Rate hikes divide housing market: almost one in two capital city suburbs hit record high

Key takeaways

Australia's property market has become a picture of resilience and decline, showcasing stark contrasts across cities, suburbs, and regions. The relatively small capital gain over the past two years is a legacy of the -7.5% drop in national values during the early phase of the rate hiking cycle.

The housing market's performance has been diverse over the past two years, with Perth house values surging 25.7% to an -11.2% drop, and Sydney house values increasing 0.4% compared to Melbourne where houses are now -4.2% more affordable.

Many Australian suburbs have hit a record high despite rate hikes, with capital city suburbs showing more resilience compared to the regions.

Hobart, Melbourne and ACT suburbs have been hit hardest by rate hikes, with 98.0% of suburbs declining in value. These markets had felt the impact of rising interest rates due to a better balance between the underlying demand/supply fundamentals.

Amidst Australia's historic two-year rate hike cycle, the property market has become a picture of resilience and decline, showcasing stark contrasts across cities, suburbs, and regions.

A CoreLogic Australia analysis comparing the property market's performance two years before and after the rate hike cycle reveals that home values across the nation have risen only 2.8% since April 2022, contrasting sharply with the substantial 31.7% increase observed in the preceding two years.

The relatively small capital gain over the past two years is a legacy of the -7.5% drop in national values during the early phase of the rate hiking cycle when the national index consistently fell between May 2022 and January 2023.

Since CoreLogic’s national Home Value Index bottomed out in Jan 2023, values have risen every month to be 11.1% higher.

The perception might be that property values are continually increasing but we can’t forget the short and very sharp downturn that occurred in the immediate aftermath of the first-rate increases.

Since the market bottomed there’s been 15 consecutive monthly increases in values nationally, but that performance is not indicative of the entire market.

Underneath the headline figure, there’s significant diversity in the housing market’s performance.

The percentage change in housing values through the rate hiking cycle to April 2024 ranges from a 25.7% surge in Perth house values to an -11.2% drop in Hobart house values.

In Sydney, house values have increased 0.4% in the past two years compared to Melbourne where houses are now -4.2% more affordable than they were in April 2022.

Such a discrepancy in growth rates highlights the diversity of market conditions over the past two years.

This reflects the complexity within local markets.

While some cities have exhibited resilience driven by robust economic fundamentals and housing demand, others such as Melbourne, Hobart and Canberra, where housing is more affordable now compared to two years ago, have grappled with factors such as higher supply, affordability constraints and weaker demographic trends.

Record high suburbs despite rate hikes

Rate hikes have had little bearing on the performance of many Australian suburbs, with 43.6% hitting a record high at the end of April 2024.

Capital city suburbs have shown more resilience compared to the regions, with almost one in two (49.1%) hitting a peak last month compared to 35.0% of suburbs in regional areas.

Demand for housing in Australia remains extremely high in many areas, particularly with the added pressure of record-high migration levels, persistently tight rental conditions and an undersupply of dwellings.

These figures show buyers are determined to get their foot in the door of home ownership irrespective of rate hikes and the rising cost of living.

Nine of the top 10 suburbs with the strongest house value growth over the past two years are in Western Australia.

Armadale, in Perth’s south-east growth corridor, topped the list, increasing 60.0% since April 2022, adding to the 36.2% gain in the preceding two years.

Perth had 97.3% of suburbs at a record high in April 2024, beating out Adelaide at 90.0% and Brisbane (85.1%).

In weaker markets, not a single suburb of Hobart was at a record high and only 1.5% of Melbourne suburbs – six suburbs all in the South East - were at a record high last month.

The lowest growth suburbs are concentrated in regional markets, especially areas of the Richmond Tweed in NSW, which accounted for 10 of the ‘bottom’ 20 suburbs for change in house values since April 2022, and five of the bottom 20 suburbs for weakest unit values.

The weak conditions over the past two years are in stark contrast to the previous two years when some suburbs recorded a growth spike of more than 90%.

The large drop in values can probably be attributed to a combination of a natural correction after values overshot what might be described as fair value, but also the severe weather and flooding events that impacted areas of northern NSW in early 2022.

Hobart, Melbourne and ACT bear the brunt of rate hikes

Nationally, 37.9% of suburbs have recorded a decline in dwelling values since the rate hike cycle began.

Hobart suburbs have been hit hardest with 98.0% declining in value, followed by Melbourne at 87.8% and the ACT at 87.6%.

These markets had felt the impact of rising interest rates due to a better balance between the underlying demand/supply fundamentals, leading to widespread falls in property values across most suburbs.

Hobart and Canberra were buoyant with housing activity during the height of the pandemic but they’ve since faced a rise in listings, affordability constraints, and subdued demographic conditions such as negative interstate migration levels.

Melbourne’s under-performance relative to other capital cities is due to several factors.

The city experienced softer housing market conditions through the pandemic, which coincided with a sharp drop off in net overseas and record-low interstate migration rates.

More recently, this has been compounded by a raft of policy changes that have dampened buyer confidence despite surging overseas migration and a slowdown in the interstate migration outflow.

In contrast, no suburbs in Adelaide and only one suburb in Perth (Peppermint Grove, down -0.6% since April 2022) have recorded a decline in values since April 2022.

Even in the face of higher mortgage rates and reduced borrowing capacity buyers, including investors, have turned to Perth and Adelaide for their relative affordability, strong rental conditions and higher gross rental yields.

The demand has outweighed supply, which has contributed to pushing values significantly higher over the past year.

Perth in particular isn’t showing any signs of slowing just yet and is approaching the cyclical highs seen during the pandemic when interest rates were at rock bottom.

In Brisbane, house values increased 50.9% in the two years to April 2022 and 6.1% in the two years since.

By contrast, the unit market has performed consistently increasing 21.9% and 20.8% respectively.

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