The dance of Australian property prices and growth

Property prices in Australia experienced a slight increase in June, but the pace of growth is now slowing down, according to CoreLogic's Home Value Index. National property prices rose by 1.1% in June, slightly lower than May's 1.2% gain. Sydney led the increase with a rise of 1.7%, bringing the cumulative recovery since January to 6.7%. Brisbane also performed well, with a 1.3% increase, while Perth and Adelaide saw prices rise by 0.9%. The only capital city market where prices declined was Hobart, which experienced a 0.3% fall. Meanwhile, Darwin and Canberra saw prices drift higher by 0.5% and 0.4%, respectively.

According to Tim Lawless, the Research Director at CoreLogic, the limited supply of properties continues to be the primary factor putting upward pressure on housing values. The flow of new capital city listings in June was nearly 10% below the five-year average, and total inventory levels were more than 25% below average. This imbalance between supply and demand has shifted selling conditions in favor of vendors. Auction clearance rates in June remained high, in contrast to the lower rates seen in late 2022. Vendors have also become less flexible on price expectations, leading to a tightening of capital city discounting rates.

However, Lawless noted that the rate of growth is now starting to slow as the Reserve Bank of Australia's rate hikes begin to impact demand. He stated that a change in sentiment due to higher interest rate expectations could be reflected in the slowdown of capital gains. This, coupled with lower sentiment, is expected to reduce the number of active home buyers and help rebalance the demand and supply disconnect. Lawless also mentioned that regional home prices rose by 1.2%, but the normalization of internal migration trends and skewed housing demand towards capital cities have resulted in less housing demand across regional markets.

Looking ahead, Lawless believes that if the Reserve Bank of Australia continues to raise interest rates, it will keep pressure on home prices and likely slow down growth. Tightening borrowing conditions and serviceability assessments will make it more challenging for new borrowers to access finance, further impacting property prices. Monitoring stock levels and the potential increase in listings during spring will be crucial indicators to watch for any changes in the supply dynamic.