House price growth at 17-year high: CoreLogic

Home values rose by 16.1 per cent over the past 12 months, representing the fastest pace of annual growth since February 2004.

However, this growth cycle has been tapering as housing becomes less affordable, with monthly growth rates trending lower since March 2021 when the national home value index rose by 2.8 per cent.

According to CoreLogic’s research director Tim Lawless, it is likely that the rate of growth will continue to narrow through the second half of 2021 as affordability constraints increase and housing supply gradually rises.

The pace of dwelling price appreciation has slowed across each of the capital cities, with Sydney recording the sharpest decline, where the monthly capital gain fell from 3.7 per cent in March to 2.0 per cent in July.

According to Mr Lawless, Sydney is the most expensive capital city by some margin and it has also experienced the largest value rises over the first seven months of 2021.

“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,” he said.

Nevertheless, housing values are continuing to rise significantly faster than average across Australia, Mr Lawless added. Over the past 10 years, the average pace of monthly dwelling value rises has been recorded at just 0.4 per cent.

The previous strong growth levels in regional markets relative to capital cities have normalised through 2021 after the combined regional areas recorded stronger housing market conditions through the second half of 2020.

In the first seven months of 2021, dwelling values across the combined regional markets and capital markets rose by 14.5 per cent and 14.0 per cent respectively.

Houses outpace unit, except for 1 city

The disparity between detached dwellings and units has continued across every capital city except Hobart, with house values up 18.4 per cent over the 12 months ending July at the macro level, while unit values have risen by less than half that amount, up 8.7 per cent.

In Hobart, unit values rose by 23.0 per cent over the past year while house values rose by 21.0 per cent.

Mr Lawless attributed this trend to potentially greater demand from downsizers and empty nesters, and increased affordability constraints, which have steered demand into the more affordable unit sector (where median values are around $156,000 lower than houses).

Home sales at 17-year high

Advertising listing numbers have remained well below average across most parts of the country, with the number of newly advertised properties dropping sharply across Sydney and Melbourne amid lockdowns.

In Sydney, the monthly number of new listings in the market has fallen by around 30.0 per cent since the week ending 27 June, dragging total active listing numbers 13.7 per cent below the five-year average.

In Melbourne, new listing levels dropped by 27.0 per cent between the week ending 11 and 25 July.

According to Mr Lawless, the most recent lockdowns have dampened the number of home sales and listings more substantially compared to previous circuit-breaker lockdowns (when housing values remained resilient to falls).

He said that it is likely that pent-up demand would flow through to an increase in activity once restrictions are lifted.

“However, it is reasonable to assume the uncertainty associated with the duration and severity of Sydney’s lockdown could see a greater level of disruption relative to previous shorter periods of restrictions,” Mr Lawless said.

The number of home sales has held well above average over the year, with Mr Lawless noting that the annual number of home sales has not been this high since the year ending January 2004. CoreLogic estimated a 42.0 per cent year-on-year lift in sales numbers.

“The past 12 months has seen nearly 600,000 dwellings sold across the country, approximately 140,500 more sales (up 31 per cent) than the decade average,” Mr Lawless said.

“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.”

Supply-demand mismatch poses affordability risk

Commenting on the lower rate of home value growth, Mr Lawless said: “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.

“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 that buyer demand is being fuelled by record-low mortgage rates and the prospects that interest rates would remain low for an extended period of time.

Dwelling sales have hovered at around 40 per cent above the five-year average while active listings have remained around 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,” Mr Lawless said.

No case yet for policy intervention

There are potential headwinds ahead, including the possibility of tighter credit policies, which could immediately dampen the housing market if introduced, according to Mr Lawless.

However, he said that the trigger for another round of macroprudential intervention is not yet evident, even as the Australian Prudential Regulation Authority (APRA), the Reserve Bank of Australia (RBA) and the broader Council of Financial Regulators (CFR) have signalled that they are monitoring lending standards as well as a rise in household debt or any speculative activity.

Furthermore, while an increase in the official cash rate is potentially at least another 18 months away, it could rise earlier than the RBA’s 2024 forecast depending on the trend in inflation and the labour market, Mr Lawless noted.

However, the recent round of lockdowns could contract the economy, which could keep rates on hold for a while longer, which would provide ongoing support for housing demand, he concluded.

[Related: Governments extend COVID support to NSW, Vic]