Housing values rise 0.6% in April, as low supply trumps high interest rates and inflation | Corelogic Home Value Index

Key takeaways

Australian home values continued to trend higher in April, with the national median dwelling value increasing by $4,720 month-on-month.

Under the headline numbers, we are seeing multi-speed conditions with Perth at the top of the growth charts, Adelaide at 1.3% and Brisbane at 0.9%. Sydney and Melbourne have held firm around the 0.4% mark, while Hobart and ACT have emerged from relatively soft conditions.

Almost every capital city is recording stronger growth conditions across the lower value range of the market, with regional markets outperforming their capital city counterparts. Regional Victoria was the only rest of the state market to record a decline in values over the rolling quarter.

Home sales look to have moved through a cyclical peak in November last year, but affordability and low sentiment will likely keep a lid on the volume of sales until interest rates start to track lower.

The persistent rise in housing values, despite high-interest rates, low sentiment, worsening affordability and ongoing cost of living pressures, can be drawn back to the insufficient supply of housing relative to demand. This is keeping markets skewed in favour of sellers in most cities.

It looks as though interest rates could stay 'higher for longer', with the downside risk for housing markets building, despite the mismatch between housing supply and demand.

Australian home values continued to trend higher in April with CoreLogic’s national Home Value Index (HVI) rising 0.6%.

This was on par with the pace of gains recorded in both February and March, with the month-on-month rise adding approximately $4,720 to the national median dwelling value.

April’s increase takes the current growth cycle into its 15th month, with housing values up 11.1% or approximately $78,000 since the trough in January last year.

Beneath the headline numbers, we are seeing multi-speed conditions with the mid-sized capitals continuing to lead the pace of growth.

Perth remains at the top of the growth charts with a 2.0% rise in April, followed by Adelaide at 1.3% and Brisbane at 0.9%.

The monthly change in Sydney values (+0.4%) has held reasonably firm around the 0.4% mark each of the past three months, while Melbourne’s market (-0.1%) has broadly stabilised after recording a subtle -0.8% dip over the three months to January.

The smaller capitals have emerged from relatively soft conditions, with both Hobart and ACT recording three months of consistent, albeit mild, rises in home values.

We aren’t seeing any signs of heat coming out of the Perth housing market just yet, in fact, the quarterly pace of growth, at 6.0%, is approaching the cyclical highs seen during the pandemic when interest rates were at rock bottom.

On the other hand, we are seeing the pace of gains slow across the Brisbane market, easing below the 1% mark to 0.9% in April for the first time in 12 months.

Affordability pressures may be impacting the pace of growth across the city, following a nearly $300,000 increase in values since the onset of COVID-19 in March 2020, the largest dollar value increase of any capital.

Almost every capital city is recording stronger growth conditions across the lower value range of the market

Darwin, where housing affordability is less challenging, is the exception, while Sydney’s lower quartile and broad middle of the market are showing the same quarterly change at 1.7% compared with a 0.5% rise in upper quartile dwelling values.

The shift towards stronger conditions across lower-value markets can also be seen between the housing types, with growth in unit values outpacing house values over the past three months.

Hobart was the only city where houses recorded a larger gain than units over the past three months.

Regional markets have shown a slightly stronger quarterly growth rate over the past five months than their capital city counterparts, following a 10-month period where the combined capitals index was outperforming.

Looking at value movements over the past three months, the strongest regional markets were aligned with the strongest capital cities.

Regional WA (+5.3%) led the pace of gains, followed by Regional SA (3.9%) and Regional Queensland (+3.2%), while Regional Victoria (-0.1%) was the only rest of the state market to record a decline in values over the rolling quarter.

Home sales look to have moved through a cyclical peak in November last year

Although the monthly trend in home sales is highly seasonal, the less seasonal six-month trend has remained relatively flat since the November rate hike.

Estimated sales over the past three months are tracking 8.6% higher than at the same time last year, and about 5.1% above the previous five-year average.

However, it is likely a combination of worsening affordability and low sentiment will keep a lid on the volume of sales until interest rates start to track lower.

Outlook

In the face of high-interest rates, low sentiment, worsening affordability and ongoing cost of living pressures, housing values have continued to trend higher.

The persistent rise in housing values, despite an array of downside factors that would normally act to push prices lower, can be drawn back to the insufficient supply of housing relative to demand.

There are a few ways to measure housing supply; one is to measure how many homes are available to purchase based on advertised listings.

Over the four weeks ending April 28th, CoreLogic estimates there were 76,265 homes listed for sale across the combined capitals; -17.6% below the previous five-year average.

At the same time, the number of residential sales in April was estimated to be 2.4% higher than the previous five-year average for this time of the year.

Such a mismatch between available supply and demonstrated demand is keeping markets skewed in favour of sellers in most cities.

Capital city homes are currently selling in a median of 27 days compared with the decade average of 30.7 days and most cities are recording lower-than-average levels of vendor discounting.

In the hottest market, Perth, homes are selling in a median of just 10 days and discounting rates are averaging just - 2.4%.

In weaker markets, like Darwin, Hobart and ACT, homes are taking more than 40 days to sell.

We can also see evidence of low supply in the number of homes being built.

The year to September 2023 saw roughly 174,000 new dwellings completed compared with underlying demand for around 264,000 dwellings (based on population growth divided by an average household size of 2.5 people).

The undersupply of well-located housing is recognised as a national crisis, however, the hurdles blocking a rapid and significant housing supply response remain substantial: high construction and holding costs as well as tight labour supply for construction-related trades.

Time frames between a dwelling commencement and completion have blown out and profit margins remain thin.

Eventually housing demand and supply will converge, driven by slowing population growth and, at some stage, a ramp-up in residential construction activity.

Given persistently low levels of dwelling approvals, the timeline of a material ramp-up in completed housing supply is still a long way off, but there remains a substantial number of dwellings yet to be completed in the construction pipeline.

Fewer dwelling commencements should help to increase capacity for the completion of existing projects.

In the meantime, it looks as though interest rates could stay ‘higher for longer’.

The 1.0% rise in inflation through the March quarter has seen many economists, as well as financial markets, push their forecasted timing for rate cuts back, and reignited some speculation that interest rates could rise again.

With high-interest rates, the recent upside surprise on inflation, a gradual loosening in labour markets, growing housing affordability challenges and a slowdown in economic activity, the downside risk for housing markets is building.

Despite the worsening risk profile, housing values are likely to be propped up by the mismatch between housing supply and demand; a situation that doesn’t look like it will change in the near future.

About Tim Lawless Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au