Strong Spring buyer demand driven by investors

CoreLogic’s latest housing chart pack clearly shows the strong influence of property investors on the real estate market.

Driven by the prospect of strong capital growth and solid rental yields in a time of constrained housing supply, savvy investors are rushing to take advantage of some of the best returns for landlords in a generation.

The national snapshot

CoreLogic says Australia’s property market has reached a new milestone, with the total value of residential real estate reaching $11 trillion for the first time.

The data analytics firm says the value of residential real estate has increased by $900 billion in the past 12 months alone.

Despite this growth, CoreLogic points out that its national home value index rose by just 1.0% in the September quarter, the smallest quarterly rise since March 2023.

Annual growth has also slowed to 6.7% from a high of 9.7% earlier in the year, indicative of what CoreLogic says is a cooling market.

CoreLogic Economist Kaytlin Ezzy attributes the slowdown in price growth to increased volumes of real estate listings this Spring and more cautious buyer behaviour.

“While the market remains resilient in many areas, the pace of growth more broadly has clearly decelerated,” she says.

“Buyers and investors are becoming more cautious, and the current lending environment is leading to more measured purchasing decisions.”

CoreLogic says Perth values have reached a new record high, experiencing eye-watering annual growth of 24.1%, driven by sustained demand and limited supply.

Sydney (+4.5%), Brisbane (+14.5%), and Adelaide (+14.8) dwelling values are also at record highs.

Melbourne (-1.4%) and Hobart (-1.1%) recorded annual dwelling value declines and are -5.1% and -12.5% respectively below their record highs recorded in March 2022.

CoreLogic steers clear of predictions, but separate research by ANZ Bank forecasts capital city home prices will grow 7.3% this calendar year, before the pace of growth slows to 5.5% in 2025.

However, ANZ predicts home price growth will increase in the major markets of Sydney and Melbourne next year and in 2026, while the current boom conditions will moderate substantially in Perth, Brisbane and Adelaide.

Interestingly, both ANZ and CoreLogic have produced research showing that much of the growth in capital city house prices over the past two and a half years has been at the cheaper, more affordable end of the market.

And when cities have experienced price falls, cheaper properties generally have held their value better.

Investors are leading the charge

Despite a slowing in home price growth, CoreLogic notes that property investors represent a significant proportion of the still strong buyer demand.

38.6% of new property mortgages nationally are being taken out by investors, the highest share since 2017, with New South Wales (43.5%) and Queensland (40.5%) leading the pack.

CoreLogic Economist Kaytlin Ezzy says the high investor activity is likely due to a combination of factors, including perceived opportunities for capital gains and tighter rental market conditions driving potential yield growth.

“Along with capital gains, some investors are recognising the potential for long-term rental income growth, even as rental yields compress,” she says.

Ms Ezzy says the heightened investor activity comes as national rental growth slows, with CoreLogic calculating rents have risen just 0.1% over the last three months, the slowest rate in four years.

That’s seen CoreLogic’s calculation of gross median rental yields fall to 3.68%, down from 4.1% last year.

Nevertheless, at 6.8%, annual rental growth is still extremely high compared to historical trends, which have seen longer-term rent growth of only 2-3%, as this chart from SQM Research shows:

4-Rents

“The increase in available stock is also providing more opportunities for investors to enter the market, which wasn’t the case during last year’s constrained conditions,” Kaytlin Ezzy says.

“However, this trend could intensify competition for other buyer groups, such as first-home buyers, who remain active in the market.”

“This increased investor activity could place further pressure on already limited supply levels, particularly in capital cities,” she says.