House prices rebound except in Melbourne and Sydney

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SEPTEMBER marked a positive turn for the Australian housing market, as increased sentiment, consumer confidence, and new listings rose pushed six of the eight capitals to price gains during the month, although Melbourne and Sydney continued to feel the effects of the pandemic.

CoreLogic’s September home value index results showed a 0.1% fall in dwelling values nationally due to Melbourne recording a 0.9% drop, and Sydney fell 0.3%. Together, the two cities make up about 40% of Australian’s housing stock by number and 55% by value.

Gains were seen in Adelaide, up 0.8%, in Brisbane by 0.5%, Hobart by 1.4%, by 0.2% in Perth and 1.6% in Darwin.

Tim Lawless, CoreLogic’s head of research, Tim Lawless, Melbourne remains the main drag on the headline results.

“Since peaking in March, Melbourne values are down 5.5%. With restrictions starting to lift and private home inspections once again permitted, we expect to see activity lift in October.”

Sydney’s rate of decline has been consistently easing since July.

Positivity in forecasts

AMP Capital chief economist, Shane Oliver said Sydney will likely perk up a bit further during the spring selling season, providing coronavirus remains under control and buyer interest remains reasonable outside of inner city areas.

Melbourne should see a strong bounce in activity as pent up supply and demand has been unleashed by the return of property inspections, he said, but the economic and employment blows from stage four lockdown may mean this occurs with ongoing significant price falls.

Oliver expects the Reserve Bank to cut even further already historically low interest rates, either in October or November. Banks have been reducing rates in anticipation.

AMP Capital upgraded its house prices forecast. Capital city prices are tipped to fall farther into mid next year, but the top to bottom outlook for price falls was revised from a 10-15% decline to a 5-10% decline, taking into account the 3% losses already seen.

Meanwhile, Capital Economics believes nationwide prices will reach a trough by the end of this year, 3% below their peak in April.

“But thereafter we expect the improvement in affordability, low interest rates and a gradual economic recovery to support the housing market. We expect prices to rise by 7% in 2021,” Australia & New Zealand economist, Ben Udy said. House prices in Melbourne may rise by a smaller 5%, while those in Sydney may increase by 10%.

Estimated sales fell during September, but were nearly 40% above the April trough when the market was frozen by nationwide restrictions.

Udy said the sales to new listing ratio is pointing to a steep acceleration in price growth in the coming months. The ratio for June, the latest month for which there is reliable data, was consistent with annual price gains of 5%, he said.

“And the strength in the ratio since then is partly driven by a slump in listings which points to tighter supply and should support prices in the coming months.”

Oliver said the outlook into next year is “very messy”. He said the government appears to be focussed on supporting the housing market with regulatory easing to remove the responsible lending obligations of banks, as announced by Treasurer Josh Frydenberg last week, while extensions of HomeBuilder and the First Home Deposit Scheme are likely to be paired with more stimulus to be announced in the budget to boost growth and jobs.

“Negatives include high unemployment and distressed sales as government income and bank support measures wind down; falling rents and high vacancy rates weighing on investors; an 80,000 per annum or so reduction in underlying dwelling demand flowing from the hit to immigration; and a pandemic/work from home driven ‘escape to the suburbs and regions” that will likely push down inner city and unit prices more than it pushes up outer suburban and regional prices.”

Regional markets outperform

Regional markets continued to out-perform relative to the capital cities. The combined regionals index has slipped only 0.8% since March, while capital city values have fallen by 2.6%. Every “rest of state” region, except Western Australia, recorded a lift in September.

“From a cyclical perspective, regional areas weren’t recording the same growth conditions pre-COVID, so home values in these markets are often more affordable, and don’t have a high base to fall from,” Lawless said.

“Anecdotally we are also observing a transition of demand away from the cities towards the major regional centres, particularly those that are adjacent to the larger capitals where residents can commute back to the cities if required,” he said, adding that lifestyle and a desire for lower density housing are also playing a part.

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