Sydney sees largest price growth since 1988

CoreLogic noted that there have now been five consecutive increases in the national index, with the November report showing the largest monthly gain in the national index since 2003 and the first positive annual growth (at 0.1 per cent over the past 12 months) since April 2018.

Four of Australia’s capital cities moved back into positive annual growth, led by Hobart (4.2 per cent), Canberra (3.0 per cent), Melbourne (2.2 per cent) and Sydney (1.6 per cent), while the largest declines remain in Darwin (-10.9 per cent) and Perth (-7.7 per cent).

Sydney and Melbourne shooting back up

The positive results were largely driven by “rapid recovery” in home values in Sydney and Melbourne in November.

The median dwelling price in Sydney (including both houses and units) was $840,072 in November, while the median value in Melbourne was $666,883.

Speaking to Mortgage Business, CoreLogic’s head of research, Tim Lawless, elaborated: “We’re seeing momentum building and certainly holding quite strong in Melbourne and Sydney, where the quarterly rate of growth (6.2 per cent and 6.4 per cent, respectively) is nearly as high as what it peaked at back in early 2015, just after the first round of macro-prudential changes.

“The monthly numbers are even a little bit higher. Sydney saw monthly growth of 2.7 per cent – the largest month-on-month gain it has seen since 1988 – and Melbourne's back to its strongest growth since 2009 (2.2 per cent), so it looks like the market is probably just as strong as it was back when it was racing along between 2012-2017.

“This really highlights how fast this rebound has been in those two markets, and I think we will probably see growth continuing into early 2020 while supply levels remain very low, which is creating quite a bit of urgency in the market.”

Perth values tick up for the first time in over a year

As well as the uptick in values in the two largest capital cities, the November index also showed that Perth values rose by 0.4 per cent in November – the first month-on-month increase for the WA capital since early 2018.

Indeed, CoreLogic’s report outlined that dwelling values in Perth have been trending lower since mid-2014, down by a cumulative 21.3 per cent through to the end of November.

Mr Lawless told Mortgage Business that even though it is only one month of a positive change and therefore too early to mark a trend, it comes off the back of a slowing rate of decline over the past six months.

“To me, this does look like the market in Perth has been trying to level out through the second half of 2019.

“On top of that, you've also got the fact that housing affordability is now very healthy across that market; values are attracting about the same level as they were in 2006 across Perth, so housing affordability is seeing a lot more people can participate in the market.

“We’ve also seen some improvements in many of the economic factors across WA. Unemployment is coming down from a high base, jobs growth is rising, population growth is back to the decade average.

“So, all those things are pointing to some improvement in fundamentals of the market, and we should see some urgency coming back to the decision-making process, which has largely been absent from Perth up until recently,” he said.

Darwin home values continue to drop

Darwin was the only capital city to see dwelling values decline in November, with values falling by 1.2 per cent, taking the median value in the NT capital to $388,018. This is 10 per cent lower than it was this time last year.

Rents also continued to trend lower in November in the capital city, down by 0.5 per cent. However, Darwin continued to see the highest annual rental yield, at 5.9 per cent.

“We have seen Darwin’s economic fundamentals remain very weak. Jobs growth has been negative, and even though unemployed is very low, I think that’s really a symptom of the negative interest rate migration of people leaving who simply don’t have a job,” Mr Lawless proffered.

“Generally the thing that really drives growth in the Darwin market is big infrastructure projects, and there doesn’t seem to be a great deal on the winds there that could potentially revitalise the local economy or housing demand.

“So, the outlook for Darwin is still pretty glum, I think, and we expect those to continue trending lower through the rest of the year, and at least into early 2020,” Mr Lawless said.

‘An unexpected period of rapid recovery’

Mr Lawless concluded: “The Australian housing market is now five months into an unexpected period of rapid recovery. The question is, how long can such a high pace of capital gains be sustained?

“Annualising the growth rate over the past three months implies the national index is already tracking well above double-digit annual growth (15.3 per cent), while Sydney and Melbourne dwellings are tracking around the mid-20 per cent range for annualised capital gains based on the most recent three-month trend.

“Considering wages and household income growth remains low, economic conditions are losing momentum and housing affordability is once again worsening (from an already high base in the largest cities), there are likely to be some headwinds in maintaining such a fast recovery.”

Mr Lawless added that the market is yet to be tested on higher supply levels, as advertised listing numbers have remained seasonally low throughout spring due to low new listing numbers and an increased rate of absorption as buyer demand lifts.

“With selling conditions looking very strong, there is a high probability that listing numbers will show a material lift through the first quarter of 2020, which will test the depth of the market, and likely ease some of the urgency that is contributing to higher prices,” he said.