House prices riding into 2021 on a high

Australian property markets continued to build momentum in December, with home values rising across all capital cities to finish 2020 at a level 3 per cent higher than at the start of the year.

CoreLogic’s latest look at housing markets showed the only capital city to record a negative change in dwelling values for 2020 was Melbourne, with the Victorian capital’s median falling by 1.3 per cent.

Darwin was Australia’s highest gainer in 2020, with 9 per cent capital growth, followed by Canberra on 7.5 per cent, Hobart on 6.1 per cent and Adealide on 5.9 per cent.

Brisbane’s yearly growth was 3.6 per cent, Sydney’s was 2.7 per cent, and Perth values rose by 1.9 per cent.

Regional markets performed more strongly, with a 6.9 per cent rate of capital growth recorded in areas outside of capital cities.

CoreLogic research director Tim Lawless said while there had been a mild dip in values due to the COVID crisis, the more telling factor was unprecedented volatility in the number of transactions.

“Residential property sales plummeted by 40 per cent through March and April but finished the year with almost 8 per cent more sales relative to a year ago, as buyer numbers surged through the second half of the year,” Mr Lawless said.

“Despite the volatility, housing values showed remarkable resilience, falling by only 2.1 per cent before rebounding with strength throughout the final quarter of 2020.

Mr Lawless said the resilience was largely down to the federal and state governments’ successful efforts to contain the pandemic and stimulate the economy through historically-low interest rates.

The strength in regional markets was due to remote working opportunities becoming more prevalent and lower density housing options and lifestyle properties becoming more sought-after. 

“Regional housing markets had generally underperformed relative to the capital city regions over the past decade, but 2020 saw regional housing values surge as demand outweighed supply,” Mr Lawless said.

Price performance in 2020 was not as positive a story in unit and apartment markets, however, with unit values staying largely steady with a 0.2 per cent yearly gain.

Mr Lawless said houses performed better than units in 2020 due to a range of factors.

“Unit markets have historically been more popular among investor buyers,” he said.

“Demand from investors has been weighed down by weak rental conditions across the unit sector, along with high supply levels in some precincts.

“A transition of demand towards lower density housing options has helped to buoy house values.”

Rental conditions in 2020 diverged substantially from both a geographical perspective, and across housing types, CoreLogic said.

Annual rents grew strongly in Perth and Darwin, rising around 10 per cent in both cities for houses and 6.8 per cent for units in Perth and 7.6 per cent for multi-residential in Darwin on the back of strong demand and minimal new supply.

"Both Perth and Darwin have recorded below average levels of investor activity since housing market conditions started to cool in mid-2014, which has led to a shortage of rental stock,” Mr Lawless said.

“More recently, with stronger interstate migration driving housing demand, rental rates have been under substantial upwards pressure as demand for rentals outweighs supply.”

While in 2020 rents rose in Perth and Darwin, median rents remain 10.4 per cent under their peak in May 2013 in Perth, and around 20 per cent below the 2014 peak in Darwin.

In Melbourne and Sydney, unit markets experienced soft demand and high supply in 2020, leading to a sharp drop in median rents.

Demand for units was impacted by stalled overseas migration and the exit of international students due to the pandemic, Mr Lawless said.

Melbourne unit rents fell by 7.6 per cent in 2020, while Sydney unit rents fell by 5.7 per cent.

Mr Lawless said while the 2021 trajectory for Australian housing markets looked positive at present, there were still substantial downside risks.

“As demonstrated by Melbourne’s second round of lockdowns, new restrictions associated with a COVID outbreak would set back the economic recovery and have a negative, although temporary impact on housing markets,” he said.

“Closed international borders are another wildcard; the longer borders remain closed, the greater the impact is on housing demand, especially rental demand.

“Regions where overseas migration has historically comprised a larger portion of overall population growth, such as Melbourne and Sydney, will be impacted the most by prolonged border closures.”