The Australian property market hasn't taken the big, prolonged plunge that the pessimists forecast.
In fact, the most recent PropTrack Home Price Index indicates that the ongoing price rebound carried on through May, and we're seeing prices go up in more places than before.
Home prices across the country have been going up for the past five months in a row.
In May alone, they increased by 0.33%, and since the beginning of the year, they've gone up by a total of 1.55%.
That means national prices are now only 2.56% lower than their peak back in March 2022.
Eleanor Creagh, Senior Economist at PropTrack commented:
"If national home prices continue to grow at the same pace as over the past quarter, they could return to positive annual growth by July 2023 and surpass their prior peak by January 2024.
Though it must be remembered the outlook for prices remains uncertain.
Interest rates rose again this week and look set to rise a bit further - this is just one factor that may dent the recovery and slow the pace of growth seen in recent months."
According to PropTrack's data, Sydney led the downturn last year with a 7.19% decline in property prices from February 2022 to November 2022.
Property prices in Sydney have quickly rebounded, already up 3.03% from their low point recorded in November 2022.
Ms Creagh further commented:
"If home prices continue to grow at the same pace as over the past quarter, they could return to positive annual growth by the end of June and surpass their prior peak by December 2023."
Meanwhile, Canberra and Brisbane have also recorded a rapid turnaround in prices.
Home prices in Brisbane could be on track to surpass their prior peak by September 2023 and Canberra could return to positive annual growth by October 2023.
In fact, home prices in some markets have already completely erased their falls and surpassed their prior peak.
For example, on the Gold Coast, price falls have reversed entirely.
Home prices there peaked in April 2022, fell 3.1% to their low in September 2022 and have now risen 4.9% to reach a fresh price peak.
The same can be said in Brisbane Inner City, where prices also peaked in April 2022, fell 3.6% to their low in December 2022 and have now risen 4.2% to reach a new price peak.
On the other hand, prices in Adelaide defied the market downturn last year, rising 10% in 2022 and are up a further 2.6% in 2023.
Prices in Perth also bucked the trend last year, rising 4.8%. In 2023 they are up a further 3.1%, making Perth the strongest-performing capital city market year-to-date.
Ms Creagh said:
"The comparative affordability of both cities’ homes has seen these markets outperforming throughout the past year.
Low stock levels are also helping to insulate home values."
What could be ahead?
Sure we received an unexpected rate increase in June.
Yet the cash rate increase in May didn't stop the ongoing home price rebound.
In fact, something unexpected happened.
Prices continued to rise in various markets, and they remained strong despite the expected impact of the changes in borrowing capacities.
Ms Creagh explained:
"Housing demand is stronger, likely bolstered by the surge in net overseas migration, as well as very tight rental markets.
Given limited new stock is coming to market, buyer interest is being concentrated, which is underpinning home prices and offsetting the downward pressure from interest rate rises.
Further, the unemployment rate is close to a multi-decade low, promoting a sense of job security.
Wages growth, while running behind inflation, has also increased.
Five months of price rises that have gathered traction across markets could also be drawing buyers off the sidelines.
Many buyers and sellers anchor expectations from recent momentum, which can then embed trends in the market."
Based on PropTrack's data, demand from potential buyers, as measured by the number of potential buyers per listing, has increased by 3.1% over the past quarter across the combined capital cities.
Demand to buy in the capital cities is 15% higher than in May 2022, and more than 20% higher than levels seen at the onset of the spring selling season in 2022 – a time when interest rates were quickly rising and prices were falling in most markets.
Ms Creagh noted that:
"As the recovery has broadened, numerous metrics are reflecting the improvement in conditions; sales volumes have increased and auction clearance rates have also improved and are now holding firm above levels seen in the back half of 2022."
In May 2023, there was a big jump in monthly sales across the capital cities.
They increased by 32% compared to the previous month, and they were even 1.9% higher than in May 2022.
This was led by Sydney, which saw a remarkable 15.2% increase in monthly sales compared to last year's May.
There are factors that may weigh on the pace of price growth
National home prices have been growing for the past five months, but the future remains uncertain due to the non-linear nature of market trends.
The Reserve Bank of Australia (RBA) is determined to address high inflation, understanding that delaying action could risk destabilizing inflation expectations.
As a result, interest rates have increased and are expected to rise further, potentially impacting the recovery of home prices, especially with the approaching winter market.
As Ms Creagh pointed out, this situation may cause some markets to take longer to reach new price peaks.
Additionally, the rising unemployment rate could make buyers more cautious as job security becomes a concern.
Ms Creagh said:
"Many borrowers who took advantage of low fixed-rate mortgages during the COVID period will transition to higher mortgage rates, although some savings made during the low-rate period and increased competition among lenders may provide relief.
Despite challenges, households with substantial equity buffers and favourable labour market conditions offer some stability.
While budget adjustments are necessary due to cost-of-living pressures, most homeowners are likely to prioritize mortgage repayments, preventing a significant increase in distressed sales.
If market conditions improve and seller confidence increases, leading to more properties coming to the market in spring, the pace of price growth could slow down."
However, by that time, interest rates may have stabilized, easing buyer concerns.
She further said:
"Although the rate of price increases may decelerate as interest rates rise and the listing environment changes, factors such as population growth, tight rental markets, and a shortage of new homes will persist.
Consequently, most capital city markets are expected to return to positive annual price growth in the coming months, provided strong demand continues amid the anticipated economic slowdown."
Source of charts and commentary: REA Insights
