CoreLogic's national Home Value Index rose 0.6% in February, the strongest monthly gain since October last year.
Perth continues to show the highest rate of growth in housing values compared to any other region, up 1.8% over the month.
Adelaide, Brisbane and the regional areas of SA, WA, and Queensland are also showing high rates of growth.
Although growth rates have levelled out, the monthly trend has accelerated, with Melbourne home values recording a subtle 0.1% rise in February.
We are seeing some early signs of a boost in housing confidence, with auction clearance rates rising and consumer sentiment rising in February. This suggests households will have a better ability to make decisions around large financial commitments, like a property purchase.
The outlook for values has improved since the end of last year, with a slight re-acceleration in value gains through the first two months of this year. Higher consumer sentiment has historically played out positively for housing activity.
Housing values posted a broad-based rise in February with CoreLogic’s national Home Value Index (HVI) up 0.6% in February.
The 20 basis point acceleration from the 0.4% increase seen in January was the strongest monthly gain since October last year.
Each of the capital cities and rest-of-state regions recorded a lift in values over the month, except Hobart where the market fell -0.3%.
Housing values have been more than resilient in the face of high-interest rates and cost of living pressures.
The ongoing rise in housing values reflects a persistent imbalance between supply and demand which varies in magnitude across our cities and regions.
Perth continues to stand out with a substantially higher rate of growth compared to any other region, up 1.8% over the month.
Adelaide (+1.1%), Brisbane (+0.9%) and the regional areas of SA (+1.1%), WA and Queensland (both +1.0%) also show a consistently high rate of capital growth month-to-month.
These regions are generally benefiting from a combination of comparatively lower housing prices and positive demographic factors that continue to support housing demand.
Although growth rates in Sydney and Melbourne home values have levelled out, the monthly trend has accelerated, with Melbourne emerging from a three-month slump of negative monthly movements to record a subtle 0.1% rise in February.
Similarly, Sydney dwelling values have moved back into positive territory over the past two months after recording a subtle decline in November and December.
Potentially we are seeing some early signs of a boost to housing confidence as inflation eases and expectations for a rate cut, or cuts, later this year firm up.
The re-acceleration in value growth has been accompanied by a bounce back in auction clearance rates, which averaged in the high 60% range through February.
Consumer sentiment also recorded a solid rise in February, signalling a lift in confidence.
Auction results and sentiment have both shown a historically strong relationship with housing trends.
The rise in clearance rates from the mid-50 % range late last year to the high 60% range in February points to a better fit between buyer and seller pricing expectations.
A rise in sentiment suggests households will have a better ability to make decisions around large financial commitments, like a property purchase.
Although the pace of gains has shown some uplift, most regions are still recording value growth well below the highs of last year when the national index rose 1.3% in May.
Last year’s rate hikes clearly dented capital gains, but higher interest rates haven’t been enough to extinguish growth entirely.
The shortfall of housing supply relative to housing demand is continuing to place upward pressure on home values across most regions.
However, it’s hard to see a significant rebound in values shaping up given downside factors.
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Affordability constraints, rising unemployment, a slowdown in the rate of household savings and a cautious lending environment, are all factors likely to keep a lid on value growth over the near term.
The outlook for values has improved a little since the end of last year, with a subtle re-acceleration in the pace of value gains through the first two months of the year.
Indicators of a positive shift in market conditions go beyond a lift in value growth, including a rise in consumer sentiment, lower-than-forecast inflation and a growing consensus that interest rates will reduce later this year.
An improvement in consumer spirits has historically played out positively for housing activity, with higher sentiment generally accompanied by a lift in home sales and vice versa.
Westpac and the Melbourne Institute reported a 6.2% lift in the consumer sentiment index for February, taking the reading to the highest level since June 2022.
Even with the February rise, sentiment remains in deeply pessimistic territory, but given strong demand-side pressures, we have seen a divergence between home sales and sentiment through 2023.
This suggests that any lift in confidence could be amplified amid an ongoing mismatch of housing supply relative to demand.
The lower-than-forecast inflation outcome for the December quarter looks to have carried into 2024, with the monthly inflation indicator showing a further reduction in CPI.
The slower rate of growth in cost of living has supported the boost in confidence and brought forward forecasts of a rate cut.
Although the timing of rate cuts remains uncertain, lower interest rates should not only see a more substantial lift in sentiment but also deliver a boost to borrowing capacity and lower the serviceability assessment hurdle.
How sensitive the market is to rate cuts remains a key unknown.
We would need to see a bit more than seven cash rate cuts of 25 basis points each before interest rates returned to the pre-COVID decade average of 2.6%.
With housing affordability an ongoing challenge and lenders generally cautious towards borrowers with high debt-to-income or loan-to-income ratios, it’s hard to see a material lift in housing values until interest rates come down significantly.
Housing turnover is tracking higher than at the same time a year ago, but slightly below the previous five-year average.
Nationally, the estimate of dwelling sales over the three months ending February was 4.7% above last year, with the capital cities a little stronger tracking 6.0% higher than a year ago.
Relative to the previous five-year average for this time of the year, home sales are down - 5.0% nationally and down -1.5% across the combined capitals.
We could see the volume of home sales picking up later this year if sentiment continues to improve.
A trend that seems more certain going forward is the sheer diversity in market conditions that have emerged through the second half of 2023 and into 2024.
The underlying fundamentals of the WA housing market look set to continue for some time, with Perth and parts of regional WA continuing to show an affordability advantage alongside solid demand from high levels of interstate and overseas migration.
With substantially higher rental yields and prospects for capital gains, WA is likely to be a favourite among investors.
At the other end of the spectrum is Hobart where housing values have been flat to falling since the market peaked in March 2022.
Hobart dwelling values were -12.2% down on the 2022 highs at the end of February.
Tasmanian housing is relatively less affordable following a significant period of overperformance between 2017 and 2022.
The latest ABS population data suggested the population declined slightly in the June quarter of last year, driven by negative interstate migration, which would also be detracting from demand.