August Market Smart – Market Continues to Cool
Key Takeaways
- Cooling National Growth: The market recorded a national increase of 0.5% in home values during August, marking the 19th consecutive month of growth. However, the pace of growth has clearly slowed, with the quarterly increase now just 1.3%, significantly down from the 2.7% growth seen during the same period last year.
- Regional Disparities: Perth led the way with a substantial 2.0% rise in home values, followed by Adelaide at 1.4% and Brisbane at 1.1%. In contrast, Melbourne saw a decline of -0.2%, marking its sixth consecutive month of falling values. Hobart and Canberra also recorded drops of -0.1% and -0.4% respectively.
- Affordability Pressures: Affordability constraints are becoming more apparent, especially in cities like Perth, Adelaide, and Brisbane, where strong growth has stretched buyer budgets. The lower quartile of the market, representing more affordable properties, continues to outperform the upper quartile, indicating a shift in demand toward less expensive housing.
- Slowing Rental Market: The rental market is cooling, with the national rental index remaining flat for the second month in a row. This stagnation is most pronounced in Sydney and Brisbane, where rent values have begun to decline. The annual growth rate in rents has now slowed to its lowest point since May 2021, suggesting a potential easing of pressure on renters.
Current Market Trends
Perth leads with a substantial 5.7% increase, reflecting its robust market conditions driven by strong demand and relatively affordable housing. Adelaide follows closely with a 4.0% rise, indicating its steady growth supported by solid economic fundamentals and a more affordable housing market compared to the eastern states. Brisbane’s 2.9% growth further underscores the continued strength of its market, bolstered by interstate migration and investment demand.
On the other hand, Sydney has seen a more modest 0.8% increase, suggesting that its market may be reaching a maturity phase where affordability constraints and higher interest rates are limiting further growth. Meanwhile, Hobart and Melbourne have both experienced declines, with Hobart down by -0.4% and Melbourne by -1.2%. Melbourne’s ongoing decline, the largest among the capitals, highlights challenges such as oversupply and weaker demand, while Hobart’s slight drop might indicate a plateau after years of rapid growth combined with current economic pressures.
There exists a narrowing gap between the performance of combined capitals and combined regional markets, with combined capitals recording a 1.3% increase in dwelling values over the past three months, while combined regionals trailed slightly at 1.1%. This convergence may be driven by factors such as affordability pressures in the capitals, which have tempered their growth, while the appeal of regional markets continues to attract buyers seeking more value for their investment.
Rental Market
Rental growth data indicates major disparities across Australian capitals, with Perth leading the nation at 11.4%, reflecting strong demand amidst limited supply. Adelaide also shows robust rental growth at 8.3%, while Melbourne and Sydney follow closely with increases of 7.0% and 6.9%, respectively, though these larger markets are beginning to see some moderation due to rental affordability concerns.
Brisbane’s 6.0% rise indicates a stable yet slowing rental market, while Hobart and Canberra show more modest growth at 3.8% and 3.0%. Darwin, with a minimal 0.6% increase, highlights the weakest rental growth among the capitals, potentially due to balanced supply and demand dynamics. Overall, while rental growth remains strong in several markets, particularly Perth and Adelaide, there are signs of easing in the larger, more expensive cities as affordability pressures mount.
Regional areas, particularly in the Northern Territory and Western Australia, are offering the highest yields at 6.9% and 6.0%, respectively. In contrast, major capital cities like Sydney and Melbourne exhibit much lower yields, around 3.1% and 3.7%, reflecting the impact of high property values compressing rental returns.
Things to keep an eye on
- Rents: Advertised vs CPI
Advertised rents, representing new lease agreements, have spiked dramatically, surpassing 10% year-on-year growth before easing slightly, while CPI rents, which reflect the average increase across all existing rental agreements, have also increased but at a slower rate, currently around 7%.
This discrepancy indicates that tenants entering new leases are facing significantly higher costs compared to those with existing agreements. This trend will continue to exert significant inflationary pressure, with rents expected to grow at a high pace—around 7% annually—through 2025, before moderating slightly by the end of that year. The sustained high rental inflation is likely to remain a critical challenge for the Reserve Bank of Australia (RBA) as it navigates broader economic inflation concerns.
- Residential Building Approvals
Recent trends in the residential building sector indicate a continued shift towards higher density living, with approvals for these types of dwellings showing more volatility and significant peaks in recent years, reflecting urbanisation and demand in major cities. Meanwhile, detached house approvals and sales experienced a sharp increase during the pandemic due to housing stimulus measures but have since stabilized at lower levels. This overall pattern suggests that while demand for new housing remains, particularly in urban areas, the market is adjusting after the pandemic-driven boom, with a focus likely shifting towards higher-density developments as the housing market moves towards stabilisation.
As population growth rises, the lag in housing supply, decent recent rises, suggests mounting pressure on the property market, leading to increased competition for limited housing and driving up prices and rents. This imbalance signals potential challenges ahead in addressing affordability, as the demand for housing outstrips supply, particularly in high-growth areas. Delays in construction completions further exacerbate the issue, indicating that the market could face sustained upward pressure on housing costs unless supply catches up with the rising population.
At Search Party Property, we specialise in developing tailored investment strategies and will work with you to come up with a suitable plan of attack. We also regularly assess your strategy ensuring that it is fit for purpose and delivering the desired results.
