“Buyers’ market” before next property boom

Scott Kuru November 1, 2024 5 min read

Image from news.com.au

KEY POINTS

CoreLogic data shows a slight decline in Sydney and Melbourne home values in October, marking Sydney's first dip since January 2023.
Despite this, affordable suburbs in Sydney and other capitals continue to see rising values, according to CoreLogic.
PropTrack reports an October rise in Sydney and Melbourne prices, while Domain's economist predicts a property boom following future rate cuts.

Three new property reports indicate conditions in Australia’s residential property market are moving in favour of buyers, as high interest rates and affordability constraints slow price growth - particularly for houses.

Home value growth in Australia’s most expensive property market - Sydney - has declined slightly, according to new figures from CoreLogic, but similar data from PropTrack and Domain Group show prices continue to inch higher in the Harbour City.

PropTrack’s latest report also records relatively strong price growth of 0.5% in Melbourne during the month of October, in contrast to CoreLogic’s assessment of a -0.2% decline in home values.

Despite the slower growth, Domain Group’s Chief Economist has indicated she believes property prices are set for a new boom when the Reserve Bank of Australia starts cutting interest rates.

CoreLogic’s Home Value Index

CoreLogic’s latest monthly Home Value Index shows that there’s been a slight easing (-0.1%) in Sydney home values - the first monthly decline since January 2023.

That followed a short but sharp -12.4% drop in values between February 2022 and January 2023.

However the decline is not uniform, with CoreLogic noting the largest falls have been in the most expensive areas of the Sydney market, with a -0.6% fall in upper quartile house values over the month and a -1.1% drop over the past three months.

“In comparison, Sydney’s lower quartile house and unit values both recorded a half a percent rise in values in October,” CoreLogic’s report says.

CoreLogic’s Research Director, Tim Lawless, says the stronger performance across the more affordable end of the market is a consistent theme across the capital cities.

“A combination of less borrowing capacity and broader affordability challenges, as well as a higher-than-average share of investors and first home buyers in the market is the most likely explanation for stronger conditions across the lower value cohorts of the market.

“The past three months has seen the lowest quartile either record a higher growth rate or smaller decline relative to the upper quartile or broad middle of the market across every capital city except Canberra.”

Overall, CoreLogic’s national Home Value Index (HVI) recorded a 0.3% rise in October, marking 21 months of continuous growth.

The mid-sized capitals led the gains with Perth recording a 1.4% monthly rise (22.6% for the year), with declines in Darwin (-1.0%), Canberra (-0.3%), Melbourne (-0.2%), Sydney (-0.1%), and regional Victoria (-0.2%).

CoreLogic says the slower or negative growth in home values has been accompanied by a rise in advertised stock levels.

“Total listings are now 13.2% above the previous five-year average in Sydney and 13.0% higher in Melbourne,” Tim Lawless says.

He says the weaker conditions in these markets means buyers are benefitting from more choice and less urgency in their decision making.

PropTrack’s Home Price Index

REA Group’s PropTrack says Australian home prices hit a record high during the peak of this year’s spring selling season - up 0.26% to record annual growth of 5.62%.

PropTrack says all capital cities - with the exception of Darwin - saw positive price growth during October, with Sydney, Brisbane, Adelaide and Perth hitting new price records.

The standout was Melbourne with a 0.49% lift during the month, helping to reverse some of recent price falls in the Victorian capital.

“It remains to be seen if October marks a turning point as buyers take advantage of Melbourne’s relative value,” says PropTrack Senior Economist Eleanor Creagh.

Around the nation she says “it's clear resilient housing demand is defying persistent affordability restraints.

“July’s tax cuts have boosted borrowing capacities and buyers’ budgets, which has supported growth.

“The persistent rise in home values has also motivated many to overcome affordability challenges and transact.”

Domain’s House Price Report

Domain Group’s latest data release, the September 2024 House Price Report, shows the median house price in Sydney is now an eye-watering $1.65 million, up 6.1% on the same time last year.

Brisbane houses have seen a large 14.8% annual lift to hit a new median of $994,945, Adelaide a 16.9% jump to $973,336, while booming Perth has notched up an astonishing 25.3% house price growth in just 12 months to reach a new median record of $894,842.

In contrast, Domain says Melbourne house prices eased 1.5% over the year to $1,024,243.

While house prices in Sydney, Brisbane, Adelaide and Perth were at record highs at the end of the September quarter of 2024, Domain notes that price growth is slowing.

“In Sydney and Perth, quarterly gains have more than halved compared to the previous quarter, while Brisbane's growth was one-third slower, and Adelaide's slowed marginally.”

It’s a different story when it comes to units.

“The deceleration in unit price growth is more gradual, with increases only marginally slower than in the previous quarter,” Domain’s report notes.

Again Sydney, Brisbane, Adelaide, and Perth all have record-high unit prices.

“Notably, Sydney's unit prices have marked a significant milestone, achieving a full recovery and reaching a record high for the first time since December 2021,” the report says.

In fact, Domain says that Sydney and Melbourne are the only cities where unit prices have gained momentum, rising faster than in the previous quarter.

Domain’s Chief Economist and Head of Research, Nicola Powell, says markets are experiencing what she calls “tempered demand”, with the number of homes for sale reaching its highest level since late 2022.

“As stock levels rise, clearance rates have softened to the lowest this year, properties are staying on the market longer, and price negotiations have become more common.

“Overall, the market appears to be shifting towards a buyers' market, creating more favourable conditions for purchasing a home,” she says.

Dr Powell says that once the Reserve Bank of Australia starts cutting rates from the current 4.35% (a 13-year high), price growth will pick up again, setting the conditions for a property boom.

“The high cash rate is helping temper the pace of price growth,” she explained to The Australian Financial Review.

“What’s going to happen when we see the cash rate being cut and Australians feel more confident that inflation is tamed?

“That will boost sentiment.

“When you get more positive sentiment, you get a greater rate of price growth.”