Affordability, not lockdowns, starts to slow house price boom

Price growth continued to moderate across Australia’s capital cities in August, with a 1.5 per cent rise in median dwelling values the lowest monthly rise since January.

For sale sign in front of a house
There will likely be an element of pent-up supply hitting the market once coronavirus restrictions are eased. Photo: Shutterstock (Image source:

Price growth continued to moderate across Australia’s capital cities in August, with a 1.5 per cent rise in median dwelling values the lowest monthly rise since January.

But CoreLogic’s monthly hedonic home value index showed lockdowns in Australia’s most populous cities were not the culprit for the reduced rate of price growth, with affordability the more likely cause of the slowdown in value gains.

“Housing prices have risen almost 11 times faster than wages growth over the past year, creating a more significant barrier to entry for those who don’t yet own a home,” CoreLogic research director Tim Lawless said.

“Lockdowns are having a clear impact on consumer sentiment, however, to date the restrictions have resulted in falling advertised listings and, to a lesser extent, fewer home sales, with less impact on price growth momentum.

“It’s likely the ongoing shortage of properties available for purchase is central to the upwards pressure on housing values.”

Hobart led the nation with 2.3 per cent median dwelling price growth in August, followed by Canberra at 2.2 per cent and Brisbane at 2 per cent.

Sydney recorded 1.8 per cent growth in August, while Melbourne’s median rose by 1.2 per cent.

CoreLogic withheld results for Perth and Regional WA due to a divergence between the hedonic index and its other housing market measurements.

A spokesperson said early investigations suggested the hedonic measure was underestimating the change in housing values across WA.

Hobart was also the nation’s leader on a 12-month basis, recording a 24.5 per cent rise in dwelling values in the year to August 31.

Darwin and Canberra were next, at 22.5 per cent and 22 per cent, respectively, followed by Brisbane at 18.3 per cent.

Melbourne’s annual growth hit 13.1 per cent, CoreLogic said.

Mr Lawless said those figures represented the fastest annual pace of growth since the year ending July 1989.

“Through the late 1980s, the annual pace of national home value appreciation was as high as 31 per cent, so the market isn’t quite in unprecedented territory,” he said.

“The annual growth rate at the moment is trending higher, in fact, it is 3.6 times higher than the thirty-year rate of annual growth.”

While houses continue to record higher rates of growth than units, that gap is starting to narrow.

In the first three months of the year, capital city house values rose by 1.1 percentage points faster than units, while by August that gap was 0.7 percentage points.

“The narrowing gap between house and unit value growth is most noticeable in Australia’s most expensive city, Sydney, where the monthly growth rate for houses was 2 percentage points higher than units in March,” Mr Lawless said.

“That ‘gap’ has now reduced to 0.6 percentage points in August.

“Based on median values, Sydney units cost almost $470,000 less than a house.

“At the same time, the growth gap between houses and units in Melbourne and Brisbane has widened.”

In rental markets, the pace of growth has also softened, but the rate of gains remains strong.

Nationally, rents rose by 8.2 per cent over the 12 months to the end of August, the biggest gain since 2008.

The nation’s strongest rental markets remain Perth and Darwin, at 14.1 per cent and 21 per cent growth, respectively, but Mr Lawless said the data indicated both cities may have peaked.

And while house prices continue to soar, rental yields are increasingly being compressed, hitting historic lows in Brisbane (3.99 per cent), Hobart (4.01 per cent) and Canberra (3.99 per cent).

Gross rental yields in Sydney and Melbourne remain at record lows, at 2.7 per cent and -3.3 per cent.

Looking forward, Mr Lawless said housing market activity was likely to bounce back as strongly as it did from previous lockdowns once the current virus-related restrictions are eased.

“There is likely to be an element of pent-up supply that is unleashed when restrictions ease, which should see inventory levels rise," he said.

“Arguably there is greater uncertainty about whether demand will rise at the same level following lockdowns.

“Affordability constraints are likely to progressively dampen housing market activity, and further down the track there is the potential for credit tightening to also have a negative impact on demand.

“A lift in advertised supply in the absence of more buyers could be another factor that weighs on price growth later this year.”

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