31st January 2023 – Property Market Update

While property prices are continuing to drop in most locations, the rate of decline has once again slowed. The 1.0% decrease in the national median dwelling value seen in January is the smallest since June 2022. However, property values have now dropped 8.9% since April 2022, which is the largest and fastest decline in at least 40 years.

The rental market is also continuing its recent trend, albeit in the exact opposite direction. The 0.7% rise in the national median rent recorded in January represents a slight increase in the pace of monthly growth. This is largely being driven by competitive capital city markets and the ongoing strength of demand for rental units.

7 Charts that Sum Up the State of the Property Market

1. Change in Dwelling Values

Key points to note:

• The national median dwelling value fell a further 1.0% in January, slightly improving on the 1.1% loss recorded in December. This is the smallest monthly decline since June 2022 and supports the belief that the market is starting to stabilise.
• Over the last 12 months, Sydney has recorded the largest decline, with the city’s median dwelling value down 13.8%. This has brought it below the $1m mark (to $999,278) for the first time since March 2021. NSW has also been the worst performing regional market over the last year, with the median price falling 5.2%.
• At the other end of the spectrum, South Australia continues to be the national property market’s best performer. The Regional South Australia market remains particularly strong, with the median dwelling value up 0.5% for the month and 15.3% for the year. Adelaide has also been the strongest performing capital market over the last year (up 6.9%) but has slowed significantly over the last quarter (down 1.5%)

2. How Far Would Dwelling Values Need to Fall to Get Back to March 2020 Levels?

Key points to note:

• The ongoing downward trend in property prices is now officially the largest and fastest decline in over 40 years. However, it comes on the back of a record-breaking growth period, which saw dwelling values rapidly increase. As such, it is important to view the current state of the market within its full context.
• Despite recent losses, median prices remain above pre-pandemic March 2020 levels for every capital and rest of state market. Even Melbourne, which recorded the most modest growth during the recent upswing, remains 0.4% up on its March 2020 numbers.
• As it is yet to pass its cyclical peak, Regional South Australia remains the furthest above (32.0%) its pre-pandemic levels. Regional Western Australia has also not passed its cyclical peak yet, but its growth trajectory has not been as steep (up 22.3% since March 2020).

3. Quarterly Stratified Change in Dwelling Values

Key points to note:

• The lower quartile (i.e. the most affordable properties) has been the most stable across every capital market. In fact, over the last 3 months, median values for this market segment actually increased in Darwin (up 1.2%), Adelaide (up 1.0%), and Perth (up 0.4%).
• Conversely, the upper quartile (i.e. the most expensive properties) has recorded the largest losses over the last 3 months. However, this market segment has also seen the most pronounced slowing of the rate of decline. On a rolling quarterly basis, the decline in upper quartile median values has improved from 6.1% in September to 4.0% in January.
• Sydney is leading the improvement in upper quartile losses, with quarterly declines improving from 7.7% in August to 3.9% in January.

4. Change in Sales Volumes

Key points to note:

• Buyer demand appears to be continuing to slow, with annual sales volumes down 19.1% on this time last year. This is most pronounced in New South Wales, with Sydney (down 29.2%) and Regional NSW (down 26.7%) recording the largest declines.
• While sales volumes are comfortably below last year’s levels, they are still 4.6% above the 10-year average. However, given the continuing slowing of market activity, this is likely to change within the next few months.
• Most market commentators believe it will take a significant improvement in consumer sentiment to stop the decline in sales volumes. This is because potential buyers are much less likely to make large purchases (like a property) during periods of economic uncertainty.

5. Change in Listing Volumes

Key points to note:

• Supply of properties continues to be limited, with new listing levels sitting 20.9% lower than they did 12 months ago. Despite bouncing back quite quickly from the recent season low, new listings volumes are also 24.3% below the 5-year average.
• While also still broadly down (2.9% nationally), total listing volumes are much closer to what they were 12 months ago. In fact, on a combined regional basis, total listing levels are actually slightly higher (0.8%) than this time last year. However, overall, listing numbers still remain well below the 5-year average.
• While both new and total listing levels vary significantly across the major markets, Hobart continues to be an obvious outlier. This is largely considered a natural market adjustment, following several years of significant supply issues in the city.

6. Change in Median Rents

Key points to note:

• After steadily falling over the last few months, the monthly national rent growth rate has increased slightly, to 0.7%. This was mostly due to further strengthening of capital markets, especially the unit rental markets in Sydney, Melbourne, and Brisbane.
• The annual national rent growth rate has also dropped slightly, from December’s record high of 10.2%, to 10.1% in January. Many experts believe that this is clear evidence the rental market has passed its peak and is starting to plateau.
• The monthly rent growth rate is more modest in regional areas, having fallen from 0.6% in December to 0.4% in January. This suggests a reversing of rental preferences, back toward more urban locations with strong transport links and easy CBD access.

7. New Dwelling Approval Rates

Key points to note:

• The approval of new dwelling proposals has a knock on effect on the supply of new properties to the market. As such, it is an important consideration for investors, particularly when viewed in combination with buyer demand data.
• Nationally, the total number of dwellings approved jumped by 18.5% in December. This was driven by a sharp increase in unit approvals levels, which can be quite volatile month-to-month.
• The number of new houses approved fell by 2.4% in December and has tracked below the 10-year average since September 2022.

Please note: Dwelling approval numbers are reported by the Australian Bureau of Statistics and the latest data is from December 2022.

---

3 Trends We Are Watching

1. Resilience of regional markets

While property prices are broadly trending downward in regional areas, the rate of decline is slower than in the capitals. The proceeding upswing was also larger, primarily driven by the significant increase in interest in key lifestyle locations. As a result, the gap between urban and regional prices has notably narrowed over the last couple of years.

Impressively, regional markets have continued to perform well, even as internal migration slowed, and their comparative affordability decreased. While this could just be a temporary quirk of the different market cycles, it seems to reflect a more permanent change.

In fact, many market watchers believe this reflects a fundamental shift in the demand for regional properties. They feel that, enabled by the rise of remote working, more buyers are looking for a better work-life balance. As a result, they are more willing to look beyond the boundaries of the city to find the perfect property.

If this is right and this trend continues, it is even more reason to look to regional areas for good investment opportunities.

2. Rental applicant behaviours

In many locations, the rental market is currently extremely competitive, with most quality properties attracting significant interest. This is particularly true in inner city areas, where inspections regularly draw large crowds and result in dozens of applications. While this is good news for investors, it has made it quite difficult for tenants to secure a suitable property.

As a result, many are choosing to take additional measures to help ensure they land the place they want. For example, some opt to submit “practice applications” to get feedback they can use to strengthen their future applications. Many others – some sources say up to 80% in some areas – offer over the advertised rent rate.

The latter practice is particularly interesting given the NSW Government’s recent move to outlaw rental auctions. This brings the state in line with most other jurisdictions, where applicants cannot be actively encouraged to exceed the advertised rate. However, these rules do not limit the ability of tenants to proactively propose higher regular rental payments.

While this behaviour is understandable, it is also helping drive up rental prices and making properties less accessible. As such, while it may be economically beneficial for landlords, long term, it could negatively impact the health of the market.

3. Interest rates

At its first meeting of the year, the Reserve Bank (RBA) once again chose to lift the cash rate. Having jumped from 0.1% to 3.35% in 10 months, this is now easily the biggest and quickest increase on record. It also takes recent borrowers beyond the level of serviceability they were assessed for when applying for their loan.

All that said, the latest rate hike was largely expected, with some market watchers even expecting a bigger increase. The RBA has been quite vocal about its focus on curbing inflation and how that is driving its rate decisions. Recent announcements have also flagged that they expect to lift the cash rate at le ast twice more this year.

However, predicting how rates will move over the next few months is a little more difficult. This is primarily because the outlook for inflation is fairly uncertain, with key metrics telling a somewhat contradictory story. For example, while headline inflation has come in below the RBA’s forecast, core inflation is higher than expected.

As a result, expert predictions on the trajectory of interest rates moving forward vary greatly. While the most optimistic have the cash rate holding steady, others expect a further increase of 0.75% or more. However, the median appears to have rates rising a further 0.25% (to 3.60%), possibly through multiple smaller increases.

---

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.

Book your 30 minute property investment assessment here.