Property shakes off global economic chaos to hit record highs

A slump in auction clearance rates and consumer sentiment has not been enough to prevent national property prices hitting a new record high.

From Darwin’s continued and sizeable reversal of fortunes with growth of 1.1 per cent in April to Sydney and Melbourne’s positive territory (each up 0.2 per cent), the national dwelling value increase of 0.3 per cent marked a third consecutive month of price hikes.

The Cotality (formerly CoreLogic) Home Value Index showed that the rise in values has added approximately $2,720 to the median value of an Australian dwelling over the past month.

Data also released on Thursday (1 May) by PropTrack showed a similarly strong property market, with Australia’s median home price hitting a new record high in April, rising 0.20 per cent to reach $805,000 on their metrics.

A softer interest rate environment was propelling the market in the face of economic uncertainty that was keeping many prospective buyers on the sidelines.

Household confidence slipped in April, attributable to the US’s tariff announcements unsettling the market, pre-election watchfulness around which housing policies will be implemented, and the deterioration of housing affordability.

Over the week ending 20 April, just 644 auctions were held across the combined capitals, the lowest Easter auction week since 2019 when the housing market was nearing a cyclical trough and federal election campaigns were dominated by conversations of housing policy reform.

Population growth, which is a proxy for housing demand, has fallen back to the decade average of 0.4 per cent per quarter.

Tim Lawless, Research Director, Cotality, said less population growth should help to take some heat away from housing value growth, but there is still a substantial cumulative undersupply that has accrued over the past few years.

“Recent estimates from AMP economists put this shortfall between 200,000 and 300,000 homes, which will take some time to address.

“Until supply and demand are more evenly balanced, it is hard to see any material reduction in housing values.”

Houses continue to outpace units, while regional areas are also rising at a faster rate than the capital cities.

The past three months have seen the value of houses rise by 1.1 per cent across the combined capitals, according to Cotality, more than double the 0.5 per cent lift recorded across the unit sector. This trend is mostly being driven by Sydney, where house values were up 1.4 per cent

Regional housing values were up 0.6 per cent and 0.2 per cent respectively in April. This trend of regional home values rising at a faster pace than the capitals was a clear feature of the market through the pandemic but has once again become a theme in the monthly growth trends since October last year.

Stronger regional value growth has been broad-based, with every state except Tasmania recording a faster monthly pace of gains in regional values. Regional South Australia and Western Australia stood out with the most significant gains, up 1.5 per cent and 1.3 per cent respectively over the past month.

For the first time, Adelaide joined Sydney, Melbourne, Canberra, and Brisbane in the million-dollar club over the March quarter, with a 1.1 per cent increase or $11,100, reaching a median house price of $1,000,202, according to Domain.

Domain’s data showed that despite consistent gains over the past five years, Adelaide’s growth plummeted, marking the lowest quarterly increase in two years.

Similarly, the South Australian capital’s annual gains have lost momentum, recording their lowest growth rate in 15 months at 12.1 per cent or $107,800.

Anne Flaherty, REA Group Senior Economist, said that while national home prices rose in April, the rate of growth has slowed compared to the first three months of the year.

“Should interest rates fall in May, we may see the rate of growth pick up again as borrowing capacities increase and mortgage repayments decline.

“The rate of price growth is moderating in outperforming cities such as Perth, Adelaide and Brisbane, while underperformers such as Melbourne, Canberra, and Sydney have started to pick up, which is lessening the divergence in home price growth seen across the country over the past year.

“The combination of increased first home buyer incentives (in the wake of the election), lower interest rates, and supply side challenges are expected to contribute to even higher property prices in 2025.”

All of the big four banks are forecasting a cash rate cut on 20 May, with NAB expecting a double cut down to a cash rate of 3.60 per cent.

An owner-occupier with a $600,000 debt today, and 25 years remaining on their loan could see their monthly repayments drop by $91 on the back of one 0.25 percentage point RBA cut, assuming the banks pass it on in full to existing variable rate borrowers.

Byron Rose, Licensee-In-Charge (NSW) and Managing Director, Rose and Jones, said the Northern NSW and Queensland markets continued to demonstrate strong momentum, with suburbs like Mermaid Beach, Mermaid Waters, and Miami achieving quick sales and facing tight rental competition.

“Buyers seeking less crowded alternatives are finding niche opportunities in Mullumbimby and Lennox Head, while Ballina is proving attractive to both lifestyle buyers and investors,” Mr Rose said

Meanwhile, Sydney’s prestige and inner-city markets are showing early signs of a nuanced recovery.

“High-demand areas like Point Piper and Paddington are experiencing rapid sales with minimal vendor discounting.

“In contrast, Double Bay and Stanmore offer compelling buying opportunities with larger discounts, and Annandale stands out for its fast-moving market and buyer-friendly pricing.”

Helen Avis, Director of Finance, Specialist Mortgage, said the property market was proving resilient as home-owners were under no pressure to sell.

“The Reserve Bank of Australia (RBA) has found ‘the vast majority of borrowers would remain able to service their debt under a range of plausible economic scenarios’.

“Crucially, about 97 per cent of borrowers have positive cash flow, which means they’re able to meet their mortgage commitments and potentially get ahead on their mortgage.

“Furthermore, less than 1 per cent of borrowers are currently in negative equity (i.e. their property is worth less than their outstanding mortgage), which the RBA has described as ‘a meaningful improvement’ from before the pandemic.”

Rental market refusing to subside

Rental growth has firmed, with the national rental index rising by 0.6 per cent consistently over the past three months.

Adjusting for seasonality, the pace of growth is milder, with rents rising 0.4 per cent nationally in April, according to Cotality.

Despite the strong seasonal performance through the start of the year, a slowdown in rental growth is more evident in the annual change, where the pace of growth has more than halved, from 8.3 per cent over the 12 months to April 2024 to 3.6 per cent over the most recent 12- month period.

The sharpest slowdown was recorded in Perth, where annual rental growth has eased from 13.6 per cent a year ago to 5.7 per cent, a reduction of 7.9 percentage points. Despite the easing, the annual change in Perth rents remains the highest of any capital city.

With rents outpacing housing values, the national gross rental yield reached a two-year high in April, coming in at 3.73 per cent.

Gross yields across regional Australia remain substantially higher at 4.41 per cent but are down on the levels seen five years ago, when the gross yield of 4.83 per cent was recorded. The gross yield across the combined capitals rose to 3.52 per cent in April, the highest in eleven months and up from 3.45 per cent five years ago.