Melbourne, Hobart markets lead home price rally
The Australian housing market rebounded in February, with CoreLogic’s national Home Value Index rising 0.3 per cent, marking a shift after three months of decline.
The increase was subtle but widespread, with every capital city and regional area, except for Darwin and regional Victoria, recording a rise in home values.
CoreLogic reported that previously dominant growth markets – Brisbane, Perth, and Adelaide – showed more modest monthly increases of 0.2 per cent to 0.3 per cent, with Perth’s growth notably slowing to just 0.3 per cent over the rolling quarter.
In contrast, CoreLogic noted that Sydney and Melbourne are experiencing renewed momentum, particularly in the upper quartile housing sector, which had previously faced the sharpest declines.
CoreLogic’s research highlighted that Sydney and Melbourne’s premium markets are the most sensitive to interest rate fluctuations.
The resurgence of high-end housing in these cities aligns with buyers’ expectations of upcoming rate cuts, driving increased interest and activity.
CoreLogic’s index noted that Melbourne and Hobart recorded the strongest gains at 0.4 per cent in February, with Melbourne reversing a 10-month streak of declining values.
CoreLogic’s research director, Tim Lawless, attributed the market improvement to rising buyer sentiment rather than an immediate increase in borrowing capacity.
“Expectations of lower interest rates, which solidified in February, look to be flowing through to improved buyer sentiment,” he said.
“Along with the modest rise in values, we have also seen an improvement in auction clearance rates, which have risen back to around long-run average levels across the major auction markets.”
CoreLogic observed that a slowdown in new home listings, along with improved buyer sentiment in February due to expectations of lower interest rates, has led to upward price pressure and contributed to price stability in key markets.
“Although total advertised supply levels are almost 1 per cent higher than a year ago, listings remain -7.9 per cent below the previous five-year average, and the reduced flow of fresh stock to market could be supporting some upward pressure on prices, especially if buyers are becoming more active amid higher sentiment and lower rates,” Lawless said.
Over the four weeks leading to 23 February, new property listings in capital cities were 4.7 per cent lower than a year ago and 1.5 per cent below the five-year average.
Historically, CoreLogic’s data shows that Sydney and Melbourne’s premium housing markets have been the first to respond to interest rate cuts.
Lawless noted that while borrowing capacity has not yet increased significantly, rising confidence in lower rates is fuelling demand in high-value markets.
Sydney and Melbourne’s premium segments were among the hardest hit in the downturn, making them prime candidates for a strong recovery.
Financial markets anticipate a cash rate of around 3.55 per cent by the end of 2025, implying two 25-basis-point cuts.
Some economists predict up to three cuts, which could further enhance borrowing capacity and fuel growth in premium housing markets.
CoreLogic indicated that even with rate reductions, borrowing costs will remain significantly higher than pre-pandemic levels, potentially moderating the pace of recovery.
According to Oliver Hume’s chief economist, Matt Bell, while February’s rate cut did not directly improve affordability, the expectation of further cuts is the primary driver of increased activity.
“Even though rates weren’t cut until the second half of February, the expectation of the change had been in the market since the good inflation result in late January,” he said.
He also pointed to rising auction clearance rates and increased new land sales activity as further signs of an improving market.
Despite improving demand conditions, CoreLogic noted that slowing population growth may offset some momentum.
According to Lawless, migration trends may also play a role in Melbourne’s market recovery, as population movement stabilises.
While buyer sentiment has risen over the past six months, a sustained lift in confidence, driven by lower interest rates, could accelerate housing demand.
Net overseas migration, which peaked in early 2023, is expected to decline further, potentially reducing rental and housing demand in the medium term.
Additionally, CoreLogic’s data shows that the housing supply remains constrained.
Inventory levels suggest a buyer’s market in Sydney (+6.9 per cent) and Melbourne (+3.9 per cent), while shortages persist in Perth (-28.0 per cent), Adelaide (-33.9 per cent) and Brisbane (-21 per cent).
New housing construction remains low, particularly in multi-unit developments, due to feasibility challenges and high construction costs.