The December CoreLogic report paints a picture of a housing market in correction. After two years of unprecedented growth and record low rates, we are now seeing the trend reverse. Sale prices, sales volumes and new lending are all down; rental prices and rental yields are up.
November marked the seventh consecutive month of decline in capital city dwelling values, falling 3.5% in the last three months. The news isn’t all bad for home owners, though: the decline is slowing markedly, indicating that interest rate rises are having the desired effect.
We’ve broken down the report to help you understand the current real estate market.
Regional areas remain strong
Overall, dwelling values are down 3.2% over the last 12 months. However, there is a marked difference between capital cities and regional Australia.
In the past 12 months, capital city prices have declined by -5.2%. By contrast, regional Australia is up 3.3%. Regional areas might not be bucking the trend for much longer, though: in the past quarter they were down 3.6%.
Capital cities vary significantly
Not all capital cities are faring the same.
The steepest declines are evident in Sydney and Melbourne, where prices have traditionally been much higher. Sydney was down -4-4% in the last quarter, and -10.6% in the last 12 months, while Melbourne was down -2.7% in the last quarter and -7.0% in the last 12 months. Hobart posted a -4.4% decrease in the last quarter and -4.1% over the last 12 months, while Brisbane held out against the trend for longer, posting a .33% increase over the last 12 months. However, the last quarter decline of -5.6% may indicate that it’s catching up fast.
Perth, Darwin and Adelaide all saw growth over the last 12 months. Perth was down -0.5% over the quarter but up 3.9% over the year, and Darwin was similar with a -0.6% decline over the quarter and 5.5% increase over the year. Adelaide home owners had the biggest reason to be happy, though, with a -0.8% decline over the quarter but a huge 13.4% increase over the year.
Premium properties have taken the largest hit
Within each city, CoreLogic has looked at property prices by value. The trend is clear. Premium properties, or those which fall into the highest 25% of property values, have declined more than any other.
In Sydney, the lowest quartile fell by only 2.8% while the highest quartile fell 4.9%. In Melbourne, the lowest quartile fell 1.8% while the highest fell 3%. Brisbane’s more affordable homes fell by 2.1% while luxury homes dropped a full 6.9%.
In Adelaide, Perth and Darwin, historically the more affordable capitals, the difference is even more marked. All three saw their most affordable quartile grow in value; Adelaide by 2%, Perth 0.5% and Darwin by 0.1%, while the highest quartile declined by 2.1%, 1.2% and 1.7% respectively.
Hobart, which has dramatically increased in price in recent years, saw a correction across all properties, dropping 3.9% in the lowest quartile up to 4.6% in the highest.
Sellers – and buyers – are losing steam
More notable than the price drops are the drops in sales volume. Across Australia, sales volumes are down -13.3% in the past year; -14.0 regionally and -12.8 in the capitals.
There are a few possible explanations for this. Firstly, it’s likely that record-high prices over the last couple of years encouraged on-the-fence home owners to sell while the market was hot. Accordingly, there are simply fewer properties available to sell now as a result. Secondly, sellers may be wary that they won’t reach tier desire price and are holding off to see if interest rates stabilise.
Thirdly, properties on the market are taking longer to sell. In November, median days on market was 35 as compared to just 20 last year. Whether that’s because sellers are holding out for prices no longer available, or because buyers are finding it harder to obtain loans against a background of rising interest rates is unclear. New housing lending fell 17.1% over the past year.
Renters are feeling the squeeze
Those rising interest rates are having a flow on effect to the rental market as well. Tight demand and higher servicing costs have seen landlords raise prices by a huge 10.2% over the past year.
The rises have been slightly lower in regional areas, but still high at 8.7%, and 10.7% in the capitals. Adelaide and Brisbane tenants are particularly hard-pressed, facing rises of 12.8% and 13.6% respectively. East coast unit dwellers may also be struggling, with CoreLogic reporting rent increases between 14-15% in Melbourne, Sydney and Brisbane unit markets.
The latest interest rate rise, in December 2022, raised the cash rate to 3.1%. That means the rate has increased by 3% over the last seven months, with rises every single month so far. Inflation remains higher than the Reserve Bank target of 3-4%, at 6.9% in October. However, economics expect it to hit its peak at 8% before declining in 2023. We’re unlikely to see interest rates come back down any time soon, but we are likely to see increases slow from here.
What that means for the property market is as yet unknown. However, for expert advice on how your property is sitting in the market, your expert Elders agent can help.