Property prices are continuing to defy expectations across the country
Property prices are continuing to defy expectations across the country, rising for an eleventh straight month in November to reach a new record high.
But looking at the property market through a national lens doesn’t show the full picture, and some markets are seeing growth slow as more sellers take their properties to market.
The latest PropTrack Home Price Index – released today – shows prices have grown every month of this year, remaining resilient in the face of higher interest rates. However, the pace of growth has slowed in recent months with the increase in properties coming to market giving buyers more choice.
After falling through the second half of 2022, national home prices have since fully recovered these losses to sit 1.29% above their previous peak and 5.42% above levels a year ago.
This year’s spring selling season has been stronger than last year’s so far, particularly in Sydney and Melbourne. That reflects improved selling conditions, more certainty about interest rates, and the fact that prices are growing across much of the country this year, compared to declines last year. These factors have supported vendor confidence.
As a result, choice has improved significantly in the major capitals which has seen the pace of growth slowing. But although the flow of new listings hitting the market has risen, demand for housing has remained strong and home prices have continued to move higher, albeit at a slower pace.
Where price growth is slowing
In the capital city markets that led the home price recovery, or defied price falls entirely, price growth has slowed as the spring selling season has unfolded.
Compared to 3-months ago quarterly growth in Sydney, Brisbane, Perth, and Adelaide has slowed, although these markets still remain the top performing over the past year and continue to record strong growth despite slowing.
The regions where growth is slowing fastest are regions that experienced an exceptionally strong pace of growth through the winter months of this year. For example, the Adelaide Central and Hills region saw house prices lifting 4.56% in the quarter ending August 2023, an annualised pace of close to 20% - well above the long run average annual pace of growth.
Looking at unit price growth the trend is similar, with regions that experienced an exceptionally strong pace of growth earlier this year slowing fastest.
Unit prices in the Sunshine Coast lifted 4.82% in the quarter ending August 2023, an annualised pace of more than 20%.
The curtailing of the pace of growth from the exceptional pace experienced in some regions earlier in the recovery is natural given the rapid turnaround in prices earlier this year, a higher volume of listings hitting the market relative to the winter months and affordability constraints in play.
Looking at where price growth has slowed fastest compared to 6 months ago also paints an interesting picture.
In Sydney, the total number of properties listed for sale has been on the rise since June 2023. Whilst total listings remained at historically low levels earlier this year the surge in the number of properties hitting the market has seen choice increase and the total number of properties listed for sale is now above the average seen over the past decade.
The regions where growth has slowed fastest over the past 6 months are predominantly Sydney regions where choice has significantly improved relative to earlier in the year.
In Sydney there was close to 14% more total listings in October than has been typical on average over the past decade.
In Melbourne, there’s also been an improvement in choice for buyers with the total number of properties listed for sale around 20% above its average over the past decade. However, the recovery in Melbourne has lagged and therefore and isn’t home to many of the regions where price growth has slowed fastest with the uplift in properties listed for sale.
In Brisbane, Adelaide and Perth choice for buyers remains restricted, with total listings much lower than the average over the past decade.
In markets that have been slower to hit their low point or where prices are still falling - Canberra, Hobart, and Darwin – the pace of quarterly growth has accelerated relative to 3 months ago.
Regional areas were also slower to join the 2023 home price recovery but every regional area except regional NSW and SA has seen the pace of quarterly growth has accelerate relative to 3-months ago.
Why prices will continue to grow
Despite the pace of growth slowing in some parts of the country, further growth is expected ahead, although the pace at which prices have grown this year is expected to continue slowing into 2024.
Strong housing demand, buoyed by record net overseas migration, tight rental markets, low unemployment and home equity gains of recent years, has worked alongside limited housing stock to offset the impacts of higher interest rates.
Earlier this year the turnaround in home prices was underpinned by the subdued listings environment that meant buyers were competing for fewer properties. However, although the volume of new listings hitting the market has increased in some regions in recent months, the positive tailwinds for housing demand remain.
At the same time, the sharp rise in construction costs, compounded by costly delays arising from labour and materials shortages, has slowed the completion of new homes hampering the supply of new housing.
Looking ahead, although there is a risk that interest rates rise further, they are close to, if not already at their peak and while the outlook for the economy is weaker, population growth is set to remain strong.
Together with the housing shortfall and continued challenging conditions in the rental market, prices are expected to continue to rise despite affordability remaining stretched.
However, price growth is expected to slow from the above average growth seen in 2023 as the positive tailwinds for housing demand and a slowdown in the completion of new homes counter the sharp deterioration in affordability and slowing economy.
** Article written by Eleanor Creagh, Senior Economist at Proptrack
