House prices across Australia continued their strong upward trajectory in September, with values ​​rising 1.5%.

The latest data from CoreLogic paints an optimistic picture for homeowners, with home values ​​now up 20.3% over the past 12 months, a level of growth we last saw in 1989.

Once again, every capital city in Australia saw positive growth in September, with Hobart and Canberra again the top performers, up 2.3% and 2.0% respectively. Sydney, Adelaide and Brisbane all experienced strong growth of almost 2%, while Perth and Darwin were the weakest capitals with gains of only 0.3% and 0.1%.

Regional Australia also continues to see strong growth, surpassing its urban counterparts for another month. In October, regional areas grew 1.7%, bringing the annual growth rate to 23.1% in what was a great period for housing outside the major cities.

Source: CoreLogic

Head of Research at CoreLogic, Tim Lawless, says that despite a solid 12 months, growth is slowing and moving back from record levels.

“As home values ​​rise significantly faster than household income, it has become more challenging to make a down payment for most cohorts of the market, especially first-time homebuyers.”

“Sydney is a prime example where the median home value is now just over $1.3 million. To make a 20% down payment, the typical Sydney home buyer would need about $262,300…”

“Existing homeowners looking to upgrade, downsize or move may be less affected because they’ve benefited from equity that has built up as home values ​​rose.”

In addition to record low interest rates, another key ingredient of the current housing boom is the low inventory levels highlighted by very few properties for sale.

While the number of new offers is slowly increasing as we enter the spring, the trend in the total number of offers remains low. Across the country, total advertised supply is -28.1% below the five-year average, and each capital city registers a below-average amount of advertised supply.

New and total offers on 28 day rolling count

Source: CoreLogic

Mr Lawless says that even with rising offers, we are still in a seller’s market.

“Nationally, homes are selling in 35 days, compared to 29 days in April, and supplier discount levels remain around record lows of -2.8%. Another factor indicating strong selling conditions is the recovery in auction rates as restrictions on one-to-one property inspections were eased in Melbourne and Canberra mid-month. By the end of September, the combined capital approval rate had returned to 80.5%, the highest since the end of March.”

Compressed Yields

Thanks to the strong period of capital appreciation, rental yields have reached new record lows in most parts of Australia.

Gross returns in the combined capitals fell to 3.0% in September, with gross returns in Sydney (2.5%) and Melbourne (2.8%) well below the other capitals, while regional Australia is higher at 4.4%.

CoreLogic suggests that while yields are low, so are mortgage rates for investors. In July, the average three-year fixed rate for a new investor loan was 2.38%, while the floating rate averaged 3.01%, suggesting opportunities for positive cash flow investment outside of Sydney and Melbourne.

Positive outlook for property prices

Overall, the trend for house prices in Australia remains positive, according to CoreLogic. Home value growth is supported by expectations that mortgage rates will remain at historic lows for an extended period of time, while demand is strong alongside continued low advertised supply.

However, there are a number of factors on the horizon that investors should be aware of. While the RBA has made it clear that rates are likely to remain low for an extended period of time, we recently heard from the APRA (Australian Prudential Regulation Authority) looking at tighter debt-to-income ratios and the acquisition of higher usability buffers, which could lead to more pressure on those seeking new loans.

Additionally, with lockdowns set to ease in the coming weeks, inventory levels are expected to continue rising for the rest of the year, which has the potential to change the buyer-seller dynamics we’ve seen over the past 12 months.