Affordability constraints, rather than lockdowns, have slowed but not halted the rise in property values, according to the latest report from CoreLogic.
Released today, the national home value index indicates dwelling values rose 1.5 per cent in August, affecting every capital city except Darwin, while data for Perth is not yet available.
This rate of growth is well above average but equates to the lowest monthly rise since January this year.
It is also below the peak recorded in March when property values rose 2.8 per cent month-on-month, led by Sydney where values were up 3.7 per cent.
CoreLogic Research Director Tim Lawless explained the slowing rate of growth probably has more to do with worsening affordability constraints than ongoing lockdowns.
“Housing prices have risen almost 11 times faster than wages growth over the past year, creating a more significant barrier to entry for those who don’t yet own a home,” he noted.
“Lockdowns are having a clear impact on consumer sentiment, however, to date the restrictions have resulted in falling advertised listings and, to a lesser extent, fewer home sales, with less impact on price growth momentum.
“It’s likely the ongoing shortage of properties available for purchase is central to the upwards pressure on housing values.”
The August update takes Australian housing values 15.8 per cent higher over the first eight months of the year and 18.4 per cent above levels a year ago.
In dollar terms, the annual increase in national dwelling values equates to about $103,400, or $1990 per week.
In comparison, Australian wages are rising at the average annual rate of 1.7 per cent.
Mr Lawless said this is the fastest annual pace of growth in housing values since the year ending July 1989.
“Through the late 1980s, the annual pace of national home value appreciation was as high as 31 per cent, so the market isn’t quite in unprecedented territory,” he said.
“The annual growth rate at the moment is trending higher, in fact, it is 3.6 times higher than the 30-year average rate of annual growth.”
House and unit growth gap narrowing
The gap between the price growth of houses and units appears to be narrowing, according to the latest report, with Mr Lawless indicating this could be another demonstration of affordability emerging as an issue.
Throughout the first quarter of the year, capital city house values rose about 1.1 percentage points faster than units each month.
By August, the average performance gap dropped to 0.7 percentage points.
“The narrowing gap between house and unit value growth is most noticeable in Australia’s most expensive city, Sydney, where the monthly growth rate for houses was 2 percentage points higher than units in March,” Mr Lawless said.
“That ‘gap’ has now reduced to 0.6 percentage points in August. Based on median values, Sydney units cost almost $470,000 less than a house. At the same time, the growth gap between houses and units in Melbourne and Brisbane has widened.”
Lockdown impacts advertised supply and demand
One area where lockdowns are having an impact is in advertised supply.
In early May, newly advertised properties were 19.7 per cent above the five-year average.
However, due to lockdowns, and also seasonal factors, the number of new listings in August dropped 5.8 per cent below the five-year average, while total active listings were down to 29.4 per cent below average.
Transactions down, but still above five-year average
Although housing market activity remains well above average levels, the three months to August saw the volume of home sales drop by 9 per cent, compared to the three-month period prior.
Mr Lawless also noted there was a disconnect between housing supply and demand.
“Although there has recently been a trend towards fewer buyers, the past three months have seen the number of home buyers remain 30 per cent above the five-year average at a time when active listings are 29 per cent below average.
“We are still seeing a disconnect between advertised supply and housing demand, even in the cities where lockdown restrictions are active, which Is keeping upward pressure on housing prices, despite challenges faced by both buyers and sellers.”
Auctions reflect strong selling conditions
CoreLogic notes the strong selling conditions have also been reflected in auction clearance rates and private treaty measures, despite the fact areas like Melbourne are seeing a high withdrawal rate.
“Auction clearance rates have trended lower, especially in Melbourne where a large proportion of properties have been withdrawn from market,” Mr Lawless said.
“However, where properties have proceeded to market, the large majority are recording a successful result, albeit with a large proportion selling prior to the auction, rather than under the hammer.”
Median days on market slightly higher
The median days that it takes a property to sell has also increased slightly.
However, most cities, including those navigating extended lockdowns, are continuing to see homes sell in 30 to 35 days or less.
At the same time, vendor discounting remains at a record low, implying vendors aren’t budging much on their initial price expectation.
Rents are up
Rental price growth continues but has softened over recent months, according to the report.
CoreLogic notes nationally, rents lifted by 8.2 per cent over the 12 months ending in August, which was the largest rise in rents since 2008.
However, there remains a stark difference between the growth of house rents and that of units.
The cost of renting a home has risen at 9.9 per cent over the past 12 months, which is more than double the pace of units at 4 per cent.
This difference is most pronounced in Sydney and Melbourne, where unit markets have recorded a substantially lower growth rate.
“The weaker trend in unit rents across Australia’s two largest cities is likely a reflection of their greater exposure to temporary overseas migrants as a source of rental tenancy, especially foreign students who would normally underpin inner-city, high rise rental demand,” Mr Lawless said.
“The sharp drop in demand due to closed borders has been exacerbated by high supply levels as both cities come out of an unprecedented surge in inner-city apartment construction.”
Although Melbourne and, to a lesser extent, Sydney unit rents remain soft, they are starting to rise in these cities.
Sydney unit rents have consistently risen each month during 2021, while in Melbourne, unit rents have been rising since June.
The strongest rental markets remain in Perth and Darwin, however the annual rate of rental growth in these cities appears to have peaked, while rental growth across the remaining capitals is continuing to trend higher.
Rental yield at all-time low
With national housing values rising by 18.4 per cent and rents rising by a lower 8.2 per cent, the result is ongoing yield compression.
Nationally, gross rental yields have fallen to an all-time low of 3.32 per cent. It is no longer just Sydney and Melbourne where rental yields are falling to historic lows.
Brisbane (3.99 per cent), Hobart (4.01 per cent) and Canberra (3.99 per cent) have also seen gross rental yields fall to record lows in August.
Spring selling season ahead
Looking into the crystal ball, CoreLogic notes there will likely be an element of pent-up supply unleashed when restrictions are eased in Sydney and Melbourne, but as yet it’s not clear whether that will be to the same extent as seen after previous lockdowns.
At present, new listing numbers in those capitals and also Canberra remain subdued.
Meanwhile, CoreLogic speculates affordability will likely to be an increasing factor moving forward, while there is also the potential for credit tightening down the track, which would have an impact on demand.
In the interim, they note there is evidence of listing numbers increasing in Brisbane, Adelaide, Perth and Hobart as the market moves into spring selling season.
