THE surge in home prices is slowing as affordability becomes an issue and the more stock comes on to the market.
The latest data from CoreLogic shows house prices rose nationally by 1.8% in April, slower than the 32-year high increase of the previous month.
While conditions have slowed, housing values have shot up 6.8% over the past three months to be 10.2% higher than the COVID low in September last year, adding hundreds of thousands to the price of homes across the country. The median value of detached houses in Sydney is now $1,147,352 while Melbourne is at $869,676.
Dwelling values increased right across the country during April. Darwin (2.7%) and Sydney (2.4%) recorded the largest month-on-month rise, while Perth values recorded the lowest rate of growth amongst the capital cities at 0.8%.
All capital city prices are at record levels, except for Perth and Darwin which are recovering from 22% and 33% falls respectively between 2014 and 2020 following the mining boom.
The four smallest capital cities recorded double digit annual growth. Darwin was up 15.3%, Hobart by 13.8%, Canberra by 14.2% and Adelaide 10.3%, reflecting their smaller COVID-related disruptions and an earlier start to the growth phase last year.
Melbourne posted the lowest annual growth, at 2.2%, due to a larger downturn that included last year’s extended second lockdown.
CoreLogic’s research director, Tim Lawless, says the pace of capital gains could slow further over the coming months as inventory levels rise and affordability constraints dampen housing demand.
“With housing prices rising faster than incomes, it’s likely price sensitive sectors of the market, such as first home buyers and lower income households, are finding it harder to save for a deposit and transactional costs.”
Despite the offering of the HomeBuilder grant and state government incentives, early signs of pullback from first home buyers appeared in the official home lending data for February, with a 4.0% monthly drop. Figures for March are expected to be released by the Australian Bureau of Statistics today.
“A preference shift away from higher density housing during a global pandemic is understandable, however a rise in flexible working arrangements also seems to be supporting greater demand for houses around the outer-fringes of capital cities,” Lawless said.
“Relatively weak investor activity, compounded by a supply overhang in some high-rise precincts, is also dampening price growth in unit markets.”
AMP Capital chief economist Shane Oliver said the fundamentals of still ultra-low mortgage rates, ongoing government incentives, economic recovery, the strong jobs market and an element of FOMO (buying now for fear of missing out) point to further home price increases ahead.
“We expect average home prices to rise another 10 to 15% out to the end of 2022, but this to mask a slowing from 15% this year (of which they have already done 7.5%) to 5% next year.
“2023 could start to see another cyclical downturn in property prices as the interest rate cycle starts to move up more decisively.” Oliver said.
NAB recently revised its forecast for prices across Sydney, Melbourne and Brisbane to increase by more than 15% this year, fuelled by low interest rates and fast-recovering economic conditions.
The broad trend of houses outperforming the unit sector continued through April.
Lowered demand and elevated supply across inner city precincts ensured unit price growth lagged that of detached housing. Combined capital city level house values have grown 8.6% over the first four months of 2021, double the pace of unit values (4.3%).