Price growth trends diverging across markets
Price growth trends diverging across markets
Australian house prices notched up their 14th consecutive month of gains in November, with the annual rise adding more than $126,000 to the median value of homes across the nation.
CoreLogic said housing values nationally gained 1.3 per cent in November, for a 22.2 per cent yearly gain.
However, the November rise was the softest result since January, when values frose by 0.9 per cent, and well below the cyclical peak of 2.8 per cent growth in March.
CoreLogic research director Tim Lawless said there were several reasons behind the slowdown in the pace of growth.
“Virtually every factor that has driven housing values higher has lost some potency over recent months,” Mr Lawless said.
“Fixed mortgage rates are rising, higher listings are taking some urgency away from buyers, affordability has become a more substantial barrier to entry and credit is less available.”
Mr Lawless said trends across capital city home values were starting to diverge, with a sharp slowdown of growth recorded in Sydney and Melbourne, while Brisbane and Adelaide were now recording the biggest gains.
Sydney’s median was up 0.9 per cent in November, while Melbourne’s gained 0.6 per cent.
Perth home values nudged up by 0.2 per cent in the month, while Darwin was the only capital to recede, with a 0.4 per cent reduction in its median.
Brisbane’s median was up 2.9 per cent in November, while Adelaide’s gained 2.5 per cent.
Mr Lawless said Brisbane and Adelaide’s strong performances, where new cyclical highs were reached, were driven by relative affordability, fewer COVID-related disruptions and positive rates of interstate migration.
“On the other hand, Sydney and Melbourne have seen demand more heavily impacted from affordability pressures and negative migration from both an interstate and overseas perspective,” he said.
In rental markets, every capital city and regional market analysed recorded an increase in weekly rents over November, with houses outpacing units for gains in all areas other than Melbourne.
“Melbourne’s unit sector was previously recording the weakest rental conditions of any capital city, with rents plunging 8.5 per cent between March 2020 and May 2021,” Mr Lawless said.
“It seems that more tenants are taking advantage of the renewed affordability of unit rentals, especially across inner city precincts where rents had previously fallen sharply.”
On an annual basis, double-digit rental gains for houses have been recorded in Darwin (17.7 per cent), Hobart (13.7 per cent), Brisbane (11.7 per cent), Perth (11.6 per cent), and Sydney (10.2 per cent).
But while rents are rising strongly, gross rental yields continue to be compressed, with the rate of rental growth being surpassed by the gains in housing values.
Rental yields nationally hit a new low in November, of 3.23 per cent.
Darwin offers the highest yields among capital cities at 6.1 per cent, followed by Perth at 4.4 per cent, Adelaide at 3.9 per cent and Birsbane and Hobart at 3.8 per cent.
Melbourne and Sydney rental yields were sitting at 2.7 per cent and 2.4 per cent, respectively, at the end of November.
“Gross rental yields reached a new record low across every capital city and broad rest of state region in November implying a growing imbalance between the costs associated with owning a home versus renting a home,” Mr Lawless said.
“With mortgage rates also extremely low, such a small yield profile is not overly concerning at the moment, however as investment activity increases along with the growing potential for higher interest rates, we could see more investors once again relying on a negative gearing strategy over the medium to long term.”
Looking forward, Mr Lawless said the outlook for house prices remained positive, but the slowdown of growth since April was likely to continue into next year.
He said there were a variety of factors that would support an upwards trajectory for home values in the short term.
Although mortgage rates are rising, the cost of debt is likely to remain well below long term averages, continuing to support demand for an extended period of time,” Mr Lawless said.
“Additionally, as more Australians are vaccinated, disruptions from COVID should become less frequent and shorter in duration, although the latest Omicron variant presents some additional risk.
"Open international borders, despite the recently announced delay, are also a net positive for housing markets, although the most immediate impact from resumed overseas migration will be seen in rental demand, while an uplift in purchasing a home from permanent migrants is likely to be more gradual.”