Economist Kaytlin Ezzy has shed light on the recent slowdown in housing value growth across the nation. The National Home Value Index (HVI) growth has eased from 0.7% to 0.5% through the month, as high inflation and rising stock levels dampen demand. The slowdown is more pronounced in expensive markets and property types, with Sydney showing the most significant decline.
Melbourne and Hobart are the only capitals with falling values, pressured by high stock levels. Mid-sized capitals, which have been leading growth, are beginning to show signs of waning demand as affordability worsens. Winter chills are driving temperatures lower across the country, but the thermometer is not the only thing dropping. CoreLogic’s daily home value index shows a marked easing in the rolling four-week change, with national values rising just 0.5% over the four weeks to 18th July, down from a 0.7% rise the previous month.
Sales and listing activity typically slow during winter, but housing values haven’t historically shown seasonal behaviour. The recent easing in growth is likely linked to persistently low consumer sentiment amid high inflation and a rise in advertised stock levels in some markets. Throughout the year, housing values have been buoyed by low listing levels and the expectation of rate cuts later this year. However, with higher-than-expected monthly CPI figures for April and May, the anticipated timing for the first-rate cut has been delayed, and consumers are bracing for higher interest rates for longer.
With many household budgets already stretched by the high cost of living and increased debt servicing costs, potential buyers are holding off on purchasing decisions until the outlook for interest rates becomes clearer. This has reduced demand and cooled the market. Additionally, the flow of new listings has remained between 5 and 10% above the previous five-year average since April, allowing overall stock levels to accumulate, reducing buyer urgency, and giving buyers more options and leverage at the negotiation table.
Approximately 137,000 properties were advertised for sale nationally over the four weeks to 14th July, around 17% fewer listings than typically seen this time of year. While still below the previous five-year average, there has been a steady rise from the listing levels seen in March when advertised supply was approximately 23% below average.
Breaking down the daily index by capital city and property type, the recent slowdown is more apparent in expensive sectors, with house growth showing more sensitivity than units. Sydney dwellings have shown a more pronounced deceleration than the more affordable mid-sized capitals. As of 18th July, the 28-day change in capital city house values has eased to 0.4%, down from 0.7% the previous month, while unit growth has remained steady at around 0.7%. Similarly, Sydney dwellings have seen a more substantial easing in growth compared to more affordable capitals, with the 28-day change cooling to 0.3%, down from 0.7% last month.
Affordability continues to be a crucial factor in growth pace, with the more affordable end of the market showing more resilience to the elevated interest rate environment. Markets with lower price points are likely seeing a shift in demand from the middle-to-higher end of the market as borrowing capacity reduces and affordability pressures increase.
Since the first rate hike in May 2022, the average new mortgage repayment for Sydneysiders has increased by approximately $2,200 per month, adding significant pressure to household budgets already stressed by high living costs. It’s unsurprising that the potential for mortgage rates to stay higher for longer has dampened some buyers’ appetites, and we could see value growth ease further as affordability challenges and low sentiment continue to weigh on demand.
After recording a mild gain in June (0.1%), Hobart’s 28-day trend has dipped back into negative territory, joining Melbourne as the only capitals recording declining values. Down 0.2% and 0.5% respectively over the past four weeks, values in Melbourne and Hobart have been weighed down by high levels of advertised supply. While the remaining capitals have seen total advertised supply well below average, stock levels in Melbourne and Hobart are currently above average, up approximately 13% and 53% on the previous five-year average respectively, placing downward pressure on values.
Across the mid-sized capitals, Perth continues to lead with a rolling 28-day increase of 1.8%, followed by Adelaide (1.7%) and Brisbane (1.0%). While the trend for softer growth is less apparent in these cities, the change in the daily HVI has ticked lower through the first half of the month, suggesting we could be seeing the first signs of waning demand.
The mid-sized capitals have been the top performers in growth this year, with Brisbane and Adelaide recording monthly growth above 1% and Perth over 2% for the past three months. However, the sustained growth has arguably eroded these cities’ relative affordability. While these markets will likely continue to outperform Sydney and Melbourne in the near term, as their affordability advantage erodes, we may see a further easing in demand amid persistently high borrowing costs.
Despite the slowing pace of growth, most markets are still recording positive capital appreciation, with supply and demand mismatches continuing to support value growth. All eyes will be on the June quarter inflation outcome, released on 31st July. As long as inflation remains above target, sentiment is likely to remain low, and the risk of an extended period of high interest rates could see the pace of growth in home values soften or turn negative. Most households have been resilient, managing additional borrowing costs, with mortgage arrears, although rising, remaining around average.
While higher rates could erode housing demand, values will likely continue to rise, albeit at a slower pace and with significant diversity from city to city and region to region. CoreLogic will release the full set of monthly indices, including rental market performance for July, on 1st August.
