According to CoreLogic’s latest Hedonic Home Value Index, national residential property prices increased 0.6 per cent in March — the first monthly increase since April 2022.
National price growth was spurred by a second consecutive increase in values across Sydney (1.4 per cent), supported by growth across Melbourne (0.6 per cent), Perth (0.5 per cent), and Brisbane (0.1 per cent).
The March result has bucked a 10-month trend of national price depreciation, coinciding with aggressive monetary policy tightening from the Reserve Bank of Australia (RBA).
The cumulative decline in national home prices totalled 7.9 per cent in the 12 months to 28 February 2023, while interest rates increased a combined 3.25 per cent over the same period.
CoreLogic’s research director, Tim Lawless, attributed positive price movement to returning investor confidence and a shortage of housing supply.
“Although interest rates are high and there is an expectation the economy will slow through the year, it’s clear other factors are now placing upwards pressure on home prices,” Mr Lawless said.
“Advertised supply has been below average since September last year, with capital city listing numbers ending March almost 20 per cent below the previous five-year average. Purchasing activity has also fallen but not as much as available supply; capital city sales activity was estimated to be roughly 7 per cent below the previous five-year average through the March quarter.”
The challenging rental market and high levels of net overseas migration may also be supporting a rebound in demand for housing.
Not quite a turning point but green shoots emerging
According to the Commonwealth Bank’s head of Australian economics, Gareth Aird, while “surprising”, it is too early to call a “turning point” in housing market conditions.
However, the economist conceded price growth in March may suggest CBA’s initial forecast of a 15 per cent peak to trough decline in national prices was “a little pessimistic”.
“We retain our forecast for now. But another lift in prices over April coupled with the expectation that the RBA’s tightening cycle is almost complete will see us send that peak to trough forecast to the shredder,” Mr Aird said.
As for the RBA’s monetary policy strategy, CBA recently revealed it now expects the central bank to pause the cash rate at 3.6 per cent.
“We ascribe a 55 per cent chance to no change and a 45 per cent probability to a 25 bp rate increase to 3.85 per cent (we consider the risk of any other move immaterial),” Mr Aird wrote.
“The actions of many other central banks globally over the past two weeks lend weight to the RBA continuing to tighten policy despite some concerns within pockets of the global banking system (outside of Australia).
“But the domestic economy is now showing sufficient signs of slowing and we expect the RBA board will judge that a pause in the tightening cycle is the appropriate move in April.”
According to the Australian Bureau of Statistics’ (ABS) latest monthly consumer price index (CPI), annualised inflation fell for the second consecutive month to 6.8 per cent in February — below market expectations.
This represented a 0.6 per cent decline from the previous month, in which annualised inflation was reported at 7.4 per cent.
The monthly decline was 1.6 per cent below the peak of 8.4 per cent in December.
The CPI result is expected to influence the Reserve Bank of Australia’s (RBA) next monetary policy board decision, along with the latest retail sales figures and business indicators.
The ABS released retail sales figures for the month of February earlier this week, revealing a 0.2 per cent increase, down from a 1.8 per cent rise in January.
Except for the latest labour force data — reporting a seasonally adjusted unemployment rate of 3.5 per cent, down from 3.7 per cent in January — other periodic economic indicators suggest the economy is weakening.
Wages grew 0.8 per cent in the three months to 31 December, slowing from 1.1 per cent in the previous quarter and falling below market expectations of a 1 per cent rise.
This coincided with weakness in aggregate economic activity, with GDP growth slowing to 0.5 per cent over the fourth quarter of 2022 — below market expectations of 0.8 per cent.
But any inflationary signals over the coming month could prompt the RBA to resume its tightening cycle.
“The board can resume increasing the cash rate in May following a pause in April if the economic data makes the case,” Mr Aird said.
“There is still a massive amount of tightening left to hit the Australian household sector even if the RBA leaves policy on hold from here. Monetary policy works with a lag and only 45 per cent of the increase in the cash rate to date had passed through to scheduled mortgage repayments at the end of 2022.”
