Property prices continued to recover in June, rising 1.1%, but the pace of growth is starting to slow.
Growth in Sydney was again strongest, with prices increasing 1.7% over the month and prices up 6.7% from January's low, according to CoreLogic.
Brisbane also performed well, with prices rising 1.3%, Adelaide and Perth up 0.9% and Melbourne up 0.7%. Prices rose in all state capitals except Hobart, where property prices fell 0.3% for the month.
CoreLogic research director Tim Lawless said the main factor behind continued upward pressure on house prices was a lack of supply.
“New listings in the capital region through June are nearly 10% below the five-year average, while total inventory levels are more than a quarter below average,” Lawless said.
“At the same time, estimates for capital region sales in the June quarter increased to a level 2.1% above the five-year average.”
He said house prices were broadly rising, but the pace of increases slowed in most capital cities in June.
“The slowing pace of capital gains growth could reflect a shift in sentiment amid upward revisions to interest rate expectations,” he said.
“Higher interest rates and weaker sentiment will continue to weigh on the number of active homebuyers and help rebalance the mismatch between supply and demand.”
Source: CoreLogic
Market conditions across regional Australia are also stabilising, with prices up 0.5% in June, down 1.2% from their previous low, although fewer people are moving to regional areas.
Lawless said after the region's population growth surged during the worst of the pandemic, domestic migration trends have normalised over the past year, reducing housing demand across the local market.
“Furthermore, housing demand from overseas migrants is disproportionately in capital cities rather than rural areas,” he said.
Supply Shortage
Lawless said supply shortages remain the main driver of price increases in the current market.
He said the number of homes for sale in the capital was down about 20% compared to the same time last year and 26.4% below the average for this time of year.
The number of listings in rural areas also trended downward throughout the month, falling 32.9% from the five-year average.
“While inventory levels are low, estimated home sales volumes are roughly in line with the average over the past five years,” Lawless said.
“Metropolitan home sales are estimated to have been 2.1% higher than the five-year average through the June quarter, while regional home sales were 8.9% below the average level.”
He said the recovery in home prices is happening in relatively small volumes.
“Home sales are running near average levels, but well below available supply.
“What's driving up home prices is the disconnect between available supply and demonstrated demand.
“The imbalance between supply and demand has made sales terms more favorable to sellers than to buyers.”
Rents are stagnating
The rental housing situation remains tough across the country, but there are signs it is slowly starting to improve.
Mr Lawless said the national rental index rose a further 0.7% in June, still well above the pre-COVID 10-year average of 0.2%, but continued to slow and was the smallest monthly increase since January 2023.
He said rent declines have been seen to varying degrees in most cities and regional markets.
“Canberra is the only capital city where rents have fallen by 2.8 per cent over the past 12 months, while in Hobart rent declines in the past two months have kept the annual trend at just 1.3 per cent,” he said.
“Both markets are seeing easing supply and rising vacancy rates.
“Despite easing, rent increases remain evident in major metropolitan areas, particularly in unit markets where overseas migration and a lack of rental supply continue to put upward pressure on rents.”
Uncertain outlook
Lawless said that while prices were trending upwards, the outlook for property remained uncertain as much depended on interest rate movements.
“Expectations vary as to how far interest rates will rise and how long they will remain elevated, but at least one more hike and possibly more is likely,” he said.
“Unless sentiment is near recession lows and all borrowers have been through a full rate hike cycle, it's hard to imagine the recent pace of home price growth being sustained.”
Lawless said risks are also growing given the large number of borrowers exiting fixed-rate loans and switching to much higher adjustable-rate loans.
Meanwhile, credit terms remain restrictive even for new buyers.
“As we have seen through periods of tightening macroprudential policy and enhanced repayment capacity assessments, credit plays a key role in the housing market and any further reduction in available credit is likely to weigh on buyer demand,” Lawless said.
Lawless said perhaps the most significant factor putting upward pressure on home prices is low housing inventory.
“Any changes in supply trends could become apparent in the spring, when property listings typically increase,” he said.
“If mortgage burdens become more widespread, we could see more properties coming onto the market.”