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Unit growth falls into negative territory

Annual growth for units across the country has slipped into negative territory, with values down 1.4 per cent compared to this time last year, according to CoreLogic.

CoreLogic’s national unit value index declined by 0.8 per cent in October, taking the median value to $598,417, which is 3.8 per cent below the peak recorded in April.

By comparison, national house values ($779,369) fell 1.3 per cent over the month, taking house values 6.6 per cent below the April peak and 0.8 per cent lower over the 12 months to October.

CoreLogic Economist Kaytlin Ezzy said house values continue to be more sensitive to rising interest rates compared to units.

“As the larger monthly increases in house values recorded over the final quarter of last year fall out of the annual calculation, we’ll likely see the annual growth trends intersect before the performance gap between house and unit values inverts in favour of units,” Ms Ezzy said.

Across the combined capitals, the quarterly change in unit values has eased from a 2.7 per cent decline in the September quarter to 2.4 per cent over the three months to October. 

Ms Ezzy said several factors may have helped influence this deceleration.

“Not least the smaller increases in the official cash rate between October and November, as well as a lack-lustre spring selling season,” she said.

On average the flow of freshly advertised capital city unit listings surges approximately 37.1 per cent each year between the end of winter and the spring peak in October. 

However, in 2022, weaker selling conditions and lower vendor confidence saw the flow of fresh unit listings fall by 3.6 per cent over the same period, which has helped to keep total advertised supply below the previous five-year average, despite a slowdown in buyer demand. 

Over the four weeks to 30 October, newly advertised unit listings across the combined capitals were 14.6 per cent below the previous five-year average, while total advertised supply was 8.1 per cent below the average listings level for this time of year, indicating vendors were not dumping unit stock or rushing to exit the market, Ms Ezzy said.

“There has been no material increase in the number of distressed unit listings, in fact, total listings have remained fairly flat, with many prospective sellers choosing to wait for more favourable market conditions rather than sell during a downturn,“ she said. 

Unit values across Adelaide and Regional SA continue to be resilient to the current market conditions, recording monthly increases of 1 per cent and 0.9 per cent, respectively. 

At $239,856, regional SA’s median unit value is the cheapest amongst the greater capitals and rest of state regions, while the average unit in Adelaide ($436,462) is more than $150,000 cheaper than Melbourne ($597,533 ) and almost $350,000 cheaper than Sydney ($783,406 ). 

Source: CoreLogic

Ms Ezzy said the current downturn has been fairly orderly so far, with declines first emerging in the most expensive markets before flowing through to the broad middle and more affordable markets.

“Given their relative affordability and below-average listing levels, it’s unsurprising that SA’s unit values are still increasing,” she said.

“However, the pace of growth across these markets has shown some signs of easing.”

Other affordable unit markets, including Perth, Darwin, and Regional WA, recorded relatively mild value declines over the three months to October – down 0.1 per cent, 0.5 per cent and 0.9 per cent, respectively. 

Brisbane recorded its first quarterly decline in two years, with unit values falling 1.2 per cent over the three months to October Ms Ezzy said.

“As the most affordable capital on the east coast, Brisbane’s unit market had been more robust,” she said.

“However, six consecutive rate hikes, worsening affordability, and an easing in the South East Queensland migration trend have weakened demand.”

Regional Queensland recorded a larger quarterly decline in unit values (-2.9 per cent) thanks to a stronger decline across the Gold and Sunshine Coasts (down -2.9 per cent and -6 per cent, respectively). 

At the other end of the country, Regional Tasmania units recorded the strongest decline in unit values, with the quarterly growth rate remaining steady at -7.8 per cent for the second consecutive month. 

This was followed by units across Hobart (-4.2 per cent) and Sydney (-3.3 per cent), which both recorded a deceleration in the quarterly rate of decline, down from -5.3 per cent and -3.9 per cent, respectively, over the three months to September.

Unit rents increased 1.1 per cent for the third consecutive month, according to Ms Ezzy.

“With a median weekly rental value of $510, national unit rents continue to be approximately $50 per week cheaper compared to national house rents at $561,” she said. 

“However, with the rate of growth in unit rents outperforming that of houses over the past year, the gap between house and unit rents has narrowed by around $10. 

“As the affordability benefit that unit rents offer diminishes, it’s possible we could see some rental demand shift back in favour of the lower density sector.”

Ms Ezzy said while it is likely values across Australia’s unit market will continue to decline over the coming months, a few tailwinds are starting to emerge. 

“The de-deceleration in the quarterly growth trend could be an indication that we have moved passed the worst value declines,” she said.

“However, it’s still early days, and any change to the outlook for interest rates could see declines accelerate once more.

“Additionally, Australia’s labour market remains extremely tight, with the unemployment rate falling to 3.4 per cent in October. 

“Coupled with the strong wage growth seen over the September quarter, this should help keep a lid on distressed or forced sales.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.

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