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What’s driving home values?

Australia’s homeowners have seen the value of their property balloon over the past year. What has been driving the dramatic and quite-unexpected increases and how might these influences change over 2022?

When we look at the finer details behind Corelogic’s monthly Home Value Index, it becomes evident that the higher-end markets are displaying the greatest volatility, while other markets are quietly continuing to gain momentum.

“After leading the upswing, it is clear the upper quartile of the housing market is now leading the slowdown”, says CoreLogic Research Director Tim Lawless.

“We have seen this trend in previous growth cycles, where more expensive housing markets have shown greater levels of volatility; housing values tend to rise more through the upswing but record a larger decline through the down phase of the cycle.”

A picture of this ‘two-speed market’ is emerging in the data from the state capitals. While the pace of capital gains has been easing in Sydney, Melbourne and Perth, conditions across the Brisbane and Adelaide housing markets have gathered momentum.

The slowing trend in Sydney and Melbourne can be explained by a bigger deposit hurdle caused by higher housing prices alongside low income growth, as well as a recent surge in advertised inventory levels and weak demographic trends.

In Brisbane and Adelaide, on the other hand, housing affordability is less challenging, advertised stock levels remain remarkably low and demographic trends continue to support housing demand.

Inventory is another factor which always influences the market.

Currently at a low across regional Australia, advertised stock levels finished the year 35.9% below the five-year average, (compared with 14.2% below in the capital cities).

Lawless believes it is likely that regional markets, especially those with lifestyle appeal, will continue to benefit from higher demand as remote working policies are more normalised, and demand for holiday homes remains strong amid continued international border restrictions.

“However, as interest rates begin to bottom out, and affordability constraints extend to regional markets, these housing markets may also move into a downswing phase over the course of 2022.”

According to Corelogic’s data, advertised inventory nationally finished the year 24.7% below the five-year average.

“A shortage of listings has been a feature of the housing market through the COVID period to-date, creating a sense of urgency amongst buyers”, Lawless says.

“The good news for prospective home owners is that total listings have started to rise through the final quarter of the year as ‘fresh’ listings have trended above average in some regions.”

Nationally, the number of new listings added to the Australian housing market through December was 21.4% above the five-year average, demonstrating strong vendor confidence amidst quick selling times and high auction clearance rates. As new listings surged higher through spring and early summer, buyers have benefitted from more choice and reduced urgency.

This confidence has not been universal, however, with listings trends varying from city to city. Melbourne was the only city to finish the year with inventory levels above the five-year average, while Sydney listings were only 3.9% below average. At the other end of the scale, Brisbane and Adelaide’s advertised supply remains around 35% below the five-year average.

“The number of homes available to purchase has been a key factor underlying the trend in housing values. Cities where advertised stock levels are above average or close to normal, such as Melbourne and Sydney, have shown a more obvious slow down relative to cities with persistently low advertised supply, like Brisbane and Adelaide”, Lawless says.

What about demand?

Strong housing demand has been another factor driving housing prices higher. While stock levels have generally been low, the total number of home sales in 2021 was approximately 40% above the decade average. CoreLogic estimates there were approximately 653,000 house and unit settlements over the calendar year, the highest number of annual sales on record.

“Such a significant mismatch between available housing supply and the level of demand is a fundamental reason why housing prices have risen so sharply over the year”, Lawless says.

“As stock levels normalise and affordability constraints along with tighter credit conditions drag down demand, it’s reasonable to expect growth conditions will be more subdued in 2022.”

About Adam Nobel

Principal
M. Bus, Grad Dip Adv, B.Int Bus, LREA

adam@hugoalexander.com.au

0417 007 001

Adam is the founder and Principal of Hugo Alexander Property Group. With a previous career in advertising, 20 years experience in property investment, and 14 years in Brisbane real estate, he knows the market inside out to ensure his clients grow their wealth faster.

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