Australian home prices rose an impressive 8.1% during 2023, according to the latest Home Value Index data from real estate analytics firm CoreLogic.
That’s a significant turnaround from the 4.9% drop seen in 2022, but well below the 24.5% surge recorded in 2021 during the COVID-19 property boom.
Nevertheless, last year’s national gains are impressive when you consider they came despite five interest rate rises from the Reserve Bank of Australia, as it continued to jack up the cash rate to the current 4.35% in a bid to tame inflation.
Behind the strong headline annual gains, CoreLogic says conditions “generally slowed” through the final months of 2023 and were diverse across the nation, “with the annual change in housing values ranging from a 15.2% surge in Perth to a -1.6% fall across regional Victoria.”
A national gain of 0.4% in December saw 2023 finish with a relatively soft monthly rise in home values.
“This was the smallest gain in our national monthly HVI (Home Value Index) since values started rising in February,” according to Tim Lawless, CoreLogic’s research director.
“After monthly growth in home values peaked in May at 1.3%, a rate hike in June and another in November, along with persistent cost of living pressures, worsening affordability challenges, rising advertised stock levels and low consumer sentiment, have progressively taken some heat out of the market through the second half of the year.”
CoreLogic says one of the defining features of the property market in 2023 was the widening disparity between Australia’s capital cities in the rate of home value growth.
While Perth, Adelaide and Brisbane steamed ahead, in Melbourne and Sydney, the pace of growth has slowed sharply since the RBA’s rate hike last June.
Melbourne declined through November and December, while Sydney home values saw a monthly growth rate of just 0.2% in the final two months of the year.
Of the smaller capitals, Hobart (-0.8%) and Darwin (-0.1%) recorded an annual decline in home values, while Canberra saw a rise of just 0.5%.
“Such diversity across the capital cities can be broadly attributed to factors relating to demand and supply,” Mr Lawless says.
“In Perth, Adelaide, and Brisbane, housing affordability challenges haven’t been as pressing relative to the larger cities, and advertised supply levels have remained persistently and substantially below average.”
“The cities where home value growth has been lower or negative through the year are showing higher than average levels of advertised supply.”
Despite this, CoreLogic says capital cities have generally recorded stronger growth than regional areas.
The firm’s combined capital cities index saw dwelling values rise 9.3% in 2023.
That’s more than double the 4.4% rise recorded across CoreLogic’s combined regional index.
And although housing values rose in most cities in 2023, five of the eight capitals are still recording home values below their record highs.
At the end of 2023, Sydney values remained -2.1% below their January 2022 peak, Melbourne values were -4.1% below their March 2022 peak, Canberra values were still -6.3% below record highs, Hobart values are down a whopping -11.2% and Darwin home values are -2.8% below their cyclical high in August 2022.
The team at CoreLogic believe the “trajectory of interest rates” throughout 2024 will be a key factor in the housing market.
“Although another cash rate hike can’t be completely ruled out, the trend towards lower inflation, weakening economic conditions amid low consumption and a loosening labour market, suggests another rate hike is looking increasingly unlikely.”
“A reduction in the cash rate target through 2024 could help to re-stoke demand later in the year.”
But “stoking a housing value rebound on the back of lower interest rates is arguably an outcome that policy makers would like to avoid,” Mr Lawless says.
Mr Lawless points to recent comments by the Australian Prudential Regulation Authority, which claimed the current mortgage serviceability assessment regime “remains prudent” and has been “effective in improving the quality of lending”.
The banking regulator has required mortgage lenders to impose a three percentage point “serviceability buffer” above current retail rates at the time of application.
As rates have risen, this has restricted many potential homebuyers’ access to credit.
“Even if interest rates do come down later this year, credit availability is likely to remain relatively tight,” Mr Lawless says, suggesting the more subdued home price growth we saw towards the end of last year might continue to be a feature in 2024.