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Melbourne and Sydney drag down an otherwise strong September

September saw an impressive turnaround for housing sentiment across six of the eight capital cities, with an increase in home values, a rise in new listings, and consumer confidence back where it should be.

However, Sydney and Melbourne, which make up 40 per cent of Australia’s housing stock, suffered falling values which dragged the national average way down, resulting in a fifth straight month of decline.

CoreLogic’s September home value index results showed a 0.1 per cent fall in dwelling values nationally, with a 0.2 per cent drop in the combined capitals index and a 0.4 per cent rise in the combined regionals index.

“By far the weakest result across the capital cities, Melbourne housing values were down 0.9 per cent in September,” explains CoreLogic head of research, Tim Lawless.

“Since peaking in March, Melbourne values are down 5.5 per cent. With restrictions starting to lift and private home inspections once again permitted, we expect to see activity lift in October.”

Sydney’s decline has been easing since July, with the other six capitals showing growth. Regional markets have out-performed the capitals throughout the pandemic, falling only 0.8 per cent since March, as opposed to capital city values, which have slipped 2.6 per cent.

“From a cyclical perspective, regional areas weren’t recording the same growth conditions pre-COVID, so home values in these markets are often more affordable, and don’t have a high base to fall from,” Mr Lawless explains.

“Anecdotally we are also observing a transition of demand away from the cities towards the major regional centres, particularly those that are adjacent to the larger capitals where residents can commute back to the cities if required.

“Remote working arrangements are no doubt a factor in supporting demand in these markets, but lifestyle opportunities and a desire for lower density housing options are also playing a part.”

A number of factors suggest we may see improved housing market conditions.

“The aggregate effect of low mortgage rates, and the prospect that rates could fall further, low inventory levels, government incentives and improving consumer sentiment seems to be outweighing the negative economic shock brought about by the pandemic,” Mr Lawless said.

Housing values seem to be buoyed by a lack of new listings, which are 22 per cent lower than last September, and 25 per cent below the five year average.

“While the number of advertised homes is 14 per cent lower than a year ago, our estimate of home sales through the September quarter was 2.8 per cent higher than the same time last year,” Mr Lawless continued.

“The imbalance between available supply and housing demand is one of the reasons why housing values have hardly fallen through the COVID period so far, and helps to explain the recent upwards trend in values across some cities.

“We aren’t seeing any signs of a rise in distressed listings or stock starting to pile up in the market. In fact, the opposite seems to be true, where new listings are being absorbed by the market faster than the rate at which they are being added.

“This trend will be important to monitor over coming months as fiscal support tapers and the financial situation of borrowers taking a repayment holiday is assessed by their lender. A rise in urgent or distressed listings would provide a further test for the resilience of housing values.”

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