Property prices rebound, led by Sydney and Melbourne spring sales

Updated

Australian house prices have experienced their biggest monthly rebound in two-and-a-half years, led by a strong recovery in the Sydney and Melbourne property markets.

Key points: House prices have recorded their third consecutive month of rises since hitting the floor in May

The rebound continues to be led by Sydney and Melbourne, with Canberra and Brisbane the only other capitals making smaller gains in September

Nationally house prices remain 6.8pc below the peak of October 2017



The nation's median dwelling value — houses and apartments across all city and regional areas — lifted 0.9 per cent to $524,744 in September, according to the latest monthly figures from property analyst CoreLogic.

"Although housing values are now consistently tracking higher, at least at a macro level, the national index remains 6.8 per cent below the October 2017 peak," said CoreLogic's head of research, Tim Lawless.

He said this indicated "buyers still have some time to take advantage of improved housing affordability before values return to record highs".

Median property values in Sydney and Melbourne jumped 1.7 per cent last month — to $805,424 and $634,913 respectively.

In the past quarter, dwelling values in the two most expensive markets rebounded by about 3.5 per cent each.

The only other capital cities that saw price rises in September were Canberra (+1pc) and Brisbane (+0.1pc).

However, Adelaide's housing prices remained flat, while Darwin (-0.2pc), Hobart (-0.4pc) and Perth (-0.8pc) values fell during the month.

When only the capital cities were factored in, property prices lifted by a solid 1.1 per cent in September.

It comes after prices fell 10.2 per cent over a 21-month period — a steeper loss compared to the global financial crisis.

What's driving the recovery?

"Low mortgage rates, and the expectation that they will move lower, along with better affordability, a loosening in credit rules and improved housing sentiment are all factors contributing to the rebound," Mr Lawless said.

"A variety of other indicators ... are pointing towards further strength in the housing market, including auction clearance rates, which are continuing to track around the mid to high 70 range, with the results remaining high on larger volumes."

As for why Sydney and Melbourne are outperforming the other capitals' property markets, Mr Lawless said it was due to their stronger population growth, lower unemployment and strong jobs creation.

"Although markets outside of Sydney and Melbourne aren't showing the same recovery trend, most areas have either seen a reduction in the rate of decline or are seeing a modest trajectory of growth as low mortgage rates and a slight loosening in credit policy support buyer demand."

Another point of difference, he observed, was the strong level of investor participation.

The most recent housing finance figures (July), showed that 32 per cent of mortgage demand in NSW was from investors — far higher than any other state. In Victoria, 26 per cent of mortgages were taken out by investors.

Furthermore, the CoreLogic figures showed the sharpest price rises were happening in the most expensive quartile of the national market.

Prices in the top end of the market lifted by 3.6 per cent in the past quarter — while the lowest-priced quartile saw prices rises of 1.4 per cent.

Are these price hikes sustainable?

While a rebound in housing prices means markets will be more unaffordable for buyers, Mr Lawless concedes it may be an "economic saviour" overall.

"Generally when you see housing markets improving, consumers feel more wealthy as [generally] 50 per cent of household wealth is in the housing assets — so they feel more comfortable in spending," he said.

"Of course one of the biggest drags on Australia's economy is the drop in consumption and residential building activity which you expect would respond to improved market conditions."

However, some analysts believe the property market's newfound momentum will falter.

"The 10 per cent annualised rise in house prices in September is unsustainable in light of sluggish income growth," said Capital Economics' Ben Udy.

"We expect prices to rise by a slower 5 per cent in 2020 and 2021."

Similar views were also expressed by AMP Capital's chief economist Shane Oliver.

"Compared to past recovery cycles household debt to income ratios are much higher, bank lending standards are much tighter, the supply of units has surged with more to come," he said.

"And this had pushed up Sydney's rental vacancy rate to above normal levels and unemployment is likely to drift up as overall economic growth remains weak.

"So notwithstanding the bounce in Sydney and Melbourne prices ... we don't see a return to boom time conditions and expect constrained gains through 2020 — for example, around 5 per cent or so."

Topics: business-economics-and-finance, housing-industry, economic-trends, australia

First posted