30th June 2024 - Property Market Update - searchpartyproperty

30th June 2024 – Property Market Update

June Market Smart: Property Values Soar 8% In the Last Year

Key Takeaways

  • Strong Annual Growth: Australian dwelling values increased by 8.0% over the financial year 2023-24, with a $59,000 boost in median dwelling values, now at $794,000.
  • Diverse Regional Trends: While most regions saw value increases, Melbourne and regional Victoria experienced declines of -0.2% and -0.3% respectively in June.
  • Rental Market Dynamics: Rental growth remains robust, particularly in Perth, where house rents increased by 13.1% annually. However, growth is slowing in major cities’ unit markets.
  • Low Supply and High Demand: Housing supply remains tight with new listings 12% higher than last year but still 18% below the five-year average, pushing prices upwards despite economic pressures.

Current Market Trends

The Australian property market has displayed resilience despite various economic challenges. The CoreLogic Home Value Index (HVI) for July 2024 highlights a continued upward trajectory in dwelling values across most regions, with significant variations in performance between different cities and property types.

Value Changes

The national median dwelling value has risen to $794,000, marking an 8.0% increase over the financial year. This growth, although robust, shows signs of moderation compared to mid-2023 when quarterly growth peaked at 3.3%. In the June quarter, dwelling values increased by 1.8%, consistent with the previous quarters.

Regional performance varied significantly:

  • Perth led with a 2.0% increase in June and a staggering 23.6% annual growth, reflecting the city’s strong market conditions.
  • Brisbane and Adelaide also saw substantial gains, with annual growth rates of 15.8% and 15.4% respectively.
  • Conversely, Melbourne and regional Victoria faced declines, with values dropping by -0.2% and -0.3% in June, highlighting regional disparities.

Source: CoreLogic, 2024
Source: CoreLogic, 2024

Rental Market

The rental market continues to experience significant growth, albeit at a decelerating pace. Nationally, the rental index recorded an 8.2% annual rise, with monthly growth slowing to 0.4%, the lowest since September last year.

  • Perth reported the highest annual rental growth for houses at 13.1%, driven by strong demand and limited supply.
  • Major cities like Sydney, Melbourne, and Brisbane saw notable declines in rental growth for units, reflecting decreased demand from overseas migration and affordability issues. For instance, Sydney’s unit rental growth dropped from 14.9% to 7.1% over the year.
  • Affordability has become a critical issue, with national unit rents up 22% over the past two years, and house rents up 16% during the same period. The median household now allocates 32.2% of their gross income to rent, a record high.
Source: CoreLogic, 2024

Despite these challenges, rental yields have stabilised, maintaining around 3.5% in the capitals and 4.4% in regional areas, providing some relief to investors.

Source: CoreLogic, 2024

Supply and Demand

The persistent imbalance between housing supply and demand continues to exert upward pressure on property values. New listings are 12% higher than a year ago and 4% above the five-year average. However, the total advertised supply remains 18% below the five-year average, indicating that properties are being absorbed quickly by the market.

  • In Perth, listings were 23% lower than last year and 47% below the five-year average, underscoring the severe shortage of available homes.
  • Adelaide and Brisbane also recorded significantly lower listings compared to historical averages, at -43% and -34% respectively.
  • Conversely, Melbourne and Hobart saw elevated listings, 14% and 46% above the five-year average respectively, suggesting varying levels of market stress across different regions.

Market Outlook

Despite high interest rates, inflationary pressures, and tight credit policies, the market demonstrates resilience due to the persistent supply-demand imbalance. While there are growing risks, including potential increases in mortgage arrears and financial stress among households, the lack of significant new housing supply is likely to maintain upward pressure on home values in the near term.

Things to Keep an Eye On

  1. Inflation

Headline inflation rose from 3.6 per cent in April to 4 per cent in May – higher than expected.

News of this unexpected rise had a marked impact upon expectations of a cash rate rise. Note below the sudden increase from a 10% chance of a rate rise, to almost 50:50 odds as of the 27th of June:

Of course, it’s still far from certain that interest rates will rise, but the RBA will now have a lot more to think about prior to their next announcement.

It’s worth noting that a majority of experts are predicting that the likeliest RBA decision remains a rate pause.

However, interestingly, Australia is the only G10 country where inflation has risen since the end of 2023, which might suggest that monetary policy has been a tad soft:

  1. Builder Insolvencies

ASIC reports that a staggering 2,773 construction companies became insolvent during the year preceding the 9th of June. This figure is 128% higher than it was in 2022.

Blame has been attributed to both government construction stimulus, pushing construction companies well beyond capacity, as well as rapidly spiralling costs:

  1. Home Construction

Accordingly, the aggregate value of home construction has continued to fall into 2024:

This is despite a recent spike in home development approvals, with many attempting to beat the new construction standards that recently came into effect in Victoria:

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