The latest CoreLogic Hedonic Home Value Index has revealed some good news for the Australian housing market. The latest real estate data from September 2020 shows that consumer confidence is well on the rebound, as new listings rose, and home values recorded a rise in six out of eight capital cities across the country.
Nationally, over the month, the change in dwelling values was down a mild -0.1 per cent. This number was made up of a -0.2 per cent decline across the combined capitals index, and a +0.4 per cent rise across the combined regionals index, revealing that regional markets are continuing to outperform our capital cities.
National property values: September 2020
While consumer confidence is rising across most of our capital cities, all eyes are on the nation’s biggest markets, Melbourne and Sydney, with both recording another month of declines.
According to CoreLogic, the -0.1 per cent decline in national dwelling values can be attributed to the declines we’re seeing in Sydney and Melbourne. This is because 40 per cent of Australia’s housing stock by number and 55 per cent by value is contained within these two cities combined.
While Sydney’s decline of -0.1 per cent can be described as mild, Melbourne’s monthly decline of -0.9 per cent is expected, given that activity was virtually non-existent during Stage-4 lockdowns which marred the city’s real estate market throughout September.
According to Tim Lawless, CoreLogic’s Head of Research, Melbourne’s performance has had the biggest impact on the national result.
“By far the weakest result across the capital cities, Melbourne housing values were down 0.9 per cent in September. Since peaking in March, Melbourne values are down 5.5 per cent. With restrictions starting to lift and private home inspections once again permitted, we expect to see activity lift in October,” he said.
There’s no doubt that consumer confidence is rising, with the Westpac-Melbourne Institute Index of Consumer Sentiment surging by 18% from 79.5 in August to 93.8 in September.
There’s no doubt that consumer confidence is rising, with the Westpac-Melbourne Institute Index of Consumer Sentiment surging by 18% from 79.5 in August to 93.8 in September. This has also made for a positive turn in the housing market, where both auction clearance rates and volumes are rising.
For the week ending Sunday the 20th of September, the combined capital city preliminary auction clearance rate came in at 72.4 per cent, which is the highest preliminary auction clearance rate recorded since early March. The same time last year, a preliminary clearance rate of 70.7 per cent was recorded across the combined capitals.
On the listings volume front, looking at the four weeks to the 20th fo September, Perth and Sydney were leading the charge, and according to CoreLogic, all but two of the nation’s capitals recorded an increase in listings. Melbourne was one of these, which can be attributed to stage four lockdowns, and Darwin was the other, with a small drop of 33 listings.
This rise in listings across all the other capitals shows that vendors could be feeling more confident about selling their property. CoreLogic says that there is little valuation data to suggest that this increase in listings is the result of distressed sales.
For the week ending Sunday the 20th of September, the combined capital city preliminary auction clearance rate came in at 72.4 per cent, which is the highest preliminary auction clearance rate recorded since early March.
There’s a good news story for Perth, with CoreLogic highlighting it as ‘a market primed for recovery.’ It was the only capital city where sales volumes were above the pre-Covid average.
The trend of value growth in regional markets has continued. According to CoreLogic, this growth is out-performing capital cities.
Since March, around the time that the pandemic hit, the regional values overall have only fallen by 0.8 per cent, in contrast to the value falls seen across capital cities, recording a combined decrease of -2.6 per cent over the same period.
According to Mr Lawless, the resilience we’re seeing in regional values is being driven by a few key factors.
“From a cyclical perspective, regional areas weren’t recording the same growth conditions pre-COVID, so home values in these markets are often more affordable, and don’t have a high base to fall from.
“Anecdotally we are also observing a transition of demand away from the cities towards the major regional centres, particularly those that are adjacent to the larger capitals where residents can commute back to the cities if required.
“Remote working arrangements are no doubt a factor in supporting demand in these markets, but lifestyle opportunities and a desire for lower density housing options are also playing a part.”
Sydney and regional NSW
Over September, property prices in Sydney have continued to ease their rate of decline, falling a mild 0.3 per cent to a median value of $859,943.
Over the month, houses performed better than units dropping 0.2 per cent compared to a decrease of 0.5 per cent for units.
Despite the declines, the number of auctions have consistently been trending higher each week with auction volumes and clearance rates across Sydney noticeably improving.
September was a record-breaking month with a five bedroom home in Vaucluse selling for $24.6 million, an incredible $10.6 million above reserve, making it the most expensive house sold at auction in Australia.
According to CoreLogic auction results, in the week ending Sunday 27 September, Sydney volumes reached their highest levels since the first week of April with 815 homes brought to auction and returning a final clearance rate of 74.8 per cent.
Doron Peleg, CEO of RiskWise agrees that Sydney property activity has strengthened, with auction clearance rates tracking at levels similar to those of 12 months ago.
“In recent weeks there has been a material improvement in buyer sentiment and key data with a prime example being the relatively high auction clearance rates for houses in Sydney, with preliminary results that have been consistently well above the 70 per cent mark during the past four weeks,” he said.
Annually, Sydney prices are still the highest of all the capital cities with values still up +7.7 per cent.
Regional NSW property prices
Over in regional NSW, property prices have performed better than values in Sydney increasing +0.5 per cent.
Houses performed better than units up +0.7 per cent compared to a mild decrease of -0.1 per cent for units.
According to Mr Lawless, remote working arrangements and desire for lower density housing options have no doubt been a factor in supporting demand for regional properties.
“Anecdotally we are also observing a transition of demand away from the cities towards the major regional centres, particularly those that are adjacent to the larger capitals where residents can commute back to the cities if required,” he said.
Real estate agent Nick Clarke from PRD Hunter Valley agrees and comments that he is seeing more people from Sydney and Newcastle looking to get into the regional market as they search for a lifestyle change.
“I think with Covid a lot of people have realised that they want more space. Apartment living is great, but… it’s not great if you’re spending 18 hours at home a day.
“I think for those who work in a lot of those industries where you can work from home will look to relocate, for affordability, but also for comfort, because you’re getting a lot more for your money,” he said.
Melbourne and regional VIC
Over September, stage 4 lockdown in Melbourne continued to impact heavily on the property market, leading to the weakest result across all capital cities with house values down -0.9 per cent to a median value of $666,796.
With restrictions starting to lift and private inspections once again permitted however, activity is expected to lift in October.
Ray White Group Managing Director Dan White told the Australian Financial Review that eased restrictions will lead to a strong rise in stock on the market.
“I think Melbourne would be able to catch up with Sydney’s strong performance now that private open homes can go ahead.
“Both have similar drivers and there’s a lot of pent up demand, so I expect Melbourne to follow suit,” he said.
Pete Wargent, Co-Founder of Buyers Buyers also believes that the Melbourne market is set to recover, describing it as having better long-term prospects than Sydney’s.
“Indeed, we expect 2021 to be a strong year for houses in Melbourne, with significant capital growth forecast to play out,” he said.
In addition, Mr Wargent said that Melbourne is more affordable than Sydney in terms of house-to-income and mortgage serviceability ratios, while ABS data also projects that in 2026 Victoria’s capital will have a larger population than that of New South Wales.
Regional VIC property prices
In regional Victoria, overall property prices have held steady with a median value of $387,870.
Regional units performed better than houses over the month, increasing +0.4 per cent compared to a slight decline of -0.1 per cent for houses.
According to Ricky Forte, Sales Agent from McGrath Geelong, eased restrictions in Melbourne coupled with a change in working environment will drive a big influx of buyers into regional areas over the next few months.
“Working environments have changed, and I think that’s permanent, and a lot of people won’t need to have to go to an office, their roles are being changed forever, so people are thinking ‘why not?’
"It’s putting areas like Geelong, Ballarat and Bendigo in people’s minds, and people are just going to chase value for money.
“If you don’t have to commute an hour for work, it’s just a lot less important where you live,” he said.
Brisbane and regional QLD
Following a mild decline of -0.1 per cent in value over August, last month Brisbane property prices started bouncing back into positive territory, recording a +0.5 per cent increase to a median value of $504,902.
According to Doron Peleg, CEO of RiskWise Property Research, Covid has helped strengthen ‘work from home’ opportunities, meaning owner-occupiers can take advantage of ‘lifestyle’ prospects instead of being tied to employment hubs.
Mr Wargent says that lifestyle buyers are out in full force.
“Before COVID-19 hit, there was already a strong trend of sea-and-tree-change homebuyers looking for the best of all worlds – lifestyle, accessibility to employment hubs, and affordable housing. In Queensland, the areas that attract those lifestyle buyers include the Gold Coast and Sunshine Coast.”
Gold Coast real estate agent Matt Micallef from Ray White Robina says that supply and demand on the coast is quite unbalanced at the moment creating a sellers market. There is just not enough stock to keep up with the demand.
“There has been an increase in first home buyers because interest rates are so low. The price to pay a mortgage is sometimes cheaper than paying rent… so it makes sense to get into the market and that’s the reason why there has been a surplus of first home buyers.”
According to the Real Estate Institute of Queensland (REIQ), buyer interest has surged in the state with realestate.com.au recording 39 per cent more buyer searches for Queensland property than at the same time last year.
Regional QLD property prices
In regional QLD, property prices have improved over the month, increasing +0.5 per cent.
A similar story of resilience in regional markets is seen in Queensland with the market experiencing high demand.
Builder Peter Davidson told the ABC that he has had his busiest ever period due to tree-changers looking to escape regions like Brisbane, Sydney or the Sunshine Coast.
"I think people are trying to get away from the hustle and bustle.
"They can sell their house in Brisbane or Sydney and buy a cheap block of land, build a nice house and afford to retire," he said.
CEO of REIQ Antonia Mercorella says that although they’ve seen modest house growth so far, as border restrictions ease, housing demand could jump higher, pushing up prices.
"It's been steady and reliable, but I do think in a post-pandemic world, our property market is set to do incredibly well," she said.
Hobart and regional TAS
Over September, Hobart property prices grew +0.4 per cent to a median of $489,059.
Hobart houses performed better than units increasing +0.6 per cent, while units declined a slight -0.2 per cent.
Annually, both houses and unit values are still higher than they were the same time last year with houses and units up +7.0 per cent and +4.0 per cent respectively.
Regional TAS property prices
Regional Tasmanian property prices recorded the second highest gains over the month at +0.8 per cent, bringing the median value up to $327,791.
Regional houses and units performed well, with houses and units up +0.8 per cent and +0.9 per cent respectively.
Annually, regional Tasmanian properties have the strongest growth of all the regional areas with growth of +10.5 per cent.
Mr Lawless explains that the resilience in regional values can be attributed to a number of factors.
“From a cyclical perspective, regional areas weren’t recording the same growth conditions pre-COVID, so home values in these markets are often more affordable, and don’t have a high base to fall from,” he said.
Canberra and the ACT
Over September, Canberra property prices continued to trend upwards, increasing +0.4 per cent.
Units performed better than houses posting a +1.1 per cent increase - which was on par with Adelaide in recording the highest unit growth over the month of all capital cities.
Houses posted a modest +0.2 per cent growth to a median of $723,634.
Auction activity has ramped up in recent weeks with Canberra recording the highest final clearance rate of 84.9 per cent in the week ending Sunday 20 September. On that weekend 64 homes were brought to auction.
This result is significantly better than last year where 55 homes brought to auction returned a clearance rate of 58.3 per cent.
According to Doron Peleg, CEO of RiskWise Property Research, extremely strong employment figures have been a key driver in the ability of the Canberra property market to deal relatively well with negative shocks, such as the recent downturn.
“Prior to COVID-19, the unemployment rate was ultra-low at 2.9 per cent.
“Further, the ACT consistently delivered strong economic growth of 4 per cent, eclipsing the rest of the country. An extremely robust job market and strong economic growth ensured houses were strong performers although new units presented higher risk.
“The ACT dwelling market has been the best performing market of the capital cities, increasing 1.3 per cent in value between the end of March and the end of July. This came as national dwelling values declined 1.4 per cent in the same period,” he said.
Adelaide and regional SA
Adelaide property values have been strong over the month recording the second highest price growth of all the capital cities at +0.8 per cent. The median price of a property now sits at $449,803.
Adelaide units and houses were both strong performers increasing +1.1 per cent and +0.8 per cent over the month respectively.
Regional SA property prices
Regional South Australia was a top performer in September, posting the highest growth of all the regional areas at +1.5 per cent.
Both houses and units performed extremely well, with houses climbing +1.2 per cent over the month and units boasting a massive +7.0 per cent increase.
Annually, regional units have grown +19.4 per cent over the last year, which is the highest growth in the country.
Perth and regional WA
Over September, Perth values have improved, recording an increase of +0.2 per cent.
Perth houses and units have performed relatively similarly, with houses up +0.3 per cent and units increasing +0.2 per cent.
Sales and new listings activity has been on the rise with the Real Estate Institute of Western Australia reporting that sales activity increased 8 per cent in Perth in the week ending 27 september 2020, with members reporting 883 transactions.
According to CoreLogic, Perth stands out as a market primed for recovery as over the four weeks ending september 20th, Perth and regional WA were the only dwelling markets where new listings volumes were higher compared to last year..
CoreLogic Head of Australian Research, Eliza Owen said that while a positive turn in Perth dwellings may be surprising during a recession, the WA economy has been supported by a 4.8 per cent increase in mining investments over the year.
“ABS payroll data suggests since the start of the pandemic, payroll jobs across WA fell less than 1%, compared with national declines of 4.5%,” she said.
Top selling suburbs north of the river are Claremont, Scarborough and Dianella and Canning Vale, Como and Baldivis south of the river.
Regional WA property prices
Over in the regional markets, property prices declined -0.3 per cent over the month.
Regional houses and units both fell with houses down a marginal -0.2 per cent and units falling a more significant -2.0 per cent.
However, not all regional markets or properties in WA will suffer the same fate. According to Bunbury real estate agent Jay Standley, the past few months have been the busiest period the business has ever experienced.
“We’re seeing sales at numbers we’ve never experienced, and we’re a fifty-year-old business.
“We’re in a pandemic and we’re selling more than we ever have. I don’t know why, but we’re just doing really well,” he said.
Darwin and regional NT
Over September, Darwin was a top performer posting +1.6 per cent growth over the month.
House values were very strong growing +2.0 per cent to $485,085, while units also showed great resilience increasing +0.9 per cent.
Director of Herron Todd White, Will Johnson told Your Investment Property Mag that sentiment in Darwin remains strong, with many agents reporting increasing numbers of potential buyers.
“Darwin and the whole Northern Territory have been less affected by the COVID-19 outbreak compared to other southern states.
"Looking to the short and medium term, Darwin still provides opportunities for investors to put their money in property. Whilst capital growth may be some time in the future, recent signs of strong purchasing activity are positive signs," he said.
Regional NT property prices
In regional Northern Territory, house values decreased half a percent to a median of $404,111.
Over the past three months prices are down- 0.3 per cent and down -3.2 per cent over the year.
No data was available for regional Northern Territory units.
Rents and rental yields
Looking at the evolution of the rental market throughout Covid-19, performance between house and unit rents has now markedly diverged. According to CoreLogic data, between the end of March and September, national house rents have risen by +0.4 per cent, while unit rents are down -3.3 per cent.
In every capital city around the country, house rents are holding up better than unit rents. However, the biggest disparity is seen in Sydney and Melbourne where unit rents are down -5.0 per cent and -5.5 per cent respectively. In contrast, house rents have fallen by -1.3 per cent in Sydney and -1.0 per cent in Melbourne.
According to Mr Lawless, this disparity is being driven by supply and demand.
“Investment grade apartment markets have seen significant supply additions over the past decade, with a large portion of new apartments built in Sydney and Melbourne. The supply side has been further impacted by short term rentals transitioning to long term rentals. While supply has surged, COVID-19 brought about a significant demand shock from international and state border closures.
Looking at the evolution of the rental market throughout Covid-19, performance between house and unit rents has now markedly diverged.
“Overseas migrants comprised a material component of tenant demand across inner Melbourne and Sydney, with many of these foreign students.”
“Add to this the fact that industry sectors such as food, accommodation services, the arts and recreational services have been hardest hit by job losses and lower working hours. Workers in these sectors are more likely to rent than in other industries, which has also negatively impacted rental demand,” Mr Lawless said.
However, not all markets are behaving the same, and in regional parts of Australia, rents are holding more steady. Over the past six months, rents for both houses and units have risen +1.4 per cent and +1.1 per cent respectively across the combined regional markets. This gives further evidence to the trends indicating that regional Australia has been more resilient during the pandemic.
Earlier SQM Research from August had also noted that most regional locations had recorded falls in rental vacancy rates. According to their findings, the Blue Mountains in Greater Sydney and the Mornington Peninsula fell to record lows of just 0.7 per cent. Ipswich in regional Queensland fell to just 0.9 per cent.
CoreLogic data also shows that unit rents are falling faster than unit values, which is having a significant impact on unit rental yields.
The gross rental yield for units across the combined capital cities currently sits at 3.85 per cent, which is a record low. It beats the previous low of 4.23 per cent recorded one year ago.
The lowest gross yields are to be found in Sydney and Melbourne, recording 3.4 per cent and 3.9 per cent respectively. However, the silver lining to all this is that gross yields for units are still higher than the yield for houses across every city.
What does this mean for the Australian property market? What is the outlook for the months ahead?
According to CoreLogic, looking forward, the real estate market will be dealing with “a mixture of headwinds and tailwinds.”
These headwinds refer to fiscal support winding down and distressed borrowers facing mortgage repayments without JobKeeper or JobSeeker. There is an expectation that distressed sales will flood the market, but so far, new listings have been quickly absorbed by the market, which indicates there is still a lot of demand.
Matthew Peter, QIC Chief Economist told the Australian Financial Review that he believes once these measures are removed, house price falls will be cushioned by low interest rates, a recovering economy and pent-up demand from buyers. He says price declines will be mild, within the range of five to ten per cent.
Mr Peter believes that high density apartments in Sydney and Melbourne will see greater falls in excess of 10 per cent, given strong supply and slower recovery in international student and permanent migrant arrivals.
Matthew Peter, QIC Chief Economist believes once these measures are removed, house price falls will be cushioned by low interest rates, a recovering economy and pent-up demand from buyers.
On the upside, the Federal Government is set to deliver their much awaited budget next week, which will likely include announcements for further rounds of stimulus to kickstart the economy.
In addition to this, from March 2021 significant reforms to responsible lending obligations will be implemented. This essentially means that it will be a little bit easier for individuals to access credit and acquire a higher level of borrowing capacity.
On these overhauls and their effects on the property market, Eliza Owen, Head of Australian Research from CoreLogic says, “generally we would expect that easier access to credit creates more competition, which is likely to have an inflationary impact on dwelling values.”
“Between the potential for a further cash rate reduction, and federal government announcements to relax lending policies, we would expect to see added demand, which would have an upside impact on dwelling markets either late this year, or early next year,” she said.
CBA’s Head of Australian economics has revised down its forecast for peak-to-trough property price falls and now believes that values will rebound strongly in 2021. Six months ago CBA had forecast a 10 per cent drop in house prices, but say that the fall in dwelling prices so far has been smaller than anticipated.
While they do expect dwelling prices to continue on a decline at a modest pace, they expect a national decline of 6 per cent, versus the initial 10 per cent they reported. In the second half of 2021, as the economy gains traction, they expect prices to rebound.
For the rental market, high supply and low demand is likely to persist in some regions, at least until international borders re-open. The most affected pockets of the market are likely to be inner-city-investor-owned units.
Louis Christopher, Managing Director of SQM Research also says that the migration of inner-city dwellers to regional areas is likely to reach a high point soon.
“I suspect there will be a degree of permanency with the massive population shift.
“Meanwhile Sydney and Melbourne rents continue to fall providing leasing opportunities for tenants who have chosen to stay in town,” he said.
What does this data mean for you?
Remember that while data can be insightful, you need to take any high level numbers with a grain of salt. It’s really important to do local research if you are looking to buy or sell. While high level indices give a great snapshot of what is happening nationally, in capital city markets and regionally, they don’t give great insight into what is happening at the post code level.
Market conditions will vary from suburb to suburb, and the value of your home is not only impacted by location, but also by property type and price point. While there may have been price drops in your city, there are still markets within cities where performance is above average.
Maintaining perspective is important too. If price drops have been a reality in your suburb over the past couple of months, look at values over the past year. In many cases, home owners are still ahead when it comes to value growth.
We need to remember that a city like Sydney, Melbourne or Brisbane is a very big place, filled with a huge cross-section of different markets, as well as markets within markets, so a high-level data point about sliding property values should be dissected with a degree of scrutiny.
For advice around the biggest market indicators that impact price growth, you can download this helpful guide.