National home values are now just 0.5 per cent below their peak after rising for a ninth consecutive month, the latest CoreLogic data has revealed.
Home values increased 0.9 per cent in October following a 0.7 per cent increase in September, underpinned by 0.9 per cent price growth across Australia’s capital cities.
Darwin was the only major capital to record a decline (0.1 per cent), while Perth (1.6 per cent), Brisbane (1.4 per cent), and Adelaide (1.3 per cent) recorded the strongest monthly growth.
Since bottoming out in January 2023, national home values have increased 7.6 per cent, with the national median home value currently sitting at $747,424.
Despite continued monetary policy tightening from the Reserve Bank of Australia (RBA), which has lifted interest rates by a cumulative 400bps since May 2022.
According to Gareth Aird, head of Australian economics at the Commonwealth Bank, these rate hikes have reduced borrowing capacity by approximately 30 per cent.
“A decline of this magnitude would ordinarily be expected to be accompanied by an ongoing decline in home prices. But these are extraordinary times,” he said.
Mr Aird said the “remarkable” surge in property prices has been driven by a supply and demand imbalance amid a rapid increase in the population.
“Australia’s population growth has surged over the past year. And home building has not kept pace,” he said.
“As a result, vacancy rates have dropped to record lows in most capital cities and the rental market is hot. This has put upward pressure on home prices.”
Foreign investors, he added, have also re-entered the market, with NAB data suggesting they represented 10.1 per cent of new sales over the three months to 30 September 2023.
“Put simply there is a supply/demand imbalance in the housing market,” he said.
“Potential entrants into the housing market and renters feel the impact of this mismatch most acutely. Meanwhile many home borrowers with a mortgage are also feeling the pain of significantly higher mortgage rates.”
The CBA economist expects the growth trend to continue, despite an anticipated resumption f the RBA’s hiking cycle at its November board meeting on Melbourne Cup Day.
We expect a 25bp rate increase at the November RBA Board meeting, which would take the cash rate to 4.35 per cent,” he observed.
“A Cup Day rate increase may weigh on near term sentiment in the housing market. But overall, we expect the underlying demand for housing to remain firm against a backdrop of constrained supply and strong rental growth.”
AMP chief economist Shane Oliver agrees, but added he expects the rate of residential property price growth to slow.
“The supply shortfall in the face of strong demographic demand has had the upper hand this year but high interest rates and their lagged impact look to be starting to reassert themselves,” he said.
“The headwinds of high interest rates and poor affordability will likely constrain the upswing at the very least and so our base case remains for price growth to slow to 5 per cent next year.”
However, Mr Oliver said there is a “very high risk” of a further lag down in housing values if labour market conditions deteriorate “significantly”.
“After surprising on the upside this year, they may surprise on the downside next year! Interest rates, unemployment and auction clearance rates are key indicators to watch.”
