I trust you and your families are safe and well. 

We are starting to see some impact from the virus on housing market conditions due to a drop in consumer confidence and weaker economic conditions.  The trend in housing values actually remained positive through the month, with CoreLogic’s national index rising 0.7%, however, the second half of the month saw a weakening in the growth trend as confidence slumped and social distancing policies took effect.  The result for March was actually the lowest monthly gain since the growth cycle commenced in July last year, and likely sets the tone for housing conditions over the coming months.

Although Australia’s housing markets are entering a period of disruption, they are doing so from a strong foundation.  Last month, every capital city and rest of state housing market recorded a rise in housing values, apart from Hobart.  Settled sales have been trending higher and most cities have staged a recovery from the previous housing market downturn.

The trends have generally been positive across each of the capital cities.

Sydney housing values continued to lead the pace of capital gains through March, rising 1.1% over the month to be up 13% over the year. Despite such strong gains since June last year, Sydney housing values remain 2.7% below their previous peak back in mid-2017.  The deceleration in capital gains was evident prior to March, with the monthly growth trend moving through a recent peak in November last year when values rose by 2.7% in a month.  The slowing conditions can be attributed to the impact of weaker economic conditions and lower confidence associated with coronavirus, but also rapidly worsening housing affordability through the upswing.

The pace of capital gains across the Melbourne market has been slowing since October last year when the monthly gain peaked at 2.3%.  Since that time housing values have continued to rise, but at a slower pace.  March marked a sharper reduction in the pace of capital gains, with the monthly rate slipping to just 0.4% which was the lowest rate of change since May last year.  Slowing conditions are most evident across the premium end of the Melbourne market where the quarterly growth rate has more than halved, down from 8.1% late last year to 3.0% over the March quarter this year. 

Brisbane housing values were up 0.6% in March, marking the 9^th consecutive month where housing values increased on a monthly basis. The pace of capital gains has been far more sustainable relative to the larger cities which may be a reason why we haven’t seen a marked slowing in the pace of growth through March.  The March quarter saw values rise by 1.6%, driven by a 2% gain in house values which helped to offset a 0.2% fall in unit values.  Rental markets are slightly outperforming the national average, rising 1.5% over the year which has helped to support a higher than average yield profile as well at 4.4%.

Adelaide home values were up three tenths of a percent in March, taking the annual growth rate to 0.9%.   Values have been consistently rising since October last year, with the pace of growth generally higher at the more affordable end of the market.  The lower quartile of the market has recorded a rise of 2.3% over the past twelve months, while the upper quartile is down 0.6%.  Overall, the pace of capital gains has been at a sustainable rate across Adelaide, with values rising at the annual pace of 2.2% over the past five years.

Perth notched up the fifth consecutive month where housing values haven’t fallen; a trend we haven’t seen since 2014.  Growth has been a little stronger across the premium sector of Perth’s housing market, with upper quartile home values rising by 1% over the March quarter compared with a rise of 0.8% across the lower quartile of the market.  Despite renewed growth, the median house value across Perth remains the lowest of any capital city, demonstrating an extremely affordable entry point to housing. The local rental market continues to show a stronger than average performance, with weekly rents rising 2% over the past year and rental yields also holding above average at 4.3%.

Hobart was the only capital city to record a drop in housing values over the month, with the market down 0.2%, breaking a pattern of strong growth.  The monthly decline was driven by a sharp fall in the more volatile unit sector, which was down 3.3% in March compared with a 0.6% rise in house values.  The past year has seen Hobart housing values rise by 4.2%, with houses once again the main driver of growth.  Rental conditions remain the tightest of any capital, with Hobart rents up 3.4% over the past year, supporting one of the highest rental yields across the capitals at 5%.

Darwin housing values posted a rare rise in March, up 2% over the month.  Such a high monthly growth rate is surprising considering the weak trend.  The monthly jump is likely more a reflection of volatility rather than a true capital gain. Reading through the noise, it does look like the Darwin market was showing some tentative signs of improving prior to the coronavirus, with sales activity rising from a low base and the trend rate of decline showing signs of easing.  The decline in housing values probably still has some way to go, with the local economy and demographic trends remaining weak.

Housing values across Canberra were up six tenths of a percent in March, continuing a trend of growth that has been running the last eight months.  Housing values are pushing to new record highs each month with the typical house now worth $702,000 and units showing a median of $443,000.  Home sales have been on a strong upwards trajectory, increasing by an estimated 19% year on year, albeit from a low base.  No doubt this trend of growth will be interrupted over the coming months, however the foundations of the local market are looking quite strong.

Importantly, as we move into this period of unprecedented uncertainty, the recent trends in the market have suddenly become less relevant.  We can take some guidance from previous economic shocks, which have typically shown housing values to be far less impacted than equity markets.  In fact, housing values have generally held relatively firm during these periods before showing a strong upwards trajectory due to stimulus measures such as lower interest rates.   

Transactional activity has been more affected, with annual sales falling 39% after the Black Monday stock market crash in 1987.  The Asian financial crisis in 1997 saw housing sales fall 22%, and sales were down 34% following the Tech Wreck in 2001.  More recently, the Global Financial Crisis saw market activity drop 23%. 

This time around we aren’t expecting the housing market to be immune to a drop in sentiment and weaker economic conditions, however the extent of the impact on dwelling values remains highly uncertain. Capital growth trends will be contingent on how long it takes to contain the virus, and whether additional policy constraints are rolled out for businesses or personal activity.

From a transactional perspective, we are expecting the number of residential property sales to fall dramatically over the coming months – a consequence of tanking consumer confidence, a rising jobless rate, and more cautious lending practices.  Restrictions on open homes and on-site auctions will add to the slowdown in buyer activity, although we are seeing the real estate sector broadly adopting digital enablement strategies to ensure homes can still be inspected, sold and settled remotely.

Considering the temporary nature of this crisis, along with unprecedented levels of government stimulus, leniency from lenders for distressed borrowers on their mortgage payments and record low interest rates, housing values are likely to more be insulated than sales activity.  These factors should help to limit the number of distressed properties hitting the market and keep a more material decline in housing values in check. 

The coming months will truly be testing for markets, for businesses, for families and the global economy overall, but it won’t last forever.  As the virus is contained, economic conditions will improve and consumer spirits will lift.  No doubt housing trends will follow.  The wildcard is how long it will take. 

CoreLogic will be providing updates on the housing market as frequently as possible during these challenging times. 

Key updates:

• Housing values surged by 1.1% in February, with values across five of Australia’s eight capital cities reaching a record-high.
• On an annual basis, both Sydney and Melbourne moved back into double-digit annual growth rates, with values up 10.9% and 10.7% respectively over the twelve months ending February.
• In line with the improved housing market conditions we have also seen a surge in housing credit and a substantial lift in buyer activity.  The value of new housing credit commitments surged 23% higher through the second half of 2019 and the value of investor commitments was up 15.5%.
   

Full transcript:

Welcome to CoreLogic’s housing market update for March 2020.  Our latest results showed that nationally, housing values surged by 1.1% last month, with values across five of Australia’s eight capital cities reaching a record-high in February.

The strongest capital gains are continuing to emanate from Sydney where values were up +1.7% and Melbourne with a +1.2% over the month, while the remaining capital cities recorded a more modest rise.  Darwin was the only exception, where home values were down 1.4% in February.

On an annual basis, both Sydney and Melbourne moved back into double-digit annual growth rates, with values up 10.9% and 10.7% respectively over the twelve months ending February. 

The latest results continue the recovery trend that has been running since June last year, following a peak-to-trough decline of 8.4% in the national index, with larger falls in Sydney, which was down -14.9% and Melbourne where values fell -11.1%. 

While there is a large amount of variability in capital growth from region to region and across the product types, every capital city excluding  Darwin, is showing an upwards trajectory in housing values, demonstrating a geographic broadening in the recovery as low mortgage rates and better access to housing credit fuel buyer demand. 

Since finding a trough last year, the national index finished February only 1.2% below its 2017 peak. At the current run rate of growth, the national index is likely to reach a new nominal high over the next two months.  Melbourne was the most recent city to stage a nominal recovery with housing values surpassing their September 2017 peak last month.  Melbourne has joined with Brisbane, Canberra, Hobart and Adelaide where housing values are also tracking at record highs.

Further evidence that the long-running downturn is over for the Perth housing market was revealed, with dwelling values increasing by 0.3% in February, marking four consecutive months where dwelling values have avoided a fall; a trend not seen since the market peaked in mid-2014.  Although Perth values are now trending higher, the recovery period is likely to be a long one, with Perth housing values remaining 21.0% below their peak.

Regional markets are generally lagging behind the capital cities, with housing values only 1.4% higher over the past twelve months compared with a 7.3% rise across the combined capital city markets.  The diversity across regional Australia is extreme, with drought affected areas impacting the regional index. Meanwhile, the regional centres adjacent to the largest capitals, as well as coastal lifestyle markets, are showing a stronger performance.

In line with the improved housing market conditions we have also seen a surge in housing credit and a substantial lift in buyer activity.  The value of new housing credit commitments surged 23% higher through the second half of 2019 and the value of investor commitments was up 15.5%.

Similarly, CoreLogic’s estimate of settled sales activity has lifted from the recent lows, up 26% over the second half of the year compared with the first half, demonstrating increased buyer demand on the back of easier access to credit and low mortgage rates.

While housing values are generally rising, rents are travelling at a more sluggish pace, rising by only 1.4% nationally over the past twelve months. With housing values rising more rapidly than rental rates, gross rental yields are swiftly compressing.  Across the combined capital cities the gross yield was tracking at 3.48% in February; the lowest yield reading since February 2018. The current gross rental yield is only nine basis points away from record lows.

Gross rental yields in Sydney are tracking to new record lows each month, falling to just 2.99% in February.  Despite overall weak housing market conditions, Darwin gross rental yields are the highest of any capital city at 5.9%. However, this is a reflection of housing values falling faster than rental rates, rather than growth in rental values.

The strongest yield dynamic is in Hobart where overall tight housing conditions have pushed gross rental yields to 5.0%, providing a total return of 10.5%.  The total return factors in the gross yield plus annual capital gains.

Housing market conditions vary considerably across the capital cities.

Since finding a floor in May last year, Sydney housing values have risen by 13.1%.  Despite posting the most rapid recovery trend amongst the capitals, Sydney housing values remain 3.7% below the 2017 peak.  Based on the rate of growth over the past three months, Sydney housing values could stage a nominal recovery by the end of May this year. House values have been rising at a faster rate than units, up 12.4% over the past twelve months compared with a 7.4% rise in unit values.  The weaker performance across the unit sector is likely related to the influx of new high rise unit supply across specific areas the city.   The surge in housing values has been accompanied by higher volumes, with our estimate of Sydney sales up 21% year on year. 

Melbourne’s housing market has continued to record a strong upwards trajectory in both values and volumes, with local values recovering to a new record high in February. The pace of capital gains is very similar between houses and units, with house values up 10.8% over the past twelve months while unit values are 10.5% higher.  Across the broad valuation segments of the market there is more diversity, with Melbourne’s upper quartile home values surging 14.2% higher over the year, while lower quartile values are rising at roughly half that pace, up 7.6% over the year.  Market activity has been rising through the upswing, with our estimate of transactional activity rising 9% year on year.  The market remains skewed towards sellers, with homes selling in just 35 days on average and discounting rates tracking around the mid 3% range, reflecting limited opportunities for buyers to negotiate.

Brisbane housing values remain on an upwards trajectory, however the pace of capital gains has been substantially slower relative to the larger capital cities.  The local market found a floor in June last year and since that time housing values are up 4.0%, with house values recording a larger gain relative to unit values.  Brisbane’s unit market has previously been weak, however concerns around an apartment oversupply have dissipated and unit values are now trending higher from a low base, up half a percent over the past twelve months compared with a 2.2% rise in house values.  Selling conditions have tightened a little, with discounting rates narrowing relative to the same time a year ago and transactional activity is trending higher as demand is supported by a high rate of population growth, relatively healthy housing affordability and low interest rates.

Housing values across Adelaide are showing a consistent but mild upwards trend, with values rising four tenths of a percent over the past twelve months.  Sales activity has been trending roughly in line with the decade average and selling conditions have shown a subtle tightening compared with a year ago, with homes selling slightly faster at 48 days on average and vendors offering up less discount on their asking prices.  Interestingly, the highest capital gains over the past twelve months have been across the lower quartile value range which is up 2.4% compared with a 1.4% fall values across the upper quartile.  Geographically, the Adelaide sub-region with highest annual growth rate has been Gawler, with a 5.3% gain in housing values over the past twelve months.

Perth’s housing market recorded its fourth straight month where values didn’t fall, which was the longest period of flat to rising values since the market peaked in mid-2014.  The latest results provide further evidence the market has stabilised after five and half years where values were consistently trending lower.  The past three months has seen values rise by four tenths of a percent, so early indications are that this will be a gradual recovery trend.  Other factors pointing to a recovery including rising population growth against diminishing supply levels, tightening rental conditions and improving labour market indicators.  At $458,000, Perth’s median house value is the lowest of any capital city, providing an extremely affordable entry point to the market. 

Hobart dwelling values were up 0.8% in February, taking the annual growth rate to half a percent.  The most affordable quarter of properties is driving the growth trend across Hobart, with the lower quartile of the market up 10.2% in value over the past twelve months while the upper quartile has seen a much lower 1.4% rise in value.  The stronger performance across the more affordable end of the market comes as affordability constraints become more pressing which is likely pushing more demand towards the lower priced sector of the market.  Selling conditions remain extremely tight across Hobart, with the typical home selling in less than a month and discount rates holding below 3%.

Darwin housing values were down a further 1.4% in February, with the drop confined to the unit sector where the long running downturn has been hardest felt.  Darwin house values have actually recorded a positive movement over the most recent three month period, up 0.9% while unit values fell 6.8% over the same period of time.  The silver-lining around Darwin’s housing market downturn is that housing affordability is far healthier than any other capital city.  Considering how low housing values are relative to local incomes, it’s no surprise that the Northern Territory has the highest proportion of first home buyers across the state and territories. 

Canberra housing values rose a further eight tenths of a percent in February, taking the annual growth rate to 4.1%.  Following a relatively shallow correction, where housing values fell by 1.5%, the Canberra market has already staged a full recovery and home values are pushing to new record highs each month.  Houses are showing a stronger result than units, which can probably be attributed to a supply overhang which is weighing on unit values.  The market remains skewed towards sellers, with the typical private treaty sale taking 36 days, compared with 56 days at the same time last year, as well as very low rates of vendor discounting.

The primary factors driving this rebound remain in place and include an extremely low cost of debt and improved borrowing capacity. However, considering the sluggish pace of household income growth, housing affordability is eroding rapidly which is likely to see some parts of the market become less active.

In Sydney, Melbourne and, to a lesser extent, Hobart, affordability constraints are likely to gradually push demand towards the middle and outer ring suburbs, or towards cheaper price points in the medium to high density sector.  Major regional centres with links to the major capitals should also benefit as demand spills over from the capital city metro regions.  These more affordable segments of the market have generally seen lower rates of capital gain over the cycle to date and offer lower barriers to entry, as well as higher rental yields for investors. 

Affordability pressures are less pressing across the remaining capital cities. In regions such as South East Queensland and Perth, housing is very affordable relative to Sydney and Melbourne, jobs growth is trending higher and unemployment is reducing. These could be the markets to watch for a stronger performance later this year.

There are some early signs that the rate of growth may have already peaked late last year across Sydney and Melbourne, as affordability constraints dampen participation in the market and advertised supply levels increase. 

Although affordability is becoming more challenging, home loan serviceability is the best it has been in many years thanks to such low mortgage rates.  The Reserve Bank cut the cash rate by another twenty-five basis points in March, with lenders generally passing on the full rate cut to mortgages. 

Looking ahead, a more significant downturn in consumer sentiment related to the coronavirus outbreak could become a determining factor that impacts the market over coming months. 

While housing demand is now relatively insulated from a downturn in foreign buyers and record low mortgage rates should help to support demand, the economic impact on key export sectors such as education, tourism and commodities is likely to result in weaker economic conditions and lower consumer sentiment.  Consumer sentiment readings are already low, and a further deterioration could see housing market activity start to slow.

Monitoring the spread of coronavirus and the impacts on the Australian economy and consumer attitudes will be a key part of understanding the housing markets performance over coming months. 

As always, you can stay in touch with the latest trends across the housing market by regularly checking the research pages of CoreLogic’s website.  www.corelogic.com.au