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Property prices stagnate in Sydney, Melbourne as Adelaide takes the lead

·5-min read
An aerial view looking onto property at Bondi Beach with the Sydney CBD in the background.
Median property prices in Sydney increased by just 0.2 per cent in April. (Source: Getty)

Our property markets had a lot to contend with this month, and it showed in the nation’s two biggest cities.

Three holiday long weekends, school holidays, a war on the other side of the world creating fear everywhere, an election campaign, rising inflation and the spectre of rising interest rates.

All this, together with affordability issues, resulted in Sydney and Melbourne house prices remaining flat over April according to the latest data from My Housing Market.

However other capitals continued to record strong property price growth, with Adelaide the strongest performer over the month.

We’re currently in a two-speed property market.

Median house prices in Sydney and Melbourne increased modestly by 0.2 per cent and 0.6 per cent respectively over April, while house prices climbed in Adelaide (+2.4 per cent) and Brisbane (+1.9 per cent) over the month.

Yet, while housing values are still on the rise at a national level, growth is at the lowest reading for some years.

Table showing capital city median house prices for April 2022.
(Source: My Housing Market)

Last year was unusual. Property values increased almost everywhere at the fastest annual pace on record and the total value of residential real estate in Australia grew by almost $2 trillion.

However, moving forward, the rate of property price growth will slow and there are several reasons for this, including:

Affordability issues will constrain many buyers

The impetus of low-interest rates allowing borrowers to pay more has worked its way through the system and, with property values being 20- 30 per cent higher than at the beginning of this cycle at a time when wages growth has been moderate at best and minimal in real terms for most Australians, this means the average home buyer won’t have more money in their pocket to pay more for their home.

Pent-up demand is waning

While there are always people wanting to move house and many delayed their plans over the past few years because of COVID, there are only so many buyers and sellers out there and there will be fewer looking to buy in 2022.

FOMO has disappeared

Buyers are being more cautious and are taking their time to make intentional decisions, compared to last year when they took shortcuts to enter the market.

What’s ahead for our housing markets?

While the outlook for house prices generally remains positive, the spectacular results recorded last year will not be repeated as rising affordability barriers through sharply rising prices have diminished buyer capacity.

And we will experience a fragmented property market because not all locations will continue growing.

While affordability constraints will limit property price growth in Sydney and Melbourne, the smaller capital cities are still likely to perform strongly.

But more than that, within each city, capital growth will be fragmented. I can see properties located in the inner and middle-ring suburbs, particularly in gentrifying locations, significantly outperforming cheaper properties in the outer suburbs.

Also by Michael Yardney:

While the outer suburban and more affordable end of the markets have performed strongly so far, affordability is now becoming an issue as the locals have had minimal wages growth at a time when property prices have boomed.

In these locations, the residents don’t have more money in their pay packet to pay the higher prices the properties are now achieving.

More than that, COVID 19 has adversely affected low-income earners to a greater extent than middle and high-income earners, who are likely to recover their income back to pre-pandemic levels more quickly, while many have not been hit at all.

Now that we have emerged from our COVID cocoons, there is a flight to quality properties and an increased emphasis on liveability.

As their priorities change, some buyers will be willing to pay a little more for properties with “pandemic appeal” and a little more space and security, but it won’t be just the property itself that will need to meet these newly evolved needs – a “liveable” location will play a big part too.

An aerial view of suburban houses.
Within major cities, capital growth will be fragmented. (Source: Getty)

Those who can afford it will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.

They will look for things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs all within 20 minutes' reach.

What about inflation and interest rates?

Andrew Wilson, chief economist of My Housing market, said rising interest rates would not have a large impact on house prices.

“The increased likelihood of a near-term increase in official interest rates - as indicated recently by the Reserve Bank’s changed stance on its outlook for rates - is unlikely to have a significant influence on housing market activity and house prices – notwithstanding a short-term transitory impact on confidence,” Wilson said.

“Higher rates will be offset by strong local economies with low unemployment rates, rising wages - reflecting a current shortage of workers - near-record savings rates and government handouts.

“Housing market demand is set to be bolstered by the imminent reintroduction of mass migration and new government policies directed towards first home buyers.

“An undersupplied rental market will continue to attract higher numbers of investors, with rents rising sharply, and demand to be heightened by the return of international students.

The outlook for house prices generally remains positive, although the spectacular results recorded last year will not be repeated, as rising affordability barriers - through sharply rising prices - have diminished buyer capacity.”

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