CoreLogic’s October Home Value Index shows housing values have risen at the fastest annual pace since 1989. However, the pace of growth peaked back in March (2.8%) and has now settled back to 1.5% per month.
Housing values have increased 17.6% so far this year, taking the Australian market 20.3% higher over the past 12 months, but the pace of growth is definitely slowing as the market reverts to slightly more normal activity.
Every capital city saw gains last month, as did the broad rest-of-state regions. Hobart and Canberra led the charge in September, with gains of 2.3% and 2% respectively, whereas Darwin and Perth experienced the softest growth at 0.1% and 0.3%.
Key regions are still experiencing strong demand, with regional NSW achieving 2% growth, and regional Tasmania and Queensland recording 1.7%.
First home buyers switch strategy
Lending data shows FHB loans have dropped 20.5% since January, but over the same period FHBs taking out investment loans have increased 45% – suggesting a switch to ‘rent vesting’ as a strategy to get a foot on the ladder.
Monthly change in capital city home values
Why is growth slowing?
A reduction in government incentives and higher barriers to entry for first home buyers – rapidly rising prices – plus new APRA mortgage lending restrictions on banks, not to mention housing values rising faster than household incomes, are combining to reduce the heat.
In Sydney, for example, the median house price is just north of $1.3 million. To raise a 20% deposit, the typical Sydney buyer today needs to save around $262,300.
Are houses still doing better than units?
Throughout the COVID pandemic, house price growth has consistently exceeded the growth of apartment prices – by some considerable margin.
However, the stronger performance of house values relative to unit values is less obvious outside of the capital cities. The differential between annual house and unit growth rates across capital cities was 12.3% in the 12 months to September, compared to 1.9% across regional Australia. In fact, the September quarter saw unit values rising faster than house values across regional Australia. This is probably a reflection of stronger demand for downsizing options and holiday homes in popular coastal markets.
Sellers cash in
CoreLogic’s Pain & Gain Report, shows 91.5% of resales during the June quarter recorded a nominal profit-making gain from the previous purchase price, the highest level of profitability in just over a decade.
Tight listings, record low mortgage rates and Australia’s extraordinary growth in housing values have led to continued strong resale gains for vendors, particularly in the country’s regional and tree change markets.