Unit values across the country are likely to be more resilient during the current market downturn according to an expert.
Since peaking in April, house values have reversed at a more rapid rate, falling 5.3 per cent, while values across the medium to high-density sector have declined at a more moderate 3 per cent.
CoreLogic Economist Kaytlin Ezzy said it’s likely unit values will hold up better, helped by better affordability and rising interest rates.
She said the downturn in the upper end of the unit market had been less pronounced than in the lower and middle price brackets.
“Capital city unit values across the middle of the market fell 2.2 per cent over the September quarter, while the quarterly change in unit values across the more affordable lower quartile fell into negative territory in September, declining 0.4 per cent over the past three months,” Ms Ezzy said.
Across the capitals, 70.8 per cent of the 982 unit markets analysed declined over the September quarter, up from 39.8 per cent over the June quarter.
While some of the more affordable capitals such as Adelaide (11.6 per cent) and Perth (38.9 per cent) saw a smaller portion of unit markets decline over the quarter, the majority of suburbs across Hobart (100 per cent), Sydney (95.7 per cent), Melbourne (88.4 per cent) and Canberra (85.1 per cent) recorded quarterly falls.
Though combined capital unit values fell by 0.8 per cent in September (taking them 2.7 per cent lower over the quarter), monthly value change across the individual capitals ranged from a 1.1 per cent decline in Hobart, to a 0.1 per cent rise in Adelaide.
Ms Ezzy said Adelaide’s relative affordability, coupled with low advertised stock levels, had seen its unit market remain resilient to declining values.
“While monthly growth remains positive, the pace of growth has slowed significantly,” she said.
“With further interest rate rises expected in the coming months, it’s likely Adelaide’s unit market will soon find its peak, before declining.”
A later cyclical peak in values across the more affordable capitals has seen unit values across Brisbane (0.4 per cent), Perth (0.6 per cent) and Darwin (1.4 per cent) increase over the quarter, despite values falling on a monthly basis in September (down 0.1 per cent, 0.1 per cent and 0.3 per cent respectively).
At the other end of the scale, Hobart’s monthly decline of 1.1 per cent saw unit values slip 0.1 per cent below the levels recorded this time last year, while the 1 per cent and 0.8 per cent monthly declines seen across Sydney and Melbourne took the annual change to falls of 4.8 per cent and 1.6 per cent respectively.
Unit values across the combined regional markets also fell 0.7 per cent over the month, with only Regional SA (1.2 per cent) and Regional WA (1.3 per cent) recording a rise in unit values.
Listings remain down
Ms Ezzy said we didn’t see the normal spring uptick in new listings this year after the typically slower winter period.
“While the flow of newly advertised listings typically falls through winter, it is generally followed by a bump of around 20 per cent in spring,” she said.
“However, it appears the spring selling season is off to a slow start this year, with freshly advertised unit listings -4.8 per cent below the number seen this time last year and 4.4 per cent below the previous five-year average.
“It seems prospective vendors are looking to wait out the current downturn, rather than trying to sell under unfavourable selling conditions.”
Rents continue to rise
National unit rents continue to surge, up 1.1 per cent in September, compared to a 0.5 per cent rent rise seen across houses.
While there are some early signs the pace of rental growth has started to slow, with the quarterly trend recording a cyclical peak of 3.7 per cent in July before easing to 3.5 per cent in September, the annual trend recorded a new record high, with unit rents rising 11.8 per cent over the 12 months to September.
Except for Canberra ( down 0.1 per cent) and regional Tasmania ( down 0.3 per cent), each capital city and regional unit market saw rents rise in September.
Brisbane continues to record the strongest monthly increases in rental values, up 1.4 per cent (taking rents 4.6 per cent higher over the three months to September), followed by Sydney and Adelaide, which both saw rents rise 1.3 per cent over the month.
Over September, unit rental values rose 1.2 per cent across regional WA and regional SA, 1 per cent across Melbourne and Darwin and by 0.9 per cent across Hobart and regional Queensland.
“While the sustained period of rental growth has seen an increasing portion of tenants encounter affordability challenges, given the relative affordability of unit rents compared with house rents, coupled with the strong return of overseas migration and record low rental vacancy rates (1.1 per cent across both the combined capitals and combined regions) we’ll likely see rental growth remain strong for some time yet,” Ms Ezzy said.
Interest rates the key
The outlook for unit values remains linked to the trajectory of interest rates, with interest rates expected to rise further, it is unlikely unit values will find their floor until interest rates stabilise.
While falling values have potentially helped some first home buyers clear the deposit hurdle, with the cash rate now 2.5 percentage points above the emergency low rates seen in April (0.10 per cent), the conversation around affordability is shifting towards mortgage serviceability.
“Despite median unit values across Australia falling by around $19,000 since April, the typical monthly mortgage repayment on a new owner-occupier loan is now approximately $600* higher than before the first rate rise,“ Ms Ezzy said.
“However, there are some possible tailwinds on the horizon. The pace of monthly unit value declines eased slightly in September, from a 0.9 per cent fall recorded in July and August, to 0.7 per cent in September.
“While still early days, this could be a sign that unit values are passing their peak rate of decline.
“Additionally, the pace of interest rate rises has also started to slow, with the RBA announcing a 25 basis point rise in October, suggesting that the tightening cycle could be shorter than previously expected.”