House prices started the year in the same fashion as they ended 2019, rising across every capital city in Australia.
According to the latest data from CoreLogic, the combined capital cities grew by 0.9 per cent in January, taking the quarterly gain to 4.2 per cent.
Once again it was Sydney (up 1.1 per cent) and Melbourne (up 1.2 per cent) that led the charge, although volumes of transactions were down given the holiday period. Over the last 12 months, values are up 7.9 per cent and 8.2 per cent respectively in Australia’s two major property markets.
At the same time, Hobart property continued is stellar run, jumping in value by another 0.9 per cent for the month, making it the third strongest market in the country over January.
Even the nation’s two softest housing markets, Perth and Darwin, recorded a small 0.1 per cent uptick in median values, suggesting there is a chance prices have found a bottom.
Perth values are now up 0.4 per cent for the quarter which is the first period of growth we’ve seen in more than five years.
Despite the growth across the country, the rate of price increases has started to slow down.
CoreLogic head of research Tim Lawless believes this is a combination of seasonal effects as well as affordability.
“Seasonal effects provide some explanation for the slowdown. The CoreLogic seasonally adjusted hedonic index implies the time of year shaves about one basis point of growth from the December reading and two basis points from the January reading,” Mr Lawless said.
“Factoring in the seasonal effect, the latest results indicate a reduction in the speed of growth across most markets, especially for Sydney and Melbourne where affordability constraints are once again becoming more pressing. As advertised stock levels rise over the early part of the year, we could some further dampening of growth rates.”
Nationally, housing values recovered 6.7 per cent since finding a floor in June last year, however, CoreLogic’s national index remains 2.2 per cent below the October 2017 peak.
“With housing values rising at the quarterly pace of 3.7 per cent, we are likely to see a nominal recovery in the national home value measure within the next two-to-three months.”
Highlights over the three months to January 2020
- Best performing capital city: Sydney +5.6 per cent
- Weakest performing capital city: Darwin -1.6 per cent
- Highest rental yield: Darwin 5.8 per cent
- Lowest rental yields: Sydney 3.0 per cent
Premium Markets Leading the Way
The strongest house price gains continue to be recorded across properties in the upper quartile value range. Across the combined capitals, the value of properties in the upper quartile rose by 1.2 per cent in January compared with a 0.2 per cent lift in value across the lower quartile.
On an annual basis, upper quartile property values are 8.5 per cent higher while lower quartile property values are down 0.2 per cent. The trend towards a stronger performance across premium markets is most evident in Sydney and Melbourne, and to a lesser extent, Brisbane.
Sydney’s top quartile market has recorded a 10.0 per cent lift in dwelling values over the past twelve months compared with a 3.4 per cent rise across the lower quartile.
Similarly, Melbourne’s top quartile is up 11.5 per cent in value over the past year compared with a 5.6 per cent rise in lower quartile values. Brisbane’s upper quartile values are 1.3 per cent higher over the year and lower quartile values are up 0.3 per cent.
The stronger performance across the more expensive end of the market comes after a larger correction during the downturn, but also may reflect a rise in borrowing capacity following the changes from APRA in July last year, as well as the dominance of owner-occupier buyers (rather than investors) through the recovery phase to date.
Seasonal Impacts
According to Mr Lawless, January can be a hard month to read the housing market.
“Seasonal factors deliver a reduction in sales activity, auction markets become quieter and listing numbers drop sharply. Through February we will receive a much better feel for housing market trends as activity returns to normal,” he explained.
“Despite the seasonality, there is evidence to suggest that housing value growth rates are tapering in Sydney and Melbourne, although with values rising at more than 1 per cent month-on-month, this pace is still unsustainable considering household income growth is sluggish and housing affordability challenges are worsening.
“Looking ahead, interest rates are expected to see further reductions, which, along with consistently strong population growth, is likely to continue to support housing demand. From a supply perspective, new housing construction remains in decline, despite the uplift in dwelling approvals over the past few months.
“This may lead to undersupply pressures across the new housing sector later this year, providing support for housing prices through the year.
“A big test for the market will be advertised supply levels. As the market moves out of the festive season slow down, we are expecting more home owners to take advantage of the strong selling conditions and recovery in housing prices.”
