July Market Smart – A Mixed Bag Across the Country
Key Takeaways
- Continued National Growth: The national home values rose by 0.5% in July, marking the 18th consecutive monthly increase, following a 0.5% rise in June. Despite economic challenges, this steady growth underscores the resilience of the Australian property market.
- Regional Differences: While the national trend is positive, three capital cities—Melbourne, Hobart, and Darwin—recorded declines in home values over the past three months. Melbourne experienced the largest drop at -0.9%.
- Robust Growth in Mid-Sized Capitals: Perth, Adelaide, and Brisbane showed strong quarterly growth rates of 6.2%, 5.0%, and 3.8% respectively, highlighting the divergence in market performance across different regions.
- Rental Market Dynamics: Rental growth is slowing, particularly in the unit market. The national rental index rose by only 0.1% in July, the smallest increase since August 2020, with Sydney and Brisbane both seeing a -0.1% decline.
Current Market Trends
The Australian property market continues to exhibit robust growth despite a range of economic pressures. The CoreLogic Home Value Index (HVI) for July 2024 illustrates a persistent upward trend in dwelling values nationwide, though regional performance varies significantly.
Value Changes
- National Trends: The national median dwelling value increased by 0.5% in July, consistent with June, reflecting ongoing strength in the market. However, the annual growth rate is moderating compared to last year.
- City Performance:
- Perth leads with a 2.0% monthly increase and a remarkable 24.7% annual growth.
- Brisbane and Adelaide also show strong annual gains of 16.0% and 15.5% respectively.
- Sydney recorded modest growth at 0.3% for the month and 5.6% annually.
- Melbourne, Hobart, and Darwin experienced declines, with Melbourne down by 0.4% for the month and 0.9% over the quarter.
Rental Market
- Slowing Growth: The rental market is seeing decelerated growth, with a 0.1% national rise in July, the smallest since August 2020. Sydney and Brisbane both saw monthly declines of -0.1%.
- Affordability Pressures: Despite slowing growth, rental affordability remains a concern, particularly for units. The easing in rental growth correlates with a peak in net overseas migration, which predominantly affects inner-city unit markets.
- Stable Rental Yields: Despite slowing growth in rental prices, rental yields have remained relatively stable, with gross yields around 3.5% in capital cities and 4.4% in regional areas, providing consistent returns for investors.
Supply and Demand
- Supply Constraints: Limited housing supply continues to drive up property values. Listings in some cities are significantly below average, with Perth and Adelaide having more than 30% fewer homes for sale than typical for this time of year.
- Regional Variations: Melbourne and Hobart have higher than average supply levels, indicating potential stress in these markets.
The market outlook remains mixed, with ongoing supply constraints likely to support home prices despite economic headwinds. However, affordability issues and potential financial stress among households could temper future growth.
Market Outlook
Despite the persistent economic pressures, including high interest rates and inflation, the market shows remarkable resilience. The tight supply-demand balance continues to support property values, with new listings remaining low in many regions. However, the rising cost of living and decreasing affordability could pose challenges. Affordability issues are likely to temper growth, particularly in high-priced markets, while mid-sized capitals with robust demand and limited supply may continue to see strong performance. Investors are increasingly active, seeking more opportunities in regions with higher yields and growth potential. Overall, while the market is poised to face headwinds, the underlying fundamentals suggest that property values will likely remain buoyant in the near term.
Things to Keep an Eye On
- Building Approvals
New residential building approvals fell 6.5% over the last month, driven in large part by a drastic decline in new approvals for high density residential buildings. The number of dwellings approved over the last financial year was the lowest figure in over a decade.
As a share of GDP, housing construction is also well below historic levels.
- Rental Deceleration
Rental growth is continuing to slow rapidly for both houses and units.
- Interest Rates
Market expectations of an interest rate increase remain extremely low, thanks to positive inflation results of late.
While inflation has risen, underlying CPI has continued to fall, amplifying expectations that the next interest rate change will a cut.
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