November has proven to be another strong month for house prices in Australia, continuing the upward trend that has been going on for 14 months.

The latest data from CoreLogic shows that Australian house prices appreciated 1.3% in November and house prices are 22.2% higher than the same time last year. While this was a period of very strong growth, momentum is showing signs of slowing down after a surge in supply started to ease supply shortages.

Across the country, Brisbane and Adelaide have been the two best performing markets in recent months. In November, Brisbane’s residential property values ​​rose 2.9%, while Adelaide rose 2.5%.

With lockdowns easing, there has been a wave of offers in Sydney and Melbourne and both cities have begun to slow price increases. Sydney’s value rose 0.9% in November, while Melbourne rose 0.6%. Hobart and Canberra both continued to post strong gains of 1.1%. Darwin had a hard time in November, with a value decline of 0.4%.

Source: CoreLogic

Over the past 12 months, Hobart has stood out, with a rise in value of 27.7%, while Sydney was the second best performing market with a gain of 25.8%.

While prices have risen at a record pace, momentum finally appears to be slowing. The 1.3% increase in house prices is the slowest since January, when the value rose by 0.9%.

Head of Research at CoreLogic, Tim Lawless, says the slowdown in the growth rate is due to a number of factors.

“Virtually every factor that has pushed house prices up has lost some of its momentum in recent months. Fixed mortgage rates are rising, higher quotes take away the urgency of buyers, affordability has become a greater barrier to entry and credit is less available.”

Mr Lawless noted that there was still a discrepancy between the overall growth of different cities, with Brisbane and Adelaide not suffering the same conditions as Sydney and Melbourne.

“Compared to the larger cities, housing affordability is less urgent, there are fewer disruptions from COVID lockdowns, and a positive rate of interstate migration is fueling housing demand.”

“On the other hand, Sydney and Melbourne have hit demand more severely due to affordability pressures and negative migration from both an interstate and foreign perspective.”

Inventory levels that affect prices

One of the biggest factors that has slowed growth in Sydney and Melbourne has been the increase in inventory in the market. By contrast, total stock for sale in Adelaide was -32.0% lower than the five-year average and -33.9% lower in Brisbane. In Sydney and Melbourne, inventory levels have normalized much more in recent weeks, with total quotes in Sydney just -2.6% below the five-year average, while Melbourne inventory levels are 7.9% above the five-year average.

Nationally, the number of new offers added to the market in the four weeks ending November 28 was 15.7% above the five-year average, the highest level since late 2015.

New and total entries, 28 day rolling count

Source: CoreLogic

“New lists are added to the market faster than they can be absorbed, increasing the total number of active lists. More listings means more choice and less urgency for buyers,” Lawless said.

While inventory levels are rising, the upward trend is from an extremely low base. The total number of active listings is up 67.3% since early September, but inventory levels remain -24.0% below the five-year average for this time of the year. We expect inventory levels to continue to normalize in 2022, gradually shifting sales dynamics from suppliers, giving buyers some additional leverage at the negotiating table.”

The increased number of listings is also driving up sales times and putting downward pressure on auction clearing rates, which have fallen below 70% in both Sydney and Melbourne in the past week.

“The surge in listings and the weakening of key supplier metrics implies the housing market may be going through peak sales conditions, but it will be important to see if this trend towards higher listings continues after the holiday season,” said Mr Lawless.

The outlook for Australian housing markets remains positive, according to CoreLogic, but since April the pace of capital gains has slowed in most regions. This trend towards slowing growth is likely to continue into next year and beyond. Most of the factors that have caused house prices to rise have declined or have expired.

As more supply hits the market, CoreLogic expects the heat to come from most markets in the country. This factor, combined with rising fixed rates and the potential for the RBA to raise rates earlier than expected, should slow price appreciation in the coming months. However, the historically low interest rate environment will persist for the foreseeable future, boosting property markets.

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