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Aussie house prices rise 1.8% – but growth is ‘losing steam’

Jessica Yun
·5-min read
(Source: Getty)
(Source: Getty)

Australian house prices grew by 1.8 per cent during April, new data has revealed, and experts are indicating that the pace of growth in the housing market is slowing.

The 1.8 per cent uptick represents an easing in the breakneck speed of house price growth the nation has recorded recently, with March’s 2.8 per cent growth the fastest monthly pace in 32 years, according to CoreLogic data.

Property values in Darwin drove the April growth, at 2.7 per cent, followed by Sydney at 2.4 per cent.

This was followed by Adelaide at 2 per cent and Canberra at 1.9 per cent.

On the other side of the spectrum, Perth house prices grew by just 0.8 per cent, and Hobart home values rose by 1 per cent.

CoreLogic research director Tim Lawless said the pace of house price growth could slow in the coming months as record prices put pressure on housing affordability.

“The slowdown in housing value appreciation is unsurprising given the rapid rate of growth seen over the past six months, especially in the context of subdued wages growth,” he said.

“With housing prices rising faster than incomes, it’s likely price sensitive sectors of the market, such as first home buyers and lower income households, are finding it harder to save for a deposit and transactional costs.”

First-home buyers are already getting squeezed out of the market, with ABS figures revealing that first-home buyer loans fell by 4 per cent in February.

Despite the monthly slowdown, however, national property prices are still up 7.8 per cent from 12 months prior, with Adelaide, Canberra, Darwin and Hobart posting double-digit growth in this period.

Over the month of April, the trend of house prices outperforming unit prices continued amid a demand for greater space as COVID forces people to spend more time at home.

“A preference shift away from higher density housing during a global pandemic is understandable; however, a rise in flexible working arrangements also seems to be supporting greater demand for houses around the outer-fringes of capital cities,” said Lawless.

“Relatively weak investor activity, compounded by a supply overhang in some high-rise precincts, is also dampening price growth in unit markets.”

In the meantime, it’s still a vendor's market in Australia as auction clearance rates remained above 70 per cent during April, Lawless said.

The number of new listings added to the market are also “well above average”, but overall stock levels are staying low amid high demand.

“Total advertised stock levels were 25 per cent below the five year average in late April. Such low total listing numbers, at a time when new listings are above average, reflects the strength of buyer demand, fuelling the current rapid rate of absorption,” Lawless said.

“Prospective vendors are likely becoming more motivated to test the market thanks to such strong selling conditions as well as housing prices pushing to new record highs in most areas.”

Property price peak is nearing: Experts

Lawless’ comments add to growing sentiment among economists that the boiling property market is slowing down.

“Price growth is expected to slow from here and there are four main reasons: sellers will return, affordability will start to bite (particularly for first homebuyers), macro prudential policies will be introduced, and oversupply may become an issue,” said Westpac senior economist Matthew Hassan.

We’re already seeing evidence of the first and second factor, but this won’t end the ‘boom’, he added.

“That is only likely to happen some time down the track once other elements come into play: an expected lift in investor activity and a subsequent tightening in prudential policy by regulators.”

Ultimately, the “red-hot” pace of growth we saw in the beginning of 2021 won’t continue as affordability pressures and prudential measures bite.

In a note, AMP Capital chief economist Shane Oliver said Australia’s bullish property market would continue through to next year, with prices forecast to rise a further 15 per cent by the end of 2022.

“But there are good reasons to believe that the long-term boom in Australian property prices may be close to an end,” he said in a recent note.

Firstly, the long-term decline in interest rates – currently at 0.1 per cent – is either near or at its bottom. The next way interest rates are set to move will be up, meaning low mortgage rates will come to an end.

Secondly, the “chronic under-supply of property” is fading as immigration and home building incentives wind down.

“If population growth remains as weak as the Government is projecting over the next two years, and construction stays up, we will move into a clear oversupply. This will be healthy in terms of improving housing affordability for new buyers and renters,” said Oliver.

Finally, the pandemic-triggered shift to regional living will boost housing supply, he added.

Meanwhile, independent economist Stephen Koukoulas flagged in late March that the “sustainability” of property price growth would not remain.

“Most of the issues supporting house price growth are unlikely to still be in place at the end of 2021 and into 2022. In particular, the rise in government bond yields is a precursor to higher mortgage interest rates, at least for some fixed term loans,” he said.

“Further, there is growing pressure for APRA to impose tighter lending rules which is likely to make it harder for some borrowers to gain access to credit.

“Some of the government incentives have or will be coming to an end which could dampen the growth in first home buyer activity.”

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