Property market update: Melbourne, April 2022
Melbourne’s growth plateaued over April and posted its first quarterly since the start of the pandemic boom, further d...
CoreLogic’s Home Value Index (HVI) has recorded its lowest monthly growth since October 2020, impacted by the slowing growth of two of the nation’s largest markets.
Melbourne and Sydney’s residential real estate markets have recorded their first quarter of negative house value growth since the initial extended lockdowns implemented at the beginning of 2020. The slowing of both residential markets is a major contributing factor to the slowing of CoreLogic’s HVI, the latest report from the firm confirms.
Sydney reported a -0.2 per cent change in dwelling values for the month and a -0.5 per cent change for the quarter, while Melbourne registered a value change of -0.04 per cent for the month of April and -0.1 per cent throughout the quarter. The only other capital city to record a negative change in dwelling value for April was Hobart, with figures suggesting dwellings in the Tasmanian capital’s value decreased by -0.3 per cent through April.
The HVI slowing comes despite the fact that almost half of Australia’s capital cities recorded a monthly growth rate of 1 per cent or higher, led by Adelaide where dwelling values increased by 1.9 per cent in April.
Tim Lawless, research director at CoreLogic, notes the slowing down of the overall index value has been heavily influenced by the current downturn in Sydney and Melbourne but also cites the increased uptake of international and domestic migration in other capital cities as a contributing factor to their growth.
“A rebound in migration rates as state and international borders reopened could partially explain the renewed exuberance, along with persistently low advertised stock levels and strong economic conditions,” Mr Lawless said.
“While ABS internal migration data by greater capital city is currently only reported to June 2021, the data points to a vast uplift in internal migration to Perth for the year (6,468), a substantial turn-around from the previous four-year average (-3,735).”
Another considerable factor contributing to the growth in smaller capital cities, according to details of the report, is persistently lower levels of property listings.
In Adelaide and Brisbane, the markets with the highest dwelling value growth in April, total advertised inventory levels are 20 per cent lower than the same time a year ago. The shortage of available dwellings in these markets has been attributed to increased demand and consequent more rapid property absorption rates.
Whereas in Sydney and Melbourne, the “weaker” markets, advertised supply levels have normalised. Advertised supply levels in the NSW capital sit approximately in line with the previous five-year average, while Melbourne has reported an 8.2 per cent listings increase on its five-year average.
“With higher inventory levels and less competition, buyers are gradually moving back into the driver’s seat. That means more time to deliberate on their purchase decisions and negotiate on price,” Mr Lawless said.
Value decreases to become more prominent
Another key detail mentioned in CoreLogic’s Home Value Index report is the increasing prominence of home value decreases, particularly as the 12-month calculation periods move away from the stronger months of capital gains experienced at the beginning of 2021.
National home value increase fell from 22.2 per cent growth in the year leading to November 2021 down to 16.7 per cent for the 12-month period leading up to April 2022. Mr Lawless said there are many factors leading to this slowing of value increases, including the imminent increase of the RBA cash rate.
“With the RBA cash rate set to rise, potentially as early as tomorrow, we are likely to see a further loss of momentum in housing conditions over the remainder of the year and into 2023,” he stated.
“Stretched housing affordability, higher fixed term mortgage rates, a rise in listing numbers across some cities and lower consumer sentiment have been weighing on housing conditions over the past year,” he continued. “As the cash rate rises, variable mortgage rates will also trend higher, reducing borrowing capacity and impacting borrower serviceability assessments.”
Unit rents to overtake housing rents
Regarding the condition of the rental market, the report details that national rents were up 2.7 per cent in the three months leading to April, increasing the annual rental change to 9 per cent.
According to the report, housing rents, which are up 9.1 per cent from last year, are rising at faster rates than unit rents, which are up 8.7 per cent from the previous year, but the firm believes this trend will change as unit rental demands increase nationwide.
This is evident in Sydney, where unit rents were up 3 per cent in the three months ending in April, as opposed to house rents, which rose by 2 per cent in the same time period.
In Melbourne, the difference in growth between the two is much greater. Rents in the Victorian capital have risen by 3.6 per cent in the past three months. By comparison, housing rents have increased by just 1.2 per cent in the same time period. These increases are being driven by various factors, Mr Lawless affirmed, and are resulting in higher gross yields.
“On a rolling quarterly basis, we are now seeing unit rents rising faster than house rents especially in Sydney and Melbourne where rental conditions across the unit sector were previously much softer,” he said.
“The shift in rental demand towards units reflects both rental affordability pressures, which are deflecting more demand towards the ‘cheaper’ unit sector, and the return of overseas migrants and visitors. Rental demand from overseas arrivals tends to skew towards inner city and higher density precincts.”
Home values to drop as rates rise
CoreLogic predicts that as the cash rate begins to climb, the softening growth rate of the housing market will only become more pronounced across the coming months. Research from the firm highlights a strong inverse relationship between cash rate movement and the changing rate in housing values.
“Although we are expecting the housing market to move into a downturn through the second half of the year, it is important to remember the context of the recent growth phase,” Mr Lawless noted.
“Since the onset of the pandemic, national housing values have increased by 26.2 per cent, adding approximately $155,380 to the median value of an Australian dwelling.”
Additionally, an anticipated increase in the interest rate by the RBA is expected to impact housing markets, with the bank itself noting a 2 percentage point increase in interest rates could lower housing prices by 15 per cent.
Despite this, an increase in interest rates would not have a substantial impact on the median repayment buffer for owner-occupiers, according to the RBA’s latest financial stability review – which put the figure at 21 months of scheduled repayments.
Interest rate rises are expected to decrease this buffer down to 19 months, but the RBA has noted this number as still substantial.