While, up to now, the capital city housing markets have held their own, the latest data from My Housing Market reveals Sydney and Melbourne house prices fell in May, with the booming results of 2021 clearly a thing of the past.
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Median house prices in Sydney and Melbourne declined moderately, by 0.5 per cent and 0.6 per cent, respectively, over the past month, however Adelaide and Brisbane delivered higher median prices, up by 1.2 per cent and 0.9 per cent, respectively.
Perth house prices also bucked the downward trend, reporting 1 per cent growth over the month of May.
Make no mistake, there’s still plenty of competition around for A-grade homes but, today, there is more like one buyer for every seller, so the market is evenly matched. This means buyers and sellers can negotiate, compared to last year when there was a queue of buyers ready to snap up any property that came on the market.
“Sharply rising affordability barriers - as a consequence of booming house prices over the past year - have clearly acted to sideline buyers and restrict the capacity to bid up prices at previous rates,” Andrew Wilson, chief economist of My Housing market, explained.
“The first increase in official interest rates in over a decade and the federal election campaign may have also influenced buyer and seller activity in the short-term over May, but underlying activity levels remain robust, as indicated by weekend auction clearance rates over May.”
Markets within markets
Of course, there’s not one Melbourne or Sydney property market.
Our markets are fragmented and, within those cities, the upper end of the market has softened more than the middle to lower end.
In fact, this trend of softening conditions at the high end of the housing market is broadly occurring in all states and comes after a stronger performance across the more
expensive housing markets through the boom times of the past few years.
However, this is no real surprise.
Historically the premium end of the market tends to lead the growth phase of the property cycle, but also lead the downturn, which is what we’re experiencing at the moment.
Auction markets also slowing
Our auction markets, particularly in Melbourne and Sydney, are a good “real time” indicator of market conditions and they, not surprisingly, are also faltering.
Long gone are the 80 per cent auction clearance rates of last year.
“All capital city auction markets reported lower clearance rates over May compared to April, but clearance rates continue well above 60 per cent, indicating the continuation of sellers’ markets generally,” Wilson said.
“Adelaide remained the clear leader in auction clearance rates over the month, reflecting its leading house price performance over May.”
There’s still plenty of life left in our property markets, but the urgency has disappeared.
With more properties on the market for sale, buyers can now take their time and be discriminating about what’s on offer.
At the same time, the earlier-than-expected RBA interest rate rise is becoming a headwind as borrowers factor in the likelihood of higher mortgage payments.
On the other hand, capital city rental markets continue to tighten, with the record-low vacancy rates still falling.
“Although the onset of the quieter winter selling season will typically place downward pressure on prices growth, demand will be supported by the resumption of mass migration, first home buyers activated by recently announced government support policies, and higher numbers of investors chasing strengthening returns from sharply rising rents in tight rental markets,” Wilson said.
“The clear likelihood of further official interest rate rises will be offset in the shorter term by rising wages, a full employment economy, high saving levels, government handouts, the wealth effect from recent strong home price growth and the home loan repayment buffer introduced by banks over recent years.“