How Australia’s housing market returned to $10tn

Over the three months to August, national home values climbed 2.5 per cent, according to CoreLogic’s Monthly Housing Chart Pack. This marked a continuation of the nation’s home value recovery, Ms Owen explained, which began in March.

“This recovery has wiped out around half of the preceding downturn between April 2022 and February 2023, when national home values fell 9.1 per cent peak to trough,” she said.

With Australia’s home value recovery coming against a backdrop of increasing cost of living pressures, reduced consumer sentiment levels, and four increases in the cash rate throughout 2023 so far, Ms Owen posed the question: “How is this possible?”

A key trend driving home values higher has been the return of overseas arrivals coupled with a drop off in overseas departures – which were down 25 per cent on the pre-COVID average last year.

The inflow of new arrivals exceeding any outward migration, along with the lower average number of people per dwelling across Australian capital cities, is “pushing the need for housing higher”.

“[This] may be contributing to more competitiveness for properties on the market, especially considering rental vacancy rates remain around record lows,” she said.

Despite new listings surging as we enter spring selling season, Ms Owen confirmed “total listings volumes remain fairly”, with this constrained supply, paired with increased competitiveness and migration, potentially assisting recent home value gains.

Another factor contributing the total value of Australia’s housing market’s rising above $10 trillion for the first time since last June is borrowers utilising their “savings, equity, or profits from previous home ownership towards property purchases, as opposed to more borrowing”.

Ms Owen believes “this would help to explain why home values have continued to rise in the past few months”.

But, there is no telling how long this trend can last, with the Australian Bureau of Statistics’ (ABS) national accounts data indicating the national household saving ratio, which measures the ratio of net saving to net disposable income, has declined 3.7 per cent.

As for whether the home value recovery party can continue in the coming months, Ms Owen said the outlook remains “highly uncertain”.

Even with widespread expectations that the Reserve Bank of Australia’s cash rate hiking cycle has hit its peak, she noted “borrowing remains constrained by relatively high serviceability buffers”.

“APRA data to June showed the weighted average home loan assessment rate was just below 9 per cent, and ABS housing lending data shows mortgage lending has fallen for three of the past four months,” she said.

“Economic performance is also set to unwind, and while this is good news for inflation and cash rate trajectory, a rise in unemployment may create a higher degree of risk for mortgage serviceability,” Ms Owen added.

“CoreLogic is expecting some heat could come out of the recent recovery trend towards the end of this year, while a more robust recovery in housing values will be limited until credit conditions loosen,” she concluded.

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