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As of 31st December 2022 – Property Market Update
After slowing over the last couple of months, the rate of decline in the national median dwelling value has increased slightly. The 1.1% loss recorded in December means that the median Australian property price finished the year 5.3% lower than it started it. This is the first annual decline since 2018 and the largest since 2008.
By contrast, the rental market has continued its recent strong performance, with the national median rent rising a further 0.6%. This has seen the median rent rate finish the year 10.2% higher than it started it. It has also helped rental yields recover from the recent record lows, to now be higher than pre-pandemic levels.
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 decreased by a further 1.1% in December. While this is larger than the 1.0% loss recorded in November, it is below the 1.6% decline seen in August. As such, it still seems as though the market is starting to stabilise.
- Melbourne led the increasing rate of decline, with prices falling 1.2% for the month, after dropping 0.8% in November. Sydney, Adelaide, Darwin, Canberra, and regional Tasmania all also saw larger decreases in December than November.
- Perth was the only capital market to record price growth in December, with dwelling values up 0.1% for the month. Regional South Australia (up 0.7%) and Regional Western Australia (up 0.5%) also remain in positive territory, though these markets are also slowing.
2. Change in Unit Values
Key points to note:
- While median unit values are falling in most major markets, they are generally holding steadier than overall dwelling values. This reflects the fact that, at the moment, units are broadly outperforming houses across most locations.
- This can be most clearly seen in regional South Australia, where unit values increased 2.4% in December, and 6.5% over the last quarter. This is significantly higher than the 0.7% and 1.8% (respectively) growth seen in all dwelling values – which were already the highest of any market.
- The most notable exception to this trend is Perth, where units have consistently performed worse than houses over the last quarter. Units in Regional Victoria also saw a larger decrease in December, but were stronger over the last quarter and year.
3. Change in Listing Volumes
Key points to note:
- New listing levels continue to be notably lower than at the same time last year, across almost every major market. Nationally, the volume of new listings is also well below (22.1%) the five-year average.
- While several areas have seen total listing volumes increase, the relative change is highest in Hobart (up 85.1%). This is largely due to the significant supply issues the city has experienced over the last few years. There is also a clear correlation with market performance, as Hobart recorded the largest drop in dwelling values (down 1.9%) in December.
- Conversely, the three markets to record positive price growth in December also have the lowest relative listing volumes. Regional South Australia (down 29.9%), Regional Western Australia (down 26.3%), and Perth (down 21.1%) have all seen supply significantly reduce over the last 12 months.
4. Change in Days on Market
Key points to note:
- The discrepancy between new listing and total listing volumes largely reflects the slower pace of the market. This is clearly seen in the increasing amount of time it is taking to find a buyer.
- While most areas have seen the median days on market blow out, regional markets have been particularly hard hit. Properties are now taking an average of 35 days longer to sell in Regional Tasmania, 20 days longer in Regional NSW, 19 days in Regional Queensland, and 18 days in Regional Victoria. Hobart (28 days longer) and Brisbane (18 days longer) have been the worst affected capital markets.
- Regional South Australia is also bucking this trend, with properties taking 3 fewer days to sell than they did a year ago. Regional Northern Territory has also seen the median days on market reduce (down 5 days), but remains the country’s slowest moving market.
5. Weekly Clearance Rates
Key points to note:
- The clearance rate for the last four weeks of auctions in 2022 was 55.1%. This was slightly lower than the previous period, and notably below the 65% clearance rate recorded in December 2021.
- Unlike in most previous years, there was no real spike in auction volumes leading into the end of the year. This reflects the generally quieter market and continues the downward trend we have seen in auction volumes across the year.
6. Change in Median Rents
Key points to note:
- The annual growth in the national median rent has held steady at the record level of 10.2%. However, the quarterly growth rate (2.0%) has fallen for two consecutive quarters, since peaking in the three months to May (at 3.0%). This suggests that the rental market may be starting to cool.
- Brisbane has been the strongest market (up 13.4% for the year), with Adelaide a close second (up 12.9%). That said, Perth has seen the strongest performance over the last few months (up 1.2% in December and 3.2% for the quarter).
- Canberra is the outlier to the upward trend, with rents down 0.1% in December and 0.7% for the quarter. If it continues this trajectory, it will soon be replaced by Sydney as the most expensive capital city to rent in.
7. Change in Vacancy Rates
Key points to note:
- Almost every major market has seen rental vacancy rates tighten over the last year. This is considered to be a key driver of the recent record increases in median rent rates.
- Melbourne has seen the biggest tightening of its rental market, with the local vacancy rate dropping 1.9% over the year. Sydney was next best, with its vacancy rate decreasing by 1.5%.
- Once again, Canberra is the exception to the general trend, with its vacancy rate increasing (from 1.2% to 1.6%) over the year. Hobart was also an exception, with its vacancy rate remaining steady when compared to 12 months ago.
3 Trends We Are Watching
1. Unit Market Performance
Historically, as the property market moves through its highs and lows, house values usually vary more than unit values. This means that, during the growth phase, detached properties tend to see larger price increases. It also means that, when the market turns, house markets generally lead the downward trend.
The current cycle has been no different, with houses significantly outperforming units up until about April last year. Since then, the gap between the performance of houses and units steadily narrowed, before flipping in November. Units are now clearly the more stable market, having recorded a 1.2% (-4.1% v -5.3%) smaller loss in value over the last 12 months.
While there are many reasons for this, affordability appears to be a major driver of this trend. Due to the recent string of interest rate rises, most buyers now have less money at their disposal. This has made higher density developments a more attractive option, particularly for those committed to buying in highly desirable locations.
As investors, the resilience of the unit market is noteworthy, particularly in light of the strength of the rental market. It means that, while values may be falling, further losses should be modest, and the potential for long-term growth is strong. Any short-term losses should also be offset by stronger rental returns, particularly if vacancy rates remain so low.
2. Rental Vacancy Rates
Building on the previous point, the strength of the rental market should be encouraging to even the most conservative investor. While some concerns over the recent decline in property values are understandable, this is part of the normal market cycle. Any short-term losses should also be, at least partially, offset by the record breaking growth in rents.
That said, it is important to acknowledge the crucial role that vacancy rates have played in boosting rental returns. Currently, the supply of new rental listings is limited in most locations, resulting in significant competition for quality properties. This is helping drive up prices, as tenants pull out all the stops to impress landlords and secure a lease.
Interestingly, in the last month, we saw a slight easing in the rental market, with the national vacancy rate increasing 0.12%. Many experts believe this is due to the increase in new rental listings traditionally seen over the holiday period. However, some also point to the slowing rate of rent value growth as a sign that the market is turning.
3. Interest Rates
As the Reserve Bank does not meet in January, there has been no real movement in interest rates this month. However, this reprieve is likely to be short-lived, with most analysts tipping a rate rise in February – and possibly March. This will take recent borrowers well beyond the 3.00% serviceability buffer their application was assessed against.
The majority of mortgages taken out in the last couple of years have also been on a fixed rate. Many of these are set to end their fixed term in 2023, meaning their interest rate will suddenly jump up 3%+. This could create real issues for a large number of households that are already struggling to balance their weekly budget.
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.
