Housing market growth slows in Australia, influenced by higher mortgage rates

The housing market in Australia is gradually responding to higher mortgage rates, tighter credit policies and affordability challenges, with prices and sales moderating.

The latest home value index from CoreLogic shows that prices increased by 1.5% across capital cities in July but month on month and quarter on quarter it is a mixed picture.

The combined capital city index shows that overall prices are up 2.2% quarter on quarter and up 10.5% year on year to a median of $625,000 but there are considerable state variations.

Most capital cities recorded a rise, led by 3.1% gain in Melbourne where prices are now 15.9% higher than a year ago at a median of $655,000 but they fell month on month in Brisbane, Perth and Darwin.

Prices in Brisbane were down by 0.6% in July compared to the previous month, but are still 2.2% higher than a year ago at $490,000, while they fell by 1.3% month on month in Perth and are down 2.1% year on year at $475,000 and were down 1.2% in Darwin on a monthly basis and are 2.1% down year on year at $485,000.

After Melbourne the next highest month on month rise was in Canberra at 2.4% where the median price is now $614,000, some 12.9% higher than July 2016. Prices increased by 1.4% in Sydney where growth has slowed but are still 12.4% higher year on year at $856,000.

Prices increased month on month by 1.1% in Adelaide to $434,000 and are 2.1% higher than a year ago while Hobart saw prices rise by 0.9% on a monthly basis to $338,000 which is 6.5% up year on year.

‘The recent bounce in capital gains may be partially due to a recovery from the seasonal slump in values recorded in April and May. However, other factors, such as stamp duty concessions for first home buyers in New South Wales and Victoria, may also be having a positive impact on market demand,’ said CoreLogic head of research Tim Lawless.

‘It’s still too early to measure the effect of first home buyer incentives, which went live on 01 July. However historically, the first time buyer segment has been very responsive to stimulus measures,’ he added.

He pointed out that despite the higher month on month capital gains in June and July, the quarterly trend rate of growth has clearly reduced. The rolling quarterly pace of capital gains across the combined capitals has fallen from 3.6% in February earlier this year to reach 2.2% at the end of July.

The slowdown in growth conditions is most evident across the hottest markets, with the quarterly growth trend reducing from 5% in Sydney earlier this year to 2.2% at the end of last month. Melbourne growth conditions have also slowed, though to a lesser extent, with growth easing from a 2017 quarterly peak of 5.5% to 4.2%.

The divergence in growth rates between Sydney and Melbourne is also evident in auction clearance rates. Sydney’s clearance rate has been below 70% for seven of the past eight weeks, while Melbourne auction clearance rates have consistently held around the mid 70% range.

‘Melbourne appears to be benefitting from consistently high population growth which is creating strong demand for housing, as well as consistently high jobs growth and more affordable housing options relative to Sydney,’ Lawless explained.

At the other end of the growth spectrum, Perth and Darwin have continued to see dwelling values slip lower over the month, taking the cumulative decline to 10.2% in Perth and 14.5% in Darwin since both markets peaked in 2014.

The ease in the rate of decline has been most visible in Perth, providing a signal that the Western Australian capital may be approaching the bottom of the downturn, listing numbers have been falling across Perth which is a positive sign of improving conditions, and transaction numbers have found a new floor at around 2,500 sales per month.

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