Housing market ‘diversity’ widening, flags CoreLogic

Speaking at the Connective National Conference in Melbourne on Thursday (10 October), Lawless provided a range of insights to help brokers better steer their clients navigating this evolving landscape.

A national obsession

CoreLogic’s data has revealed that the total value of residential real estate breached $11 trillion for the first time in September, increasing by $900 billion over the past 12 months.

Lawless said: “We’re looking at an asset class that’s nearly three times more expensive or more valuable than the superannuation fund we contribute to, and more than three times the value of all the shares we trade on the ASX as well. And it’s where we have the vast majority of Australian household wealth as well.

“It’s probably one of the reasons why property is becoming almost a national pastime for Australians. We have more than 50 per cent of our wealth in this asset class. So the movements in property values and the dynamics are generally important to everybody, regardless if they own a home or not – because most Australians will probably aspire to own a home.”

He noted that house price growth had been accelerating over the pandemic – even with the rising interest-rate environment.

“Nationally, house values are up 14.3 per cent after 20 months of growth since the January 2023 trough,” Lawless said, highlighting the significant rebound the market has experienced while supply remains subdued.

“Normally, when you have an environment where interest rates are high and household debt levels are high and consumer sentiment is really low and there’s cost-of-living pressure in the economy ... we generally have some downward pressure on housing prices,” he said. Yet, the current macro-level trends have defied expectations, with 20 months of house price growth.”

Diversity hasn’t been this pronounced since the 2006 mining boom

However, he cautioned that there is growing diversity in housing markets across the country and that it was, therefore, key for brokers to be attuned to what is happening across the country.

Since the onset of the COVID-19 pandemic in March 2020, for example, the Perth market has witnessed a remarkable 74.6 per cent increase in dwelling values, he said, while Adelaide and Brisbane were not far behind, both recording growth rates of over 68 per cent.

Sydney had grown by around 29 per cent, with Hobart close behind at 27 per cent. However, Melbourne was up by a more modest 9.9 per cent since March 2020.

Regional dwelling values had also increased in the states in a similar way, he said, adding that the growth in prices would put most broker clients in a strong financial position.

He said: “The context for you, as brokers, means that a lot of your clients that have inhabited the marketplace for a number of years are probably sitting on a pretty decent amount of equity, which has been accrued over a very short period of time ...

“If you’re in one of those midsize capitals or one of the stronger regional markets, you’ve probably seen the dollar value of your home increase by 60–70 per cent in the space of that four-and-a-half-year period. In dollar terms, that’s generally more than $300,000 that’s been added onto the median home value across those markets.

“So there are definitely some opportunities here if you are looking at your existing clients and how they can potentially utilise that equity or leverage that equity.”

However, Lawless pointed out that some markets are cooling more rapidly – showcasing that Melbourne and Hobart have recorded quarterly and annual dwelling declines of -5.1 per cent and -12.5 per cent since their record highs recorded in March 2022.

Lawless pointed out the notable diversity in property performance across different regions to brokers. “We haven’t seen the level of diversity in the marketplace that’s been this significant since about 2006, which, of course, was the height of the mining boom,” he said.

“So you’re looking at about a 25 percentage point spread between the highest and the lowest performer.”

This disparity is also reflected in the growth rates of houses compared to units, underscoring the varied performance of different property types.

Growth will slow

However, Lawless anticipates a shift in the market. “There is a clear fade in the rate of capital gain,” he said, noting that while values may continue to rise, things are starting to “slow down again”.

He attributed this to affordability challenges and increasing diversity in market performance, with Adelaide, in particular, having “marched up through the affordability rankings in all the wrong ways” being now one of the top most unaffordable markets in the country, after Sydney, particularly when adjusting for local incomes.

Lawless told Connective brokers: “I expect to see even those mid-sized capitals slowing down in price growth.” Cities like Melbourne, Canberra, Hobart, and Darwin are witnessing price declines, while markets like Perth and Adelaide continue to see listing numbers down by about 30 per cent compared to normal levels.

For brokers, this means clients need to be prepared to act quickly when opportunities arise, he said.

“People in those marketplaces really need to have their finances in order so they can make a decision immediately,” he said, emphasising that any delay could result in losing out on desired properties.

Looking forward, the CoreLogic executive research director said an undersupply of new homes may help support property values, while anticipated interest rate cuts could bolster consumer sentiment and borrowing capacity, potentially stimulating further activity in the market.

For brokers, staying informed and adaptable would be crucial as they navigate these changing conditions, he continued, emphasising the importance of understanding the housing market diversity.

“I think that’s probably one of the more important messages to pass through; the diversity … Understanding that complexity and being able to deliver local market insight to your clients, who are probably making one of the most important decisions they’re going to be making in their life, is becoming all the more important,” he said.

“So hopefully, this data can help you tick off that box so you are educating yourself before you go out and educate the marketplace … because, hopefully, you’re engaging with your audience, and they’re going to be asking you questions about it, and you want to be able to respond intelligently to those questions.”

[Related: Over 1/3 of suburbs now have a median price point over $1m]