Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 393

Australian housing values reach a new record high

Housing values continued to rise through the first month of 2021 with CoreLogic’s national home value index up 0.9% over the month. The January movement takes Australian home values to a fresh record high. Housing values have surpassed pre-COVID levels by 1.0%, and the index is 0.7% higher than the previous September 2017 peak.

Every capital city and broad rest-of-state region recorded a rise in housing values over the month, ranging from a 2.3% surge across Darwin to a relatively mild 0.4% rise in Sydney and Melbourne.

Regional doing well

Continuing a trend that became evident early in the pandemic, regional housing values rose at more than twice the pace of the capital city markets. CoreLogic’s combined regionals index was up 1.6% over the month, while capital city values were 0.7% higher. Since the onset of COVID-19 in March last year, regional housing values have surged 6.5% higher while capital city housing values are down -0.2% over the same time frame.

The largest states are seeing regional home values rising at more than three times the pace of their capital city counterparts. Home values across Regional Victoria and Regional New South Wales rose 1.6% and 1.5% respectively in January compared with a 0.4% increase in home values across Melbourne and Sydney.

According to CoreLogic’s research director, Tim Lawless, the divergence between metro and regional housing demand in New South Wales and Victoria is more substantial than in other states.

“Internal migration data shows more people are leaving Sydney and Melbourne for regional areas, resulting in a transition of activity from the metro regions to the outer fringe and regional markets. This demographic trend is further compounded by the demand shock of stalled overseas migration. As Melbourne and Sydney historically receive the vast majority of overseas migrants, these metro areas have been the hardest hit by this demand shock.”

“Better housing affordability, an opportunity for a lifestyle upgrade and lower density housing options are other factors that might be contributing to this trend, along with the new found popularity of remote working arrangements.”

Houses over units

Another broad trend that is becoming increasingly evident is the outperformance of houses over units. At a national level, house values have risen by 3.5% over the past six months while unit values are unchanged. More recently, the past three months has seen every capital city record a stronger result for houses over units. Mr Lawless said:

“Demand for units has diminished through COVID-19 amidst record low levels of investor participation and changing living preferences. At the same time supply levels are heightened in some precincts. While demand and supply remain imbalanced we are likely to see units continue to underperform relative to detached housing markets.” 

The rise in housing values is occurring against a backdrop of low advertised supply and rising buyer activity. Inventory levels started 2021 in a tight position. The number of fresh listings added to the market nationally over the four weeks ending January 24th was 3.3% lower than the same period a year ago and 13.3% below the five-year average.

Melbourne and Perth were the only capital city markets to buck the trend, with new listings 20.8% higher than a year ago in Melbourne and 2.2% higher across Perth. “Melbourne vendors may still be playing catch-up from the earlier lockdown period, while in Perth vendors seem to be relishing the best selling conditions seen in many years,” Mr Lawless said.

Although fresh stock being added to the market is close to the same levels a year ago, total advertised inventory started the year around record lows. Nationally, total listing numbers, which include new listings plus re-listed properties, were 27.8% lower than this time last year, tracking 29.3% below the five-year average. Melbourne was the only city to record total listing numbers that were higher than last year, up 7.7%.

Another factor impacting available housing supply has been a strong rate of absorption from rising home buyer activity, especially in the detached housing space. CoreLogic estimates the number of national home sales over the past three months was 23.9% higher than the equivalent three-month period from a year ago. The volume of regional home sales was estimated to be 26.8% higher than a year ago while capital city sales were up 22.1%.

On the latest estimates, the volume of capital city house sales were 11.8% above the decade average over the past six months while the volume of capital city unit sales were rising but remained 8.1% below the decade average. Advertised supply levels are low while demand is strong. 

New listings and buyer numbers growing

Some early indicators suggest that new listing numbers are set to outpace levels from a year ago. Real estate agent activity across CoreLogic’s RP Data platform is up 6.5% over the first 28 days of January compared with the same period in 2020. 

However buying activity is also ramping up, with the number of mortgage related valuations already 27% higher than a year ago across CoreLogic’s Valex valuation platform. “At the moment, despite our expectation of a lift in new listing numbers, buyer demand is still outpacing new stock additions. If this trend persists, the rapid rate of absorption is likely to keep overall stock levels low resulting in further upwards pressure on housing prices,” said Mr Lawless.

Recovery in apartment rents, especially Perth and Darwin

The rental market dynamic has changed substantially through COVID but there are some early signs that weakness across the unit sector is starting to level out, if not turn around.

Rental demand has transitioned towards detached and lower density housing markets since the pandemic, partly reflecting the disruption to rental demand from overseas migration, but also the stress of changed working conditions, caused by COVID restrictions, in industry sectors that are traditionally more aligned with rental demand. Additionally, with more people working from home, demand for larger housing options has lifted.

Unit rents in Melbourne and Sydney are down 7.8% and 5.6% respectively over the past year, but in some positive news for landlords, the rate of decline is easing across these markets; in fact Sydney unit rents posted the first month-on-month rise in January (+0.8%) since March last year and Melbourne unit rents held firm over the month. 

Part time job numbers have now fully recovered back to pre-COVID levels and more businesses are embarking on a return to work program which could be helping to support renewed demand towards inner city rental accommodation. Additionally, with rental rates now lower for inner city units, improved rental affordability could be attracting more people back to inner city renting.

Geographically, Perth and Darwin stand out with the largest rental increases. The annual lift in house rents is well into double digit territory while unit rents are also posting strong gains. The strong rental conditions in these regions comes after a long run of falling rents and low levels of investment activity. The result is extremely tight rental supply at a time of rising demand, while affordability is relatively healthy due to the sustained fall in rents between 2013 and 2018. Despite the substantial lift in Perth and Darwin rents over the past year, the median rental rate in Perth is still $90/week lower than the 2013 peak, and Darwin rents remain $145/week below their previous record high in 2014.

Summary of the good start to 2021

Overall, the January results from CoreLogic show the housing market has started the year on a firm footing, setting the scene for further price rises throughout the year.

Low interest rates have been a key factor in supporting the housing market recovery. Mortgage rates are likely to remain at record lows for the foreseeable future, with little chance interest rates could rise this year. This is because inflation and unemployment are still a long way from reaching the RBA’s objectives of full employment and returning the annual inflation rate to the target range of between 2 and 3%.

New headwinds for the housing market could be seen in the form of tighter lending policies, however a trigger for another round of macroprudential intervention is not apparent. A rise in lending activity regarded as ‘riskier’, such as higher proportions of interest only lending, loans with high debt or loan value to income ratios and loans to borrowers with small deposits, could be the catalyst for a tightening in credit rules.

The most significant risk to housing markets remains further outbreaks of the virus. The recent series of outbreaks, and subsequent border closures and restrictions through late December and January, had an immediate negative impact on consumer sentiment. 

 

Tim Lawless is Executive, Research Director Asia Pacific at CoreLogic. Read or download the full report here. This article is general information and does not consider the circumstances of any investor.

 

10 Comments
Dashers
February 06, 2021

The RBA has the power to control housing prices. If interest rates were at say 7% housing prices would be more stable. These low, low rates will not last forever and for some it may all end in tears. However, no one knows what the future holds so we'll just have to wait and see how this all pans out.

Warren Bird
February 06, 2021

Dashers, if only! The RBA can control one thing and that's the cash rate. As a macro policy instrument, changes to the cash rate have broad impacts upon the economy, but these follow with lags that vary and impacts that depend upon lots of other factors. The RBA would love to be able to see it as a lever that had perfectly predictable results, but it doesn't.
To think that it could be a lever to control house prices is nonsense, peddled by 2nd rate economists with vested interests in sounding like they're smarter than the team at the RBA.
Low rates are in place because the economy is not generating strong growth and inflation. The RBA is trying to kick start those things and when they come through rates will go back up. But to think that 7% rates would do anything but cause an economic depression is madness. Yep, that would reduce house prices, but for all the wrong reasons.

Michael W
February 05, 2021

Change in dwelling values in Sydney for eg shows as total return 4.6%but i think this is the change in the median value NOT the % that a particular house has gone up in the period .
I believe the median if at a higher price just means that more houses of a higher price have sold not that house prices have gone up
Please educate me on this thanks

Peter H
February 05, 2021

How can the RBA and associated economists get it so wrong!!! It further confirms how completely out-of-touch these so-called experts and advisors are with regard to the real world.

Mal
February 04, 2021

The loss of immigration has been more than replaced by the return of expats 400,000 in 12 months. They are driving up property and second hand cars.

This May last through to immigration restarting

Chris
February 06, 2021

Too right, because they're the only ones who can afford the money to buy a seat home at the pointy end of the plane.

Dane
February 04, 2021

The beauty of equity creation through re-vaulation, is we can buy and sell expensive RE off one another, all while sitting at home and watching Netflix. This boom should do wonders for making Australia a more dynamic and productive economy, setting us up nicely for the Asian century.

Chris
February 06, 2021

And all the while, running around servicing each other's hot water systems and serving each other lattes, because we don't produce anything, we're just a service based economy. Everyone in Adelaide should also just open their own brand of petrol station next door to each other, from where we can sell the lattes.

Gary M
February 04, 2021

FOMO, here we go again. Fund your loan at 1.8%, get in quick before it rises another 10%, government incentives, borrow from the Bank of Mum and Dad, buy a dog box to at least join the party ... and leave behind a generation of renters who will enter retirement without a home.

Chris
February 06, 2021

Shhhh, you'll get told by the boomers about "how hard it was at 17%", but that furphy has well and truly been busted when you look at my other comments (and actually, that things are worse today). The key is to compare average wages with average house prices and what the "horror" 17% interest rate (that didn't last very long) repayments were as a function of that, versus today. Easy enough to do with the RBA inflation calculator and a bit of data from that period.

 

Leave a Comment:

     

RELATED ARTICLES

It's coming: 10 ways to cool rampant housing prices

The looming excess of housing and why prices will fall

Tax reform favours apartments and owner-occupiers

banner

Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates

Strategy

$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reason to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies will benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Strategy

Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated investors' can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.