Price growth continues to slow, but not expected to stop

Declining affordability is starting to slow the nation’s house price growth, but a mismatch between supply and demand will ensure price gains will continue to be recorded across most markets.

Data from CoreLogic showed national median dwelling values rose by 1.6 per cent in July, continuing a trend of declining monthly growth rates since the market rose by 2.8 per cent in March.

Sydney recorded the biggest reduction in monthly growth rates, with its price appreciation falling from 3.7 per cent in March to 2 per cent in July.  

“Sydney is the most expensive capital city by some margin and it has also been the city where values have risen the most over the first seven months of the year,” CoreLogic research director Tim Lawless said.

“Worsening affordability is likely a key contributing factor in the slowdown here, along with the negative impact on consumer sentiment as the city moves through an extended lockdown period.”

In other capital cities, price growth in Perth has dwindled to a crawl, falling from 1.8 per cent in March to 0.3 per cent in July, while price appreciation in Melbourne was 1.3 per cent in July, down from 2.4 per cent in March.

Hobart’s median price gains have also plunged since the March peak, falling from 3.3 per cent to 1.7 per cent in July. 

Conditions were steadier in Brisbane and Canberra, however.

Brisbane recorded median price growth of 2 per cent in July, down from 2.4 per cent in March, while Canberra’s price growth also dipped slightly, falling to 2.6 per cent in July, from 2.8 per cent in March.

The only city to record a rate of growth that was faster in July than March was Adelaide, where values were up 1.7 per cent in July, compared to 1.5 per cent in March.

Mr Lawless said there were several factors behind the lower rates of growth recorded across the country.

“With dwelling values rising more in a month than incomes are rising in a year, housing is moving out of reach for many members of the community,” Mr Lawless said.

“Along with declining home affordability, much of the earlier COVID-related fiscal support (particularly fiscal support related to housing) has expired.

“It is, however, encouraging to see additional measures being rolled out for households and businesses as the latest COVID outbreak worsens.”

Mr Lawless said demand remained strong, with buyers still attracted by record-low interest rates and the prospect that rates will remain low for some time.

“Dwelling sales are tracking approximately 40 per cent above the five-year average, while active listings remain about 26 per cent below the five-year average.

“The mismatch between demand and advertised supply remains a key factor placing upwards pressure on housing prices.”

Listings remain well below average across most of the country, with the number of properties advertised for sale falling most sharply in Sydney and Melbourne due to each city’s respective recent lockdowns.

“With stock levels remaining tight, selling conditions have been skewed towards vendors,” Mr Lawless said.

“Auction clearance rates have remained in the low-to-mid 70 per cent range across the major auction markets through July and private treaty sales continue to record rapid selling times and low discounting rates.

“With buyer demand so strong and active listings well below average, prospective buyers are likely to be feeling a sense of urgency due to the level of competition in the market.

"However, with affordability constraints starting to impact purchasing capacity, it’s possible market activity could reduce through the second half of the year, helping to rebalance the market and take some heat out of the rate of house price growth.”

In rental markets, the annual rate of growth in weekly rents rose to 7.7 per cent in July, the fastest rental appreciation since 2008.

Darwin and Perth continue to record the most challenging rental markets for tenants, with low vacancy rates and high rental demand.

Apartment markets in Sydney and Melbourne are starting to stabilise, after recording a substantial reduction in rents due to high vacancy rates, Mr Lawless said.

Gross rental yields continue to trend lower, with the rate of price appreciation eclipsing the rate of rental growth.

Average gross yields fell to 2.5 per cent in Sydney and 2.8 per cent in July, reflecting the weakness in rental markets in Australia’s two biggest cities.

Every other capital city recorded a gross yield of 4 per cent or higher in July.

“Considering mortgage rates on new investment loans are averaging around 2.8 per cent, gross rental yields outside of Sydney and Melbourne are likely to be providing opportunities for positive cash flow investment opportunities,” Mr Lawless said.

“Considering yields outside of Sydney and Melbourne are high relative to mortgage rates and housing values are expected to rise further, we are likely to see investment activity continue to lift.”