Perth, Darwin lead the way as property prices rise everywhere

Property prices in Australia have risen for the sixth consecutive month and are now increasing at more than triple the pace of inflation.

Capital city and regional property markets each rose 0.6 per cent in July, with capital city price escalation broadly following a pattern that has played out for a couple of years.

The mid-sized state capitals led the way, with the Perth market leaping 0.9 per cent to defy any claims that this red hot market was cooling, while Brisbane and Adelaide were both up 0.7 per cent.

Sydney (0.6 per cent) and Melbourne (0.4 per cent) followed but their annual growth rates are well below the three mid-sized capitals, according to the Cotality Home Value Index released Friday (1 August).

Darwin is the outlier, with the Northern Territory market flying high at 2.2 per cent for the month. It’s 8.5 per cent annual capital growth could well nudge 20 per cent if this pace of growth is extended. It has posted a 9.7 per cent gain through the first seven months of the year.

The national property market’s 7.4 per cent increase over the past 12 months compares to the consumer price index (CPI) inflation figure coming in this week at just 2.1 per cent.

Tim Lawless, Research Director, Cotality, said growth rates are holding a little above half a per cent from month to month since May as the opposing influence of low supply, falling interest rates and rising confidence run up against affordability constraints and lingering uncertainty.

He added that houses are outpacing units.

The difference between the national median house and unit value is at a record high, with a 32.3 per cent difference between the two broad housing types, or approximately $223,000 in dollar terms.

“The past three months have seen national house values rise by 1.9 per cent, adding approximately $16,700 to the median value,” Mr Lawless said.

“In comparison, unit values are up a smaller 1.4 per cent or roughly $9,700 on the median value.

“This may be because more expensive markets tend to have higher interest rate sensitivity, with higher income households seeing a bigger boost to borrowing capacity.

“This usually leads to house values outperforming units during housing market upswings.”

PropTrack’s Home Price Index, also released Friday, revealed that property prices had pushed record levels even higher, with the median dwelling value now coming in at $827,000. The median value of a house is now sitting at $915,000 nationally, with units at $678,000.

Anne Flaherty, Senior Economist, REA Group, said regional areas outperformed their capital city counterparts in most markets, recording stronger growth over both the month and the year.

South Australia remains the strongest market, with Adelaide and regional South Australia the two top performing regions in the country.

“While the number of homes for sale has slowed over winter, buyer demand remains strong, with auction clearance rates sitting at the highest level in more than two years.

“Home prices are expected to break into new territory later this year, with further interest rate cuts expected to add momentum to price growth,” Ms Flaherty said.

History points to more expensive homes

Interest rate relief appears a certainty and history would suggest that will translate into even higher property prices.

With the possible exception of Victoria, where urban densification projects are delivering more homes, housing supply is still failing to keep up with demand.

Lower borrowing costs will only add to the demand side of that equation.

Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP, said lower rates are a key driver of the current upswing in prices.

He pointed out that the start of rate cutting cycles since 1982 has been associated with higher home prices over the next 12 and 18 months in five of the last seven rate cutting cycles, providing there is no recession.

“(When rates are filling) the average gain over the subsequent 12 and 18 months is 3.9 per cent and 8 per cent.

“Our base case is for 0.25 per cent RBA rate cuts in August, November, February and May.

“With increasing signs of labour market weakness this may occurs faster, with back to back cuts in August and September.”

Dr Oliver said forecasting property prices is fraught but still had a go.

“Our base case is for property prices to rise 5 to 6 per cent this year driven by rate cuts and the chronic housing shortage but with poor affordability constraining the upswing.

“The main downside risk is that rising unemployment and a delay in rate cuts depresses buyer demand, but the main upside risk is that another bout of FOMO takes hold as rates fall.  

“The key for savvy investors, is to look for properties offering decent rental yields.”

Those good rental yields are plentiful.

With rental vacancy rates holding close to historic lows, tracking at 1.7 per cent nationally in July, there has been some evidence of reaccelerating growth trends. On a seasonally adjusted basis, national rents were up 1.1 per cent over the three months ending July, up from a recent low of 0.5 per cent through the September quarter last year.

“The reacceleration in rental growth is clearly bad news for renters, where the median income household would already need around a third of their pre-tax income to pay rent,” Mr Lawless said.

“Renting households have historically skewed to younger, lower-income cohorts, so no doubt the sting of high rents is having an even more acute impact on household budgets.”

Demand exceeding housing supply

Queensland was a case in point and reflected a national trend. Across the capital cities, rents increased across the board over the past three months.

Antonia Mercorella, CEO, Real Estate Institute of Queensland, on Thursday (31 July) said Queensland’s rental market was holding relatively steady but remained severely undersupplied.

“This continued rental squeeze, while not worsening, is continuing to make a strong case for more investors and more rental accommodation to meet demand,” Ms Mercorella said.

“We’re seeing quarter after quarter of sliver-thin vacancy rate data, showing most of the state could support and sustain greater investment and new dwelling construction.

“There are some positive signs regarding investor interest in Queensland property, which is likely focused in areas where yields remain attractive, and sentiment is stabilising.”

Meanwhile, data released Thursday showed that new home building approvals in the 2024/25 financial year were up by 13.9 per cent compared to their 2023/24 trough.

Despite this, the Housing Industry Association says in the 2024/25 financial year, the first year of the government’s five year target, Australia approved just 187,330 new homes. Given that some approved projects don’t ever commence construction, the goal of commencing 240,000 homes per year appears to be an overly optimistic goal.