Changing of the guard with rise of the smaller markets

Two of biggest stars of the show over the past couple of years have been the Sydney and Melbourne property markets but the tide has finally turned.

Night scene of tranquil quay waters and Perth buildings lit up at night.
Many Perth suburbs are recording monthly price gains that until recently would have been welcomed as annual gains. (Image source:

Two of biggest stars of the show over the past couple of years have been the Sydney and Melbourne property markets but the tide has finally turned.

As housing growth rates around the country ease off significantly in most markets, the smaller capital cities and the regions are still offering solid monthly and quarterly growth.

But Sydney and Melbourne were the only markets to 31 March to have recorded a monthly fall in prices.

CoreLogic's national Home Value Index was up 0.7 per cent in March, a subtle increase on the 0.6 per cent lift recorded in February.

The uptick in the monthly rate of growth was primarily driven by stronger conditions in Brisbane, Adelaide, Perth and the ACT, along with several regional areas, offsetting a slip in values across Sydney and Melbourne.

Sydney’s growth rate is showing the most significant slowdown, falling from a peak of 9.3 per cent in the three months to May 2021, to 0.3 per cent in the first quarter of 2022. Melbourne’s housing market has seen the quarterly rate of growth slow from 5.8 per cent in April last year to just 0.1 per cent over the past three months.

Change in dwelling values

Change in dwelling values

Source: Corelogic. Index results as at 31 March 2022

CoreLogic’s research director, Tim Lawless, said while the monthly rate of growth was up among some cities and regions, there is mounting evidence that housing growth rates are losing momentum.

“Virtually every capital city and major rest of state region has moved through a peak in the trend rate of growth some time last year or earlier this year,” Mr Lawless said.

“The sharpest slowdown has been in Sydney, where housing prices are the most unaffordable, advertised supply is trending higher and sales activity is down over the year.”

“There are a few exceptions to the slowdown, with regional South Australia recording a new cyclical high over the March quarter and some momentum is returning to the Perth market where the rate of growth is once again trending higher since WA re opened its borders.”

Population growth, the federal government’s expansion of the Home Guarantee Scheme and low interest rates meant “good affordable growth” was still on the cards for the next 12 months, according to SMATS Group executive chairman Steve Douglas.

While growth rates of 25-30 per cent have been achieved in some markets over the past year, Mr Douglas highlighted that Australian capital city markets had averaged just 6.8 per cent over the past 15 years and 7.1 per cent for the decade.

Expect places like Perth, Adelaide and Brisbane to be outperformers and start catching up to Sydney and Melbourne.

- Steve Douglas, SMATS Group executive chairman

“In a market where interest rates are still going to be low for a while, I’d be encouraging investors to still buy but with a focus on quality, liveable properties,” he said.

“Don’t get carried away with the potential of 15 to 20 per cent growth because it is more likely we are going to normalise back to those long-term averages of five, six, seven per cent growth.

“It’s important to temper expectations, be sensible with your acquisition, and you can safely move forward.”

Mr Douglas said the increased proportion of owner-occupiers in the market, boosted further by the owner-occupier deposit scheme, was keeping rental vacancy rates at record lows in many markets.

“With low vacancy rates around 1 per cent, with little supply coming to the market, and you’ve got programs like the ownership deposit scheme, you can expect places like Perth, Adelaide and Brisbane as well, to be outperformers of growth and start catching up a little bit to the phenomenal results of Sydney and Melbourne as the latter sell with big money and head to those smaller markets for profit and lifestyle.”

CEO of Futurerent, Godfrey Dinh, said properties in typical first-home buyer areas will prosper the most, with a spike in demand expected in these more affordable markets.

“The Home Guarantee Scheme could further drive demand for units, which are starting to look cheap in many areas compared to house prices and are traditionally more popular among first-home buyers and investors,” he said.

“The government’s biggest challenge in encouraging home ownership is to strike the right balance between supporting first-home buyers and protecting the values of existing homeowners.

“Existing property owners will no doubt welcome this news, given heavy speculation of softening prices in the next two years and the first rate increases since 2010, expected to arrive in coming months.”

Driven by strong population growth, regional Australia continues to show some resilience to a slowdown with housing values across the combined regional areas rising at more than three times the pace of the combined capital cities through the March quarter.

Regional dwelling values increased 5.1 per cent in the three months to March, compared with the 1.5 per cent increase recorded across the combined capital cities. The rolling quarterly growth rate in regional dwelling values has consistently held above the 5 per cent mark since February 2021.

Annual change in total advertised supply

Annual change in total advertised supply

Source: Corelogic. Index results as at 31 March 2022

Interest in rates direction

Inflation pushing past the Reserve Bank of Australia’s preferred 2-3 per cent band is looking likely to force its hand at some point to raise the official cash rate.

But the banks aren’t waiting for that to happen and home lending is continuing to fall.

Many borrowers awoke Friday (1 April) to news that ANZ and NAB had announced a string of fixed rate hikes.

ANZ is raising fixed rates by up to 0.30 per cent for both owner occupiers and investors. At the same time, NAB is increasing fixed rates by up to 0.40 per cent for owner occupiers and 0.35 per cent for investors.

There are now only two loans with a fixed interest rate below two percent, from 160 in April 2021.

Canstar’s finance expert, Steve Mickenbecker said the optimum time for locking into fixed has passed.

“The lowest three-year rate in the market is up 0.64 percent in a year and the lowest four-year rate is up a massive 1.36 percent, which on a $500,000 loan adds an extra $355 to the monthly loan repayment.”

The total value of new loans fell 3.7 per cent in February, according to data released Friday, from the previous month to reach $32.28 billion in February.

New lending to owner occupiers fell 4.7 per cent over the month to reach $21.53 billion in February, while new investor lending declined for the first time since October 2020, dipping by 1.8 per cent from the month prior to reach $10.75 billion.

Lending to owner occupied first home buyers saw the biggest monthly decline at 9.7 per cent, and remains down by a staggering 29 per cent from a year ago.

In line with property price trends, the largest falls in the value of owner-occupier loan commitments were in New South Wales (down 10.5 per cent) and Victoria (down 5.2 per cent).

Perth on parade

Expectations of Perth price growth accelerating ahead of the pack appear with data released on Friday (1 April) showing sales in Perth hit a 12 year high in March.

Many suburbs are recording monthly price gains that until recently would have been welcomed as annual gains.

The suburbs to record the biggest median house sale price growth during March were East Fremantle (up 4.8 per cent to $1.376 million), Mount Hawthorn (up 4.3 per cent to $1.16 million), Treeby (up 3.8 per cent to $577,000), East Victoria Park (up 2.8 per cent to $705,000) and Waikiki (up 2.6 per cent to $390,000).

REIWA President Damian Collins said the Perth market was showing no signs of slowing down, with reported weekly sales back to levels last seen in March 2010. 

“The appetite for property is strong in Perth. If this sales trajectory continues, we are very likely to see another solid year of price growth,” Mr Collins said. 

The 10 suburbs to record the biggest increase in sales during March were Joondalup, Banksia Grove, Merriwa, Treeby, Southern River, Beckenham, Wannanup, Nollamara, Iluka and Yangebup

“Perth is firmly on track to achieve the 10 per cent price growth forecast by REIWA last year,” Mr Collins said.


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