Hitting the brakes: Property values on a downward trend

According to Ms Owen, monthly increases in home values had slowed to 1.5 per cent (or about $10,000 per month), compared to its peak in March 2021, when the monthly increase was at 2.8 per cent (or around a $16,000 gain on the median Australian home value).

The “upper” end of the Australian property market – homes that are valued at roughly $1,000,000 or more – has seen the most significant drop in monthly growth. Monthly changes in home values across this category have decreased to 1.5 per cent in October after peaking at 3.5 per cent in March.

For the past 12 months, the highest value category had witnessed the most gains at 25.4 per cent. Comparatively, the mid-market segment’s growth was at 18.4 per cent and 16.7 per cent for the low end.

The quick reduction in growth rates at the high end of the market does suggest that the high end of the market could expect a higher drop in property prices over the foreseeable future.

Interestingly, Ms Owen noted that although national growth rates are falling, there were considerable differences in the momentum of the October home value index results across capital city markets, with five of the eight major city markets’ growth in a downturn.

Here’s the status of value changes in the capital cities:

Sydney

Sydney’s home value prices saw the sharpest decline in monthly growth rate with a peak of 3.7 per cent in March 2021, dropping to 1.5 per cent in October.

Ms Owen explained that part of the reason for this is the inherent volatility in more expensive markets where affordability limits and the increased number of new listings brought to the market in recent weeks are likely to have slowed growth rates.

Melbourne

Melbourne’s monthly growth rates have slowed at the third-fastest rate among the capital cities. The increase in Melbourne home values decreased to 1 per cent in October after reaching a monthly high of 2.4 per cent in March 2021.

According to the head of research, several challenges to the housing market have been experienced in Melbourne, including lengthy lockdowns and a drop in rental demand due to the closing of international borders.

Nevertheless, it has pivoted in the last four weeks, experiencing the greatest increase in new listings volumes among the capital cities.

CoreLogic recorded 10,914 new listings added to the market for sale, which is 17 per cent above the five-year average, and a monthly growth rate of 1 per cent that is significantly higher than the decade’s average monthly movement of 0.4 per cent.

Brisbane

In Brisbane, monthly growth rates appear to be on the rise, up 2.5 per cent in October. This is the highest monthly increase since November 2003 and the highest monthly increase in the city during the current upswing.

The pandemic has propelled the growth of the Brisbane housing market due to high interstate migration, work from home arrangements, and low exposure to COVID-19.

Its slow market growth in past years suddenly became an attractive proposition for purchasers because house prices in the city appeared affordable, at $642,097 in October, compared to Melbourne ($780,303) and Sydney ($1,071,709).

Adelaide

Adelaide’s property market, like Brisbane’s, has had its largest monthly increase since 2003, with capital gains of 2 per cent in October. The impetus was led by a 2.2 per cent increase in home prices, although monthly growth rates for units also increased to 1 per cent.

Similar to Brisbane, a greater interstate migration trend, relative affordability to other capital cities, and low property listings (total listings -34.1 per cent below the five-year average) helped boost the Adelaide housing market.

Perth

Perth experienced the fastest drop in growth rate when its home growth value bottomed out at 0.1 per cent, a far cry from a peak of 2.7 per cent in February 2021. Ms Owen said this is possibly due to extended state border closures, affordability restraints for first-time home buyers, and a recent increase in new listings volumes.

Hobart

Despite a drop in monthly home prices in Hobart from 3.3 per cent in March 2021 to 2 per cent in October, the capital’s growth rate can still be considered significant at 2 per cent or about $13,274 increase in the median housing value.

Hobart’s steadily rising value reflects extraordinarily strong demand, notably from interstate buyers, versus extremely low stock levels. In the last four weeks, CoreLogic found only 660 houses for sale in Greater Hobart.

Darwin

Monthly growth rates vary widely in Darwin because of its small market size, yet there appears to be a slowdown.

Monthly increases averaged 0.1 per cent in the three months leading up to October, down from a peak of 2.7 per cent in April.

However, even with this slight increase, Ms Owen pointed out that Darwin house prices were still -15.0 per cent below the all-time high set in May 2014.

Canberra

Just like Hobart, CoreLogic reported that the Canberra property market had experienced unprecedented demand due to low levels of available inventory.

The monthly rate of growth has shown signs of dropping from its recent peak of 2.6 per cent in July 2021, which may provide some relief to buyers. Monthly gains in housing values in Canberra have dropped to 1.9 per cent since then.

In summary, Ms Owen pointed out that although the national rate of property value growth continues to slightly drop each month, these lower rates of increase are still rather substantial. When you zero in on the Australian property values over the last decade, the average monthly movement has been 0.4 per cent, which is still significantly lower than the present “slowing” rate.

The CoreLogic report predicted monthly growth rates to continue their decline until 2022 due to several factors, such as tighter lending conditions, more normalised listing levels, and affordability limits that are placing downward pressure on demand.

Despite a strong inflation forecast for the September quarter that has raised anticipation of a tighter monetary environment as early as 2022, an announcement from the Reserve Bank predicted a hike in 2023 that is earlier than expected. A higher cash rate and mortgage rates will likely put downward pressure on prices, so this will be crucial to watch.