House Prices Recovery Accelerates, Bucking Expectations of a Slow-down

House prices in August experienced further increases, with CoreLogic’s national Home Value Index rising 0.8 percent nationally.

It’s a slight improvement on July’s growth of 0.7 percent, despite widespread expectations that the recovery in home prices would continue to slow again throughout August.

According to CoreLogic, every state apart from Hobart clocked an increase in dwelling values, with Brisbane overtaking Sydney last month.

Brisbane home prices increased 1.5 percent, while Sydney and Adelaide increased 1.1 percent.

CoreLogic’s research director, Tim Lawless, notes that while the recovery is broad based, there’s been some diversity between the states in the months leading up to August.

“Sydney has led the recovery trend to-date with a gain of 8.8 percent since values found a floor in January this year. Brisbane has also posted a strong recovery with values up 6.2 percent since bottoming out in February,” said Mr Lawless.

“At the other end of the scale, some other capital cities are better described as flat, with Hobart home values unchanged since stabilising in April, while values across the ACT have risen only mildly, up 1.0 percent since a trough in April.  

“These are also the only two capital cities where advertised supply is tracking higher than a year ago, suggesting a rebalancing between buyers and sellers is a key factor contributing to the stability of values in these regions.”

While house prices led the recovery compared to units, they also have much more ground to make up than units do.

During the pandemic, house prices fell 10.7 percent across the capitals, while apartments only experienced a 6.5 percent decline.

Despite the substantial difference in falls, apartments are tracking only slightly behind in their recovery, up 4.9 percent since the recovery began, and only 1.4 percent behind houses.

“Most cities are showing a larger rise in house values compared with units, however Sydney stands out with the most significant difference through the recovery cycle to-date, possibly due to the more substantial decline in house values which fell by -15.0 percent through the recent downturn,” Mr Lawless said.

Capital cities outperforming the regions

While the capitals are well and truly in a recovery phase, the rest of state regions are a mixed bag.

Regional Queensland and South Australia are faring well, up 0.8 percent and 0.9 percent respectively. On the other hand, Regional NSW was down -0.2 percent and regional Victoria was down -0.6 percent.

Mr Lawless believes that internal and external migration might have something to do with this.

“With internal migration trends normalising across regional Australia, and less demand side pressures from net overseas migration than in capital cities, regional markets generally aren’t seeing the same level of recovery,” Mr Lawless said. 

“Historic migration data from the ABS shows that prior to the pandemic, regional Australia had only accounted for around 15 percent of total net overseas migration. 

“Housing values across the combined regional areas of Australia are up 1.6 percent since a trough in February, compared with a larger 6.0 percent rise in values across the combined capitals.”

Supply the key driver

While August experienced an uplift in new listings, homes are being snapped up and new listings are being absorbed quickly.

It’s evidence of housing demand continuing to outstrip supply, even when supply is boosted.

Mr Lawless said that the uplift in listings is not commonly seen throughout the winter months, but previous reports have noted that some vendors are being advised to list now, and beat the spring rush

“We have seen vendors becoming more active though winter, which is seasonally unusual,” said Mr Lawless.

“However most of this fresh stock is being absorbed by the market, with the count of total capital city listings rising by only 3.6 percent over the past two months, despite the flow of new listings jumping 12.9 percent.

While new listings jumped in winter, total advertised supply remained low compared to previous averages. Total advertised supply levels were -15.5 percent below the same time a year ago, and -19 percent lower than the previous five year average.

Now leading into spring, listing levels are expected to rise, but Mr Lawless referred to the recovery as being ‘firmly entrenched’, after house prices have lifted for six consecutive months.

And a number of factors have the potential to buoy values against any uplift in new listings, namely the widespread housing supply crisis, paired with high migration levels.

“Housing demand from strong population growth is set to remain a feature over the coming years, and we are yet to see any material supply response,” said Mr Lawless.

“Net overseas migration is expected to hold at above average levels over the coming years, underpinning housing demand against a backdrop of persistently low dwelling approvals. 

“The latest estimates from NHFIC forecast Australia’s housing sector will be undersupplied by around 175,000 dwellings by 2027 which will be another factor supporting housing prices over time.”

As Australians are forced to compete for a shrinking pool of supply in regards to demand, house price growth could become even further entrenched.