House prices still rising, but starting to moderate

House prices continued to rise in June across all Australian markets, but the rate of gains is starting to slow, particularly in Perth and Darwin, as well as at the top end of the market.

CoreLogic’s monthly look at house prices showed a 1.9 per cent gain in median dwelling values in June nationally, contributing to a 13.5 per cent rise for the 2020-21 financial year.

Hobart was the best performing capital, with a median price rise of 3 per cent, followed by Sydney at 2.6 per cent and Canberra at 2.3 per cent.

Brisbane dwelling values were up 1.9 per cent for the month, while Melbourne’s median finished June 1.5 per cent higher. 

Price growth was subdued in Perth and Darwin, however, at 0.2 per cent and 0.8 per cent, respectively.

CoreLogic head of research Eliza Owen said those figures were well down on the average price rises between January and May in both cities.

“The key to understanding the softer performance in these resource-based markets may be a slightly different supply-demand dynamic compared to the other capital cities and regions,” Ms Owen said.

“CoreLogic monitors a ‘sales to new listings’ ratio, which divides the monthly volume of settled sales by new listings brought to market.

“For the past three months, the sales to new listings ratio has averaged 1.1 across Darwin and Perth.

“While the implication is that there are 1.1 sales for each new listing, which could be enough to elicit further growth in dwelling values, these are the lowest sales to new listings results of the capital city markets.”

Ms Owen said price gains were similarly slowing at the top end of the market.

The report showed growth in the top 25 per cent of dwelling values across capital cities was 8 per cent in the June quarter, down from 9.2 per cent in the three months to the end of May.

Ms Owen said that was the biggest month-on-month deceleration in value gains.

“This easing in the pace of growth at the top end of the market is another clear sign of a shift in momentum,” she said.

“The rest of the market tends to follow movements at the high end, and this is the first time in nine months that the high-tier growth rate has not accelerated.”

In rental markets, weekly rents continue to rise strongly, but at the same time gross rental yields are compressing, falling to a record low of 3.1 per cent across capital cities and 4.5 per cent in regional areas.

For the 12 months to the end of June, rents rose at their fastest rate since 2009, rising by 6.6 per cent.

The best performing capitals were Darwin (up 21.8 per cent) and Perth (up 16.7 per cent).

“As with national home values, much of the increase in rental rates may be associated with government stimulus, increased household savings and a strong economic recovery from COVID restrictions.

“Rent value increases may also be a function of more subdued investor activity between late 2017 and mid-2020, and the resulting lower rental supply, as well as more demand deflecting towards rental markets in areas where home ownership has become less attainable due to affordability challenges.” 

Ms Owen said rental markets showed a more defined recovery in June, even in the markets worst-affected by the pandemic.

“Across Sydney, unit rents were 1.1 per cent lower over the year to June,” she said.

“This is up from a recent trough in the annual growth rate of -5.7 per cent in the year to December 2020.

“In Melbourne, the annual change in unit rent values was -6.4 per cent, recovering slightly from year-on-year declines of -8.2 per cent in the 12 months to March.”

Overall, Ms Owen said housing markets across the country had been remarkably resilient, particularly when considering the initial expectations around the pandemic.

However, the new COVID-related restrictions in most states are likely to impact transaction activity in July.

“The question is not what impact short lockdowns have on the housing market; there seems to be relatively little impact,” Ms Owen said.

“Instead, outcomes for the housing market and industry will depend on how long lockdown conditions last across parts of the country, and whether some of the institutional responses offered through 2020 are reinstated if an extended lockdown occurs.”