Nationwide house prices recovered 0.6 per cent in March after 10 consecutive months of declines, ahead of the Reserve Bank of Australia's decision to keep interest rates unchanged at its policy meeting this month.
Once again the recovery was led by Sydney, which rose 1.4%, although Melbourne prices also rose 0.6% this month.
Other smaller capital cities were mixed, with only Perth (0.5%) and Brisbane (0.1%) recording increases, while Canberra (-0.5%), Darwin (-0.4%) and Adelaide (-0.1%) also recorded monthly declines, as did regional Victoria (-0.1%) and regional Tasmania (-0.7%).
CoreLogic research director Tim Lawless attributes the rise to a combination of low advertised inventory, extremely tough rental conditions and additional demand from overseas migration.
“While interest rates are high and the economy is expected to slow through the year, other factors are clearly putting upward pressure on home prices,” Lawless said.
“Advertised supply has been below average since September last year, with the number of listings in the greater Tokyo area at the end of March being almost 20% below the average over the past five years.
Lawless said purchasing activity has also decreased, but not as much as available supply.
“With such a tight rental market, we're likely to see a spillover effect from renting to buying, but with mortgage rates so high, not everyone wanting to buy will be able to get a loan.”
“Similarly, with net overseas migration reaching record levels and rising, it is possible that permanent residents and long-term migrants who can afford it may skip the rental stage and rush into home buying simply because they cannot find housing to rent.”
Mr Lawless said house price growth was most evident in the top quartile of Sydney's housing market.
Home prices in the most expensive quarter of Sydney's housing market increased by 2.0% in March, while home prices in the top quartile of Sydney's housing market increased by 1.4% month-on-month.
“Sydney's top quartile house prices fell 17.4 per cent from their peak in January 2022 to their recent low in January 2023, the largest percentage fall from the market peak amongst metropolitan market segments,” he said.
“Opportunistic buyers may return to markets where prices have fallen the most.”
Housing conditions in regional housing markets also remained generally strong, with the overall regional index increasing 0.2% from the previous month.
“The geographic markets that are doing best are quite different from the markets we've seen in recent growth cycles,” Lawless said.
“Today’s market is seeing significant price appreciation primarily in rural areas, rather than the commuter coastal and lifestyle markets that were booming during the upswing.
“However, after prices plummeted in many areas, some growth is returning to areas within commuting distance of major capital cities.”
Supply Shortage
New property inflows have remained at below-average levels since September last year, coinciding with the initial loss of momentum in the downward trend in house prices. All capital cities except Hobart (+39.8%) have seen a decline in the total number of advertised properties compared to the past five-year average.
Lowells said new listings, which is normal for this time of year, will likely tend to taper off during the cooler months before picking up through the spring.
“Given that new listings have been trending below average since last spring, it's reasonable to assume there is supply building up behind the scenes. It will be interesting to see whether housing confidence improves and new listings start to pick up,” he said.
Immigration hits renters hard
Lawless said the rental market was becoming more diverse, but vacancy rates remained very low in most areas.
The general trend across major cities is one of accelerating rent growth, particularly across the unit sector, while across smaller cities rent growth is slowing, particularly in the residential sector.
“As the ability to pay rent becomes more strained, we are likely to see collective household restructuring, reversing the downward trend in household numbers seen throughout the pandemic,” he said.
“Furthermore, tenants are likely to try to maximise their rental tenure and spread the rent over more tenants at the expense of spare rooms or home office space.”
“CoreLogic data also shows a sustained increase in rental hold periods, suggesting that tenants may prefer to hold on to their existing leases rather than bravely seek new rental accommodation.”
However, not all cities and regions are seeing rent increases. In the March quarter, rents fell for houses (-1.5%) and units (-0.4%) in Darwin and for homes (-1.3%) in the ACT. In Canberra, historically one of the most expensive markets for rent in the country, quarterly rent declines have led to house rents falling 0.8% over the past 12 months, recording an annual rent fall.
Cautious outlook
While recent trends in the housing market appear to be increasingly favorable, Lawless said he remains cautious about predicting a trough in the business cycle.
He said some factors, such as the impact of 10 consecutive rate hikes and the fixed-rate cliff, have yet to fully play out and will continue to do so for the rest of the year.
Lawless also said record immigration will continue to put upward pressure on prices, making the rental market even tighter over the next few years, while the RBA's pause on interest rate hikes suggests inflation is heading in the right direction.