House prices more attainable across most capital cities over 2018’s final quarter

Domain Senior Research Analyst Dr Nicola Powell said units are performing better than houses.

“Despite weakness across the unit markets in all capital cities apart from Adelaide, national unit prices are holding firmer relative to houses,” she said.

“Affordability constraints and increased first-home buyer activity in Sydney and Melbourne have supported unit demand.”

Dr Powell said the current slowdown is new territory for Australia’s housing market.

“Downturns historically have been driven by interest rate rises, or significant changes to economic conditions. Given the low interest rate environment and Australia’s economic position compared to previous slumps, it’s clear access to credit has been the main driver.

“As banks preemptively tighten lending standards prior to the banking royal commission’s final report next month, it is unlikely we will see any further dramatic changes to the lending landscape.”

Sydney

In Sydney house prices fell 3.2 per cent over the quarter and 9.9 per cent over the year to $1,062,619. Unit prices fell 3.3 per cent over the quarter and 5.8 per cent over the year to $702,012.

Dr Powell said the depth of Sydney’s current house price downturn is the sharpest in more than two decades – although the duration is yet to surpass the 2004 to 2006 slump.

“House prices have fallen 11.4 per cent from the mid-2017 peak, pushing them back to mid-2016 levels.

“For the second time since Domain records began in 1993 house prices have fallen for four consecutive quarters, the only other period this occurred was in 2008.”

She also said that unit prices have fallen for four consecutive quarters.

“The latest annual decline the steepest in more than 20 years, taking unit prices back to mid-2016 levels.”

Melbourne

In Melbourne house prices fell 2.1 per cent over the quarter and 8.4 per cent over the year to $833,321. Unit prices fell 1.8 per cent over the quarter and 4.3 per cent over the year to $479,306.

Dr Powell said the Melbourne price falls gathered pace throughout 2018, but the downturn has been less severe than Sydney’s.

“Restrictions to housing finance have hit Melbourne and Sydney the hardest,” she said.

“However, Melbourne is in better shape than Sydney, as a growing employment sector, lower affordability hurdles and stronger population growth supports the underlying demand for housing.”

She added that Melbourne house prices have also fallen for four consecutive quarters.

“The last time this occurred was seven years ago. The ongoing falls have resulted in the steepest annual house price drop since Domain records began in 1993.

“However, it’s worth noting that the downturn follows an extraordinary period of growth, with house prices rising 72.8 per cent in just over five years.”

Dr Powell said unit prices are holding firmer than houses in Melbourne.

“Underpinning the strength of units relative to houses is affordability hurdles and lending practices.”

Brisbane

In Brisbane house prices fell 0.2 of a percentage point over the quarter and 0.1 of a percentage point over the year to $566,058. Unit prices fell 5 per cent over the quarter and 7.9 per cent over the year to $369,882.

“Greater Brisbane house price growth evaporated by the end of 2018, with prices ultimately flatlining over the quarter and year,” said Dr Powell.

“This provides further evidence that credit access is not only impacting Sydney and Melbourne, it is now having a marked effect on housing markets that would otherwise be growing.”

She added that on the back of increasing levels of supply, Brisbane unit prices recorded the steepest annual fall in roughly 17 years.

Adelaide

In Adelaide house prices grew 0.1 of a percentage point over the quarter and 1.7 per cent over the year to $537,971. Unit prices grew 2.4 per cent over the quarter and 0.7 of a percentage point over the year to $321,430.

Dr Powell said that Adelaide continues to provide buyers and sellers steady market conditions.

“[It is] proving to be more resilient than other capital cities under the changed lending landscape. With the credit crunch impacting investors more than owner-occupiers, Adelaide is somewhat insulated from the restricted flow of housing finance — the southern capital has always skewed towards owner-occupiers. Adelaide house and unit prices defied the national downward trend and became one of only two capital cities to record annual house price growth, and the only capital to record unit price growth. House and unit prices are now at a record high.”

Canberra

In Canberra house prices grew 0.1 of a percentage point over the quarter and held flat over the year at $738,933. Unit prices fell 3.6 per cent over the quarter and 6.1 per cent over the year to $412,718.

Dr Powell said that Canberra continues to defy the national downward trend.

“Canberra is the third strongest Australian capital city, behind Hobart and Adelaide,” she said.

“Steam has slowly dissipated from the nation’s capital throughout 2018, the year closed with flat annual house price growth. Canberra, like all other cities, is being restricted by credit flows, although to a lesser extent than Sydney and Melbourne.”

She added that despite a diversifying economy, the public sector still accounts for a large employment base in the nation’s capital.

“It is therefore likely that local consumer confidence will be dampened in the lead up to the federal election, with buyers and sellers holding tight.

“The prospect of an uncertain political landscape looming, and particularly if a change in government ensues, the demand for housing could be impacted in the short-term. However, house prices are unlikely to go backwards given the ongoing controlled supply of residential land, positive economic outlook and predicted population growth.”

Perth

In Perth house prices were flat over the quarter but fell 3.3 per cent over the year to $546,281. Unit prices fell 3.1 per cent over the quarter and 2.9 per cent over the year to $351,818.

Dr Powell said the early signs of Perth’s housing recovery appeared to have faded by the end of 2018.

“House and unit prices continue to moderate. House prices are now 11 per cent below the peak price achieved almost five years ago.

“The foreign buyer surcharge on residential properties introduced in 2019 could also hinder Perth’s housing recovery, keeping overseas residents in rental accommodation rather than purchasing.”

She said a tighter rental market and improved population flows suggests the bottom of Perth's housing market is near.

Darwin

In Darwin house prices fell 0.4 of a percentage point over the quarter and 8.7 per cent over the year to $514,876. Unit prices fell 0.3 of a percentage point over the quarter and 13 per cent over the year to $321,990.

“Darwin’s housing market has been challenged in recent years,” said Dr Powell.

“The latest figures confirm that prices have been falling for five years, and are now 24.1 per cent from the 2013 price peak.

“A recovery in Darwin’s housing market largely hinges on the government’s attempts at boosting the population, jobs growth and an improvement in the availability of housing credit.”

Hobart

In Hobart house prices grew 2.7 per cent over the quarter and 8.8 per cent over the year to $479,685. Unit prices fell 2.6 per cent over the quarter and 3.5 per cent over the year to $342,796.

Dr Powell said that despite strong growth Hobart remains Australia’s most affordable capital city to purchase a house.

“However, if the level of growth continues it could lose that title and become pricier than Adelaide and Darwin,” she said. 

“House prices have had a record period of growth, rising for eleven consecutive quarters. Population-fuelled demand has outstripped supply, resulting in two years of double-digit growth.”