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As of 30th November 2022 – Property Market Update
While the national median dwelling value has fallen for a seventh consecutive month, November saw the smallest decline (1.0%) since June. This is mainly being driven by the easing rates of decline in both Sydney and Melbourne. That said, many other capital and rest of state markets have also seen their rate of decline start to slow. Potentially a perfect storm for investment buyers to reenter the market – pending their individual strategy.
On the rental side, markets remain extremely tight, with vacancy rates still sitting below 1% in most areas. This continues to put upward pressure on rents, though the rate of growth is easing in most locations. It is also combining with declining property values to drive rental yields back up from their recent record lows.
7 Charts that Sum Up the State of the Property Market
1. Change in Dwelling Values
Key points to note:
- The median national dwelling value fell a further 1.0% in November. While this is the seventh straight month that property prices have declined, it is an improvement on October’s 1.2% loss.
- The monthly rate of decline in property values peaked in July in Melbourne (at 1.3%) and August in Sydney (at 2.3%). The 0.8% and 1.5% (respectively) declines seen in November represent a notable slowing of the downward trend. Canberra, Brisbane, and most regional markets have also seen a similar steadying over the last month.
- Darwin was the only capital market to see dwelling values increase (up 0.2%) in November, with Perth holding steady. Similarly, Regional South Australia (up 1.0%) and Regional Western Australia (up 0.9%) were the only “Rest of State” markets to see prices increase.
2. Change in Values Since Recent Peak
Key points to note:
- While prices continue to decline in most areas, they remain above their pre-COVID level in every major market.
- As Melbourne made the smallest gains over the pandemic period, it is the closest to returning to its pre-COVID levels. That said, Sydney has fallen the furthest from its peak and is the only market that has declined more than 10%.
- As prices are still trending upward in Regional South Australia and Regional Western Australia, these markets are yet to pass their cyclical peak.
3. Change in New Listing Volumes by Season
Key points to note:
- In the decade prior to COVID, nationally, new listings were an average of 21% higher in spring than winter.
- This year has been a complete reversal of this trend, with new listings actually falling approximately 2.5% in spring. More information on the potential reasons for this is included below.
- While new listing levels declined nationally, a small number of local markets did see an increase in spring. These upswings were still fairly modest – most were largely consistent with the decade average – and concentrated in areas where prices are holding relatively steady.
4. Change in Listing Volumes
Source: Monthly Housing Chart Pack (CoreLogic)
Key points to note:
- Over the last month, far fewer properties have been listed for sale than were over the same period last year. New listing levels are also well down on the 5 year average.
- Total listings are also well below both last year’s levels and the 5 year average. In fact, total capital listings are the lowest they have been since 2010, and total regional listings the lowest since 2007.
- Hobart is the obvious outlier, with both new and total listing levels notably higher than this time last year. This is mostly because advertised stock was very limited in Hobart 12 months ago.
5. Change in Sales Volumes
Key points to note:
- Slowing buyer demand has seen sales volumes fall to 13.3% lower than over the same period last year. That said, estimates still have the national sales volume sitting 10.8% above the 5 year average.
- Sales volumes have declined more in regional areas (down 14.0%) than in the capitals (down 12.8%). That said, Sydney has seen the sharpest decline, with sales volumes down 26.1% compared to last year.
- The Northern Territory, South Australia, and Western Australia are all bucking the general downward trend. In these jurisdictions, both capital and regional sales volumes are higher than 12 months ago, with Darwin recording the largest increase (16.6%).
6. Change in Capital City Rents
Source: Monthly Housing Chart Pack (CoreLogic)
Key points to note:
- The national median rent rate has increased 10.2% over the last twelve months. This is the highest growth rate on record and reflects a re-acceleration of the rental market.
- This is at least partially being driven by the strength of the unit rental market, particularly in Sydney (up 14.7% for the year), Brisbane (up 14.3%), and Melbourne (up 13.9%). Brisbane is also a leading performer for growth in house rents, which are up 13.4% over the last 12 months.
- The increase in rents is largely being driven by supply issues. Most locations are recording vacancy rates below 1% and capital rental listing levels are the lowest they have been in a decade. Regional rental markets are even tighter, with rental listings at their lowest level since 2009.
7. Gross Rental Yields by Region
Source: Monthly Housing Chart Pack (CoreLogic)
Key points to note:
- Rental yields continue to recover from the record lows seen at the start of the year. The national gross rental yield now sits at 3.71%, a full 0.5% above the record low recorded in January.
- Despite this upward trend, rental yields still sit below the long-term average. In the capitals, they have increased from 2.96% in February to 3.5% in November, with the decade average being 3.67%. Similarly, regional rental yields have increased from 4.04% in April to 4.43% in November, but are still well short of the 5.02% decade average.
- The gap between capital and regional rental yields continues to be the smallest (0.4%) in Tasmania. Western Australia is at the other end of the scale, with a 1.7% difference between Perth and the rest of the state.
3 Trends We Are Watching
1. Interests Rates
Earlier this month, the RBA decided to raise the cash rate by another 0.25% – the eighth consecutive monthly increase. This means that rates have risen by 3.00% since April, which is the biggest increase in almost two decades. Now sitting at 3.1%, the cash rate is also the highest it has been in a decade.
The latest rise is especially noteworthy because, in October 2021, APRA introduced a 3.00% mortgage serviceability buffer. This meant that mortgage providers had to ensure applicants could absorb at least a 3.00% rise in interest rates. As rates have now risen by the buffer amount, widespread mortgage distress becomes more likely with every additional rate increase.
This is a particular concern for fixed rate mortgage holders who are reaching the end of their fixed term. While they have been largely insulated against rate increases, this protection will soon come to an end. When it does, their repayments will jump significantly, most likely to a level beyond their assessed serviceability.
All that said, it is not all bad news. You can expect rates to stay steady for at least the next month, as the RBA does not meet in January. The majority of experts also believe that rates are nearing their cyclical peak. In fact, most are forecasting only one or two further increases, with the potential for slight decreases later in the year.
2. Supply of properties
As noted above, for the decade before the pandemic, we saw an upswing in new listings every spring. However, this year has bucked that trend, with more properties listed for sale in winter than in spring – at least at the national level. While it is difficult to say exactly why this has happened, market watchers have a few theories.
Most significantly, many experts are pointing to falling property prices and the impact they are having on seller confidence. They also note that properties are sitting on the market longer and vendors are having to offer bigger discounts. It is believed this is causing property owners to put off their selling plans until after the market improves again.
Some also believe that last year’s bumper selling season has resulted in a lull this year. This theory suggests that the quieter conditions we are currently seeing are essentially a market correction. If that is the case, and other key market indicators continue to stabilise, listing levels should also begin to normalise soon.
3. Christmas Spending
One of the things that make the Australian property market so compelling is its wide range of drivers. This includes multiple factors that, on the surface, may seem unrelated – like retail spending, particularly at key times like Christmas. In addition to being a clear measure of consumer confidence, this is also a key consideration when calculating inflation.
With that in mind, many economists will be closely watching how the retail sector performs over this holiday period. The strength of spending at this time will be seen as a reflection of how thinly household budgets are stretched. It will also influence the next round of inflation figures, which are to be released early in the new year.
As the RBA has previously stated, curbing inflation is their top priority and the basis for their recent decision making. As such, the lavishness of this year’s Christmas celebrations could have a direct impact on the property market’s immediate future.
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.
