Property prices rise in all capital cities: ABS

This is the strongest quarterly growth in property prices since the 2019 December quarter, the ABS said.

Property prices rose across all capital cities in the December 2020 quarter, led by Melbourne (3.4 per cent) and Sydney (3.0 per cent), while prices also increased in Canberra (3.4 per cent), Hobart (3.1 per cent), Perth (2.9 per cent), Brisbane (2.7 per cent), Adelaide (2.6 per cent) and Darwin (2.2 per cent).

House prices rose 3.9 per cent in Sydney and 3.7 per cent in Melbourne over the December 2020 quarter, while attached dwelling prices rose 1.4 per cent in Sydney and 2.5 per cent in Melbourne.

The ABS data has also shown that property prices have risen annually across all capital cities, with the ABS stating that this is the first time that all capital cities have seen an annual rise since the December 2014 quarter.

Nationally, prices rose annually by 3.6 per cent, with the largest price rise recorded in Hobart (6.4 per cent), followed by Canberra (5.2 per cent) and Perth (4.2 per cent).

Annual prices also increased in Brisbane (4.0 per cent), Adelaide (3.8 per cent), Sydney (3.7 per cent) and Melbourne (2.9 per cent), while Darwin recorded the lowest growth in property prices (2.3 per cent), according to the ABS data.

The number of residential dwellings rose by 44,100 to over 10.6 million residential dwellings, while the value of these dwellings rose by $257.9 billion from the September 2020 quarter to $7.7 trillion in the December 2020 quarter, representing the strongest rise since the December 2016 quarter.

The figures also reveal that the mean price of residential dwellings rose by $21,300 to $728,500.

NSW has remained the state with the highest mean price in Australia ($939,700), followed by Victoria ($785,000) and the ACT ($757,000), while the lowest mean price is in the Northern Territory ($429,000).

Residential property transfers – which provide an indication of the level of residential property sales activity for each quarter – increased by 7.2 per cent nationally during 2020, and by 2.1 per cent for the combined capital cities, while it spiked by 16.4 per cent for the regions outside the capital cities.

Property transfer counts increased in all capital cities apart from Melbourne and Hobart during 2020, with the strongest increases recorded in Perth (20.5 per cent), Canberra (12.9 per cent), Sydney (12.2 per cent) and Brisbane (10.7 per cent), while Hobart recorded a 10.8 per cent decline.

According to the ABS, these increases were driven by record-low interest rates and supported by a range of government incentives.

However, the data shows a fall in Melbourne transfer counts, which the ABS attributed to the effects of the COVID-19 restrictions and extended lockdowns on the Melbourne property market, particularly in the September quarter.

Transfer counts also increased in Western Australia (33.3 per cent), NSW (21.8 per cent), South Australia (21.8 per cent) and Queensland (18.4 per cent), indicating that sales activity has been robust across most regional areas during 2020.

Commenting on the figures, ABS head of price statistics Michelle Marquardt said: “The rise in property prices is consistent with a range of housing market indicators. New lending commitments to households, auction clearance rates and days on market all improved during the December quarter.”

Housing affordability to worsen in 2021

Housing affordability for new borrowers is deteriorating and will continue to worsen for the rest of 2021, according to a ratings agency.

New analysis by Moody’s Investors Service – which has followed the release of the ABS data indicating a rise in property prices – has revealed that affordability declined on average for five months to February and would continue to worsen for the rest of 2021 due to rising housing prices and lower wages.

According to Moody’s in February 2021, households with two income earners needed 24.6 per cent of monthly income to meet monthly mortgage payments on new loans, up from 23.0 per cent in September 2020 but same as in February 2020 before the economic impacts of the coronavirus pandemic.

However, the share of income needed to meet loan repayments have remained below the 10-year average (26.1 per cent) and well below the high point of 30.7 per cent in April 2011, mainly because of low interest rates (the average rate of 3.65 per cent in February was significantly lower than 7.09 per cent in April 2011).

According to Moody’s data analysis, new buyers in Sydney required 31.3 per cent of household income to meet loan repayments in February 2021, making it the least affordable city in Australia, followed by Melbourne (27.1 per cent), Adelaide (20.1 per cent), Brisbane (19.9 per cent) and Perth (16.5 per cent).  

Commenting on the trends, Moody’s said: “Housing prices will likely continue to rise this year, though at a slower pace than recent months. Household incomes will decline when government support measures like the JobKeeper scheme end in March 2021, but this will reverse when the economic recovery gathers momentum in the second half of 2021.

“Worsening housing affordability is credit negative for new mortgages in RMBS (residential mortgage-backed securities). However, rising housing prices – the main cause of deteriorating affordability – are positive for outstanding mortgages, because borrowers in financial difficulty are more likely to be able to sell homes to repay debts and avoid default.”

Moody’s said that housing prices and interest rates would have to rise significantly for affordability to reach its worst levels in a decade.

[Related: Only 3.5% of deferred loans still in deferral: ABA]