National home values rose 1.9 per cent in June, taking annual growth to 13.5 per cent for the financial year.
The growth in Australian dwelling values was led by houses, which rose 15.6 per cent over the year. This is compared to a 6.8 per cent rise in unit and apartment values.
CoreLogic Head of Research for Australia Eliza Owen noted while it was record-breaking growth, it appears some markets are beginning to lose momentum.
“This is the highest annual rate of growth seen across the Australian residential property market since April 2004, when the early 2000’s housing boom was winding down after a period of exceptional growth. However, there are some markets where performance is starting to ease more notably,” Ms Owen said.
Each of the capital cities saw an uplift in dwelling values in June, ranging from a 3 per cent rise in Hobart to a more subdued 0.2 per cent lift in Perth.
The performance gap has narrowed between regional Australia and the capital cities, though regional Australia did outperform slightly in monthly growth terms, rising 2 per cent through June compared to 1.9 per cent across the combined capital cities.
Darwin maintained the highest annual rate of growth across the capital cities, increasing 21 per cent in value over the financial year, followed by Hobart (19.6 per cent).
Across regional Australia, regional NSW had the highest annual growth in dwelling values (21.1 per cent), followed by regional Tasmania (20.8 per cent).
Ms Owen reaffirmed the strong demand-side factors underlying growth.
“Before the recent uncertainty of growing COVID-19 case numbers, there were plenty of demand-side factors driving housing market growth through the first half of 2021,” she said.
“In May, the unemployment rate fell to 5.1 per cent, and the underutilisation rate fell to 12.5 per cent, the lowest level since February 2013. Consumer confidence remained elevated through June, although down from the recent April highs.
“Elevated savings accumulated through COVID-restrictions last year, along with a more confident consumer sector, has encouraged consumption of larger goods, such as housing. This has all occurred against a back-drop of continued low mortgage rates, which is one of the most significant demand drivers.”
In addition to these strong demand conditions, Ms Owen noted total advertised stock remains relatively low.
“The latest listings count from CoreLogic indicates that in the 28 days to June 2, total advertised stock remained 24.4 per cent below the five-year average,” she said.
“This dynamic of strong consumer demand, and low housing supply, continues to create some urgency among buyers.”
Strong gains, but signs some heat is coming out of the market
The monthly change in Australian home values of 1.9 per cent sits well above the decade average (0.4 per cent).
However, this month’s growth rate is down three basis points from May 2021, and nine basis points from a recent peak in March 2021.
The only capital city to see a further increase in the monthly growth rate was Canberra, where dwelling values were 2.3 per cent higher over June, compared with a 1.7 per cent gain in May.
Across the capital cities, a loss of momentum was most evident across Perth and Darwin.
For Perth dwellings, the monthly growth rate in values had averaged 1.4 per cent between January and May 2021, but fell to 0.2 per cent through June. Across Darwin, the monthly growth rate in dwelling values averaged 2.1 per cent between January and May, but was just 0.8 per cent through June.
“The key to understanding the softer performance in these resource-based markets may be a slightly different supply- demand dynamic compared to the other capital cities and regions,” Ms Owen said.
“CoreLogic monitors a ‘sales to new listings’ ratio, which divides the monthly volume of settled sales by new listings brought to market.
“For the past three months, the sales to new listings ratio has averaged 1.1 across Darwin and Perth. While the implication is that there is 1.1 sales for each new listing, which could be enough to elicit further growth in dwelling values, these are the lowest sales to new listings results of the capital city markets.”
Softer growth rates are also emerging at the ‘high end’ of the market.
Across the top 25 per cent of dwelling values in the combined capital cities market, growth in dwelling values in the June quarter was eight per cent down from 9.2 per cent in three months.
While this eight per cent uplift was still the highest seen among the value tiers analysed, the growth rate also had the largest month-on-month deceleration.
“This easing in the pace of growth at the top end of the market is another clear sign of a shift in momentum. The rest of the market tends to follow movements at the high end, and this is the first time in nine months that the high-tier growth rate has not accelerated,” Ms Owen said.
Sales volumes remained elevated to end of financial year
CoreLogic estimates that in the year to June 2021, there were approximately 582,900 transactions nationally. This is the highest annual sales volume observed since February 2004.
Across the greater capital city and rest of state markets, modelled sales volumes were highest across Sydney (110,064), Melbourne (89,234) and regional Queensland (80,549).
Every greater capital city and rest of state region saw double digit growth in annual sales volumes, with the exception of Hobart (where sales volumes fell 0.6 per cent over the year), and regional Tasmania (where annual growth in sales volumes was 8.6 per cent).
New listings rose with prices, but total stock on the market remains low
CoreLogic estimates that there were approximately 126,320 fresh listings advertised for sale in the three months to June – 7.9 per cent above the previous five-year average for the June quarter.
However, in the same period, there were 167,450 sales nationally. This shows there was more than one sale for every new listing added to market.
The dynamic of sales out-stripping new listings has been a persistent trend through 2021. The result is total advertised stock levels remaining approximately 25 per cent below the five-year average.
As noted last month, the current state of housing supply and demand has seen relatively high auction clearance rates, and favourable selling conditions.
At the national level, typical days on market increased slightly to 29 (up from a recent low of 25 days) in the three months to June, and vendor discounting rates remained very tight at 2.7 per cent
“It is difficult to say whether this dynamic will be maintained in the coming weeks amid lockdown conditions in parts of Australia. Sales volumes are likely to decline, but new listings added to market also tend to decline during lockdowns, as properties are harder to sell,” Ms Owen said.
“The current dynamic in supply and demand is more likely to be shifted by significant changes to demand, whether from a change in lending conditions, or weaker economic outcomes amid the current rise of COVID-19 case numbers.”
Rent values see strong growth, but gross rental yields are compressing
In the year to June, Australian rent values increased 6.6 per cent; the strongest annual appreciation in rents since February 2009.
The highest annual growth in rent values was across Darwin, where rents have increased 21.8 per cent across the dwelling market. This was followed by Perth (16.7 per cent).
“As with national home values, much of the increase in rental rates may be associated with government stimulus, increased household savings and a strong economic recovery from COVID-19 restrictions,” Ms Owen said.
“Rent value increases may also be a function of more subdued investor activity between late 2017 and mid-2020, and the resulting lower rental supply, as well as more demand deflecting towards rental markets in areas where home ownership has become less attainable due to affordability challenges.
“Even the worst affected rental markets showed a more defined recovery trend through June. Across Sydney, unit rents were 1.1 per cent lower over the year to June.
“This is up from a recent trough in the annual growth rate of -5.7 per cent in the year to December 2020. In Melbourne, the annual change in unit rent values was down 6.4 per cent, recovering slightly from year-on-year declines of 8.2 per cent in the 12 months to March 2021.”
Due to property value increases outpacing rents, gross rental yields have compressed further through June.
Across the combined capital cities, gross rental yields hit a record low 3.1 per cent, and combined regional Australia has also seen a fresh record low of 4.5 per cent.
ABS housing finance figures to April have shown a strong lift in investor financing since the start of the year, albeit off low levels. The return of investors to the Australian dwelling market may help to gradually ease rental conditions.
The housing market has shown a remarkable turnaround from initial expectations around COVID-19. The housing market has clearly lost some growth momentum though.
Persistently high housing value growth rates are proving unsustainable, from both an affordability perspective, and renewed headwinds amid a lockdown in Sydney and other parts of the country.
COVID-19 restrictions will impact transaction activity
Observation of CoreLogic analytics through the pandemic has revealed trends around housing market performance which can inform expectations for the coming weeks.
Firstly, there has been resilience in property values. Nationally, values saw a peak-to-trough decline of just -2.1 per cent through 2020, before a recovery trend in October 2020.
This was due to low interest rates, fewer listings, and institutional responses. For example, mortgage repayment deferrals were likely a key factor in reducing new listings added to the market, which may have otherwise been fuelled by an inability to make mortgage payments.
Secondly, transaction activity was more volatile. From March to April of 2020, the volume of sales nationally fell 33.9 per cent. New listings added to the market fell 44.7 per cent.
However, sales across Australia rose sharply from May 2020, as social distancing restrictions began to ease nationally, and soared through the final quarter of 2020, as restrictions across Melbourne also started to lift.
The housing sector seems to have demonstrated ‘catch-up’ consumption as social distancing restrictions have eased.
Through circuit-breaker lockdowns, CoreLogic has observed short, sharp falls in sales and listings, followed by a swift recovery in transaction activity. There has been little impact observed on prices.
“The question is not what impact short lockdowns have on the housing market; there seems to be relatively little impact,” Ms Owen said.
“Instead, outcomes for the housing market and industry will depend upon how long lockdown conditions last across parts of the country, and whether some of the institutional responses offered through 2020 are reinstated if an extended lockdown occurs.”
Affordability constraints and the potential for tighter lending conditions and rising mortgage rates remain the primary headwinds for property market performance.
Even without recent developments of COVID-19 in Australia, it is clear that the housing market is losing momentum as affordability constraints build.
More expensive credit, or credit that is harder to obtain, could further shift market dynamics.
Already through June, several of the major banks have forecast cash rate increases earlier than was previously indicated by the RBA.
A sooner-than-expected uplift in the cash rate would bring forward mortgage rate rises, and reduce demand for credit.
Furthermore, off the back of APRA writing to major lenders to ensure proactive risk management in home lending, there have been early signs of more conservative home loan assessments. Any reduction in credit availability is likely to contribute to a downside shift in market conditions.
