National home prices increased again in April and have now risen for four consecutive months. The 0.14% growth in April brings the cumulative 2023 increase to 0.75%. Tight supply continues to underpin prices, alongside stronger housing demand, which is offsetting the impact of interest rate rises.
The housing market has started this year on a stronger footing and after nine consecutive months of price falls last year national home prices rose for the 4th consecutive month in April. Home prices are now up 0.75% from their low recorded in December 2022.
While interest rates have been the primary driver of home price falls seen for much of 2022, there are other factors at play this year. These include the supply of properties for sale, labour market conditions, the rate of immigration, the level of home building, the state of rental markets as well as the flows of interstate and regional migration. All these factors affect home price growth, as well as how it is distributed across the country.
Although the reduction in affordability implies larger price falls than have been seen to date, the downward pressure on prices from the substantial tightening already pushed through is being counterbalanced by stronger housing demand and tight supply conditions.
Market conditions are firmer and there are a number of metrics pointing to an uplift in demand this year. Clearance rates have firmed and potential buyer demand on realestate.com.au has increased close to 20% quarter-on-quarter on a per listing basis across the capital cities to March 2023.
Sales volumes have fallen as the sharp adjustment in interest rates dented home buying activity. National sales volumes are lower throughout the first 17 weeks of 2023 when compared with the same period in 2022. However, they remain close to levels recorded in the same period in 2020 and above volumes recorded in the first 12 weeks of 2019, again indicating that activity is stabilising.
The decision by the Reserve Bank to hold interest rates steady in March is also likely to have contributed to the continued uplift in home values last month. Much of the uncertainty buyers have experienced with respect to borrowing capacities and mortgage servicing costs is reducing, providing buyers with a better sense of how far their budget will go.
Supply constraints have eased slightly with respect to the total stock on market, but the flow of new listings remains soft, keeping a floor under prices. Fewer properties are hitting the market compared to the same time last year, which is creating a more competitive buying environment and buoying home values.
Home prices rose 0.20% across the combined capital cities in April and are now 4.17% below peak levels recorded in March 2022.
In recent months, home price growth has been stronger in the combined capital cities than regional areas, with prices in regional areas flat April 2023. Regional home prices have risen by 0.30% since their low point recorded in December 2022, while the combined capital cities have seen prices rising 0.93% since their low point also recorded in December 2022.
Except for Western Australia, capital city markets are outperforming their regional counterparts on a monthly basis. Drilling down into smaller geographical areas, regions that led the downturn appear to be leading the emerging recovery, resulting in capital city areas holding up better than regional areas in 2023. Further drilling into the data by percentile value, although the lower end of the market held up better through the downturn, the upper end is driving the recovery. Previous cycles have seen a similar trend, where the upper end of the market leads both the downturn and subsequent recovery.
However, regional markets outperformed capital city markets throughout much of the last year and, on an annual basis, continue to record smaller price falls. Prices are just 1.73% off peak levels in regional markets.
Although the pace at which net internal migration flows into the regions has eased, they have remained elevated relative to pre-Covid levels. Population flows alongside demand for more affordable homes resulted in regional areas holding up better than capital city areas in 2022.
Prices rose in most capital cities in April, with Adelaide (+0.41%), Sydney (+0.40%) and Perth (+0.21%) recording the largest increases.
These dynamics have been influenced by stronger housing demand as well as the availability of properties for sale, with lower stock levels concentrating buyer interest and underpinning home prices.
Although more expensive regions have led the recovery, more affordable areas have performed better over the past year. Adelaide’s comparative affordability has seen demand maintained while low stock levels are also helping to insulate home values.
Adelaide and Perth have so far avoided the price downturn and are the strongest capital city markets over the past year, with prices continuing to hit peak levels. Adelaide is the strongest performing capital city market over the past year (up 5.23%). Perth has also outperformed the other capital cities with home prices up 3.11% over the past year. The comparative affordability of both cities has seen these markets outperforming throughout the past year.
Adelaide was closely followed by Sydney, which saw the second largest increase in values out of the capital cities in April with home prices rising 0.40%. Sydney also recorded the largest correction with home prices falling 7.20% from peak to the low point recorded in November 2022, which may be seeing opportunistic buyers re-engage.
After climbing 1.70% in the past five months, home prices in Sydney are now down 5.62% from their peak. The bounce may also have been influenced by the tax changes implemented by the former New South Wales government that allow most first-home buyers the choice of paying an annual land tax rather than a one-off stamp duty, boosting up-front purchasing power.
Hobart was the weakest capital city market in April, with prices falling 0.27%. After 13 consecutive months of price falls, Hobart has now seen the longest decline of any market this downturn. Prices are now down 6.02% from their peak recorded in March 2022. This is only matched by Canberra where home prices have fallen 6.65% from their peak in March 2022.
Ongoing price falls in Hobart follow several years of relative outperformance. Buyers in Hobart have consistently enjoyed more choice relative to the other capital cities.
However, home prices in these capitals are still up considerably compared to pre-pandemic levels. And although home prices have fallen from their peak in most markets, the same is true of every capital city and regional counterpart Australia-wide.
Regions in South Australia, Queensland, regional NSW and WA recorded have recorded growth of up to 12% over the past year. South Australia, where home prices in Adelaide and Regional SA have continued to rise to fresh peaks, is unsurprisingly home to the top four of the top 10 highest growth regions.
These markets continue to benefit from pandemic-induced preference shifts, relative affordability advantages and migration shifts. Tight supply conditions in these markets are also increasing competition among potential buyers, which has buoyed values.
With the deterioration in affordability, buyer demand and home prices have held up better over the past year in markets which are relatively more affordable.
Looking at annual growth rates, the outperformance of more affordable regions and the peripheral parts of cities is clear. Higher willingness to pay for larger homes and reduced commuting requirements have seen these areas perform strongly since the onset of the pandemic.
However, comparing growth rates over the past quarter, it’s clear the markets that led price falls or saw faster declines have been leading the recovery so far. This is most obvious in Sydney, the first market that was first to see prices fall and recorded the steepest declines. This trend has now reversed and across the capital cities Sydney is leading the upswing in prices, with home prices up 1.70% from their low in November 2022.
Last year, rising interest rates quickly rebalanced the housing market from the extreme growth seen throughout the pandemic period. This sharp adjustment saw national home prices fall for nine consecutive months.
However, following the slowing pace of price falls seen into the end of last year, the housing market downturn has stalled in most markets with prices now moving higher. All capital city and regional counterparts recorded a rise in prices in April, with the exception of Hobart (-0.27%), Canberra (-0.17%) and Melbourne (-0.11%), and regional VIC (-0.24%).
While interest rates have been the primary driver of home price falls seen for much of 2022, there are other factors that also affect home price growth, as well as how it is distributed across the country.
Although the reduction in affordability implies larger price falls than have been seen to date, the downward pressure on prices from the substantial tightening already pushed through is being counterbalanced by stronger housing demand and tight supply conditions.
The decision by the Reserve Bank to hold interest rates steady is also likely to have contributed to the continued uplift in home values this month. Much of the uncertainty buyers have experienced with respect to borrowing capacities and mortgage servicing costs has waned, allowing buyers to adjust to the higher interest rate environment and move ahead with their purchasing plans.
In addition, although constraints have eased slightly with respect to total stock on market the flow of new listings remains soft. Fewer properties are hitting the market compared to the same time last year, which is creating a more competitive buying environment and buoying home values.
The path for home prices in the months ahead will be influenced by many opposing factors, including the level of supply hitting the market alongside the trajectory of interest rates.
Headwinds remain with the full impact of rate rises already delivered yet to be felt and the possibility of further tightening still in play. There is a risk that the Reserve Bank raises interest rates further than expected, which could see the decline in prices finding a second wind.
However, it is likely the bottoming process will continue, with the bounce in home prices firming and values stabilising as uncertainty eases. A home shortage exacerbated by high construction costs and industry challenges will also underpin values as the population grows.
Positive demand drivers stemming from the shortages in rental supply and rebound in international migration also remain, alongside ongoing tightness in the labour market, promoting a sense of job security. A slow increase in wages growth will also maintain housing demand against a backdrop of tight supply. When market participants feel more confident, they are more likely to transact and make long-term financial commitments, increasing housing demand.
* The PropTrack Home Price Index measures the monthly change in residential property prices across Australia to provide a current view on property market performance and trends. PropTrack Home Price Index uses a hybrid methodology combining repeat sales with hedonic regression. The repeat sales method matches resales of the same property while the hedonic regression estimates values based on the value of similar properties. The hybrid model allows two properties in the same Australian Bureau of Statistics Statistical Area 1 (SA1) region, of the same type, to be matched and controls for differences in property characteristics, as in a hedonic regression. The PropTrack Home Price Index is a revisionary index with the whole back history updated monthly with current transaction information.
** This report uses realestate.com.au internal data and data sourced from third parties, including State government agencies. It is current as at the time of publication. This report provides general information only and is not intended to constitute any advice and should not be relied upon as doing so. If you wish to cite or refer to this report (or any findings or data contained in it) in any publication, please refer to the report as the ’PropTrack Home Price Index Report – September 2022’.
source: rea.com.au
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