While house price gains have slowed at the margin, they remain very strong, rising through the month of April at the third-fastest rate seen since the late 1980s.
Leading indicators suggest ongoing solid housing price growth, but not at the extraordinary rate recorded in March.
Auction clearance rates are just off their highs, new listings are picking up and affordability constraints may be biting.
Let me be clear – the pace of growth is slowing, but the property market is still moving forward and I still expect double-digit gains for capital city prices through 2021.
Capital city auction rates continued at recent elevated levels this past weekend.
Sydney’s clearance rate was still punchy 83.5%, Melbourne’s not far behind at 77.1%.
This is a market showing signs of lifting volumes with some increase also in prospect from the property sales pipeline.
Prices continued on their merry way higher.
- Sydney properties increased 0.7% over the last week alone
- While Melbourne properties increased in value by 0.2% over the week
So far this year property values around Australia have increased 7.6%.
This surge in property value has caused all our major banks to forecast 20% to 30% rises in property values around Australia this cycle with strong growth continuing for some time and then slowing down over the next couple of years.
The property market will also be interested in what the Reserve Bank has to say in their post-Board statement tomorrow about the outlook for interest rates and the economy in their refreshed forecasts.
Last month, the RBA Statement noted conditions for a rise in the cash rate are not expected “to be met until 2024 at the earliest”.
The number of properties for sale in Australia has seasonally peaked
One of the reasons the buyers are finding it hard is that for every new property being listed for sale, 1.1 properties are being sold.
As you can see from the chart below, there are 10.9% for your properties for sale this year than they were 12 months ago.
But as always property markets are fragmented and while Melbourne has significantly more properties for sale than 12 months ago, just see what’s happening in some of the other states in the table below.
Clearly, strong demand at a time of limited supply must lead to continued property price growth.
To help keep you up-to-date with all that’s happening in property, here is my updated weekly analysis of data and charts as of May 3rd provided by NAB, Corelogic, and realestate.com.au.
What’s happening in our property markets?
The REA Buyers Index
The REA Insights Buyer Demand buyer demand remained largely steady last week, falling slightly by 0.6%.
According to Paul Ryan, Demand fell moderately over the week in all states and territories.
Interestingly, over the past year demand for units has increased by 46.6% – almost twice the increase seen for houses (26.9%).
However, it’s worth noting this compares demand to a period in 2020 that was recovering from onerous lockdowns across the country.
Over the past year, buyer demand has increased the most in Victoria and the Australian Capital Territory, which have both seen increases of around 35% – but all regions have seen strong increases over the year.
Demand remained high throughout the latter half of 2020, but has increased further in 2021 so far.
This suggests ongoing momentum in the housing market.
Demand is likely to remain at elevated levels over the coming weeks and months as interest in the property market remains high.
However, more stock coming onto the market will likely lead to more buyers transacting on new homes, which in turn could weigh on the overall level of demand.
The REA Rental Demand Index
The REA Insights Rental Demand Index, rental Demand Index was broadly unchanged last week, falling by 0.5%.
According to Paul Ryan, aggregate rental demand is at very similar levels to a year ago, when the country was emerging from national lockdowns in response to the coronavirus pandemic.
Median property prices
Vendor metrics suggest we’re in a seller’s market with the number of days to sell a property decreasing (a sign of the tight supply situation), and vendor discounting (it’s easier for them to sell) at realistic levels.
The shortage of good properties on the market is seeing properties selling quickly with minimal discounting.
Our Rental Markets
Rental market conditions remain diverse, with significant differences between the regions and housing types.
From a geographic perspective, the tightest rental markets are Darwin and Perth, where both house and unit rents are recording double-digit annual growth.
Tim Lawless research director of Corelogic explains …
“Rents are rising at a record-setting pace across both Perth and Darwin, with the quarterly trend up 5.9% and 7.7% respectively.
Rental prices in Perth and Darwin started surging higher in September last year.
The monthly growth in rents across Perth quickly accelerated from an already high 1.1% in September 2020, to 2.0% by March 2021.
Darwin rents have risen by an average 2.1% per month for the past seven months, including a 2.4% lift in March 2021.
Both these markets have seen a recent history of low housing investment which has kept rental supply low at a time of rising demand.
Although rents are surging in these cities, it is off the back of a long period of rental value declines. Perth rents remain -16.0% ($80/week) below the 2013 peak and Darwin rents remain -24.6% ($150/week) below their 2014 peak.”
Weaker rental conditions can be seen in the unit sector, both at a macro level and across the sub-regions of each city.
Overall, unit rents have been showing weaker conditions relative to houses throughout the COVID period to-date.
Since March last year, capital city house rents are up 5.2% while unit rents are down -3.8%.
The biggest drag on unit rents are Melbourne and Sydney, where unit rental conditions have been much weaker due to the demand shock caused by stalled overseas migration and international border closures.”
Sydney unit rents have posted a subtle rise over the past three months, while unit rents in Melbourne have held firm over the same period.
With housing values rising faster than rents, gross rental yields have been trending lower.
Most regions are still showing a gross yield higher than typical mortgage rates, implying some opportunity for positive cash flow investments.
Sydney and Melbourne stand out as having a much lower yield profile.
Both cities have seen gross yields fall to new record lows in March, with Sydney recording a gross yield of 2.7% and Melbourne dropping below the 3% mark for the first time on record.
Last weekend’s auction clearance rates
There were 2,041 capital city homes taken to auction this week and of the 1,642 results collected so far, a 78.5% preliminary auction clearance rate was recorded.
Both volumes and clearance rates are down on last week’s figure when 2,467 properties were auctioned across the capital cities and the preliminary auction clearance rate was 80.5%, later revising down to 78.6% by final collection on Wednesday.
Now is the time to take advantage of the opportunities the current property markets are offering.
Sure the markets are moving forward, but not all properties are going to increase in value at the same rate. And some sectors of the market will continue to languish.
Now, more than ever, correct property selection will be critical.
You can trust the team at Metropole to provide you with direction, guidance and results.
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Source of graphs and data: CoreLogic, NAB and REA
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