The current price rebound continued in May with price rises becoming more widespread and broadening across markets. National home prices increased for the fifth consecutive month, rising 0.33% in May, now up 1.55% year to date. This continued lift in May brings national home prices up 1.03% over the past quarter, the strongest pace of quarterly growth since the March quarter of 2022 when prices peaked.
Stronger housing demand relative to supply on market continues to offset ongoing rate rises and add fuel to the home price rebound.
Download the PropTrack Home Price Index - May 2023 report in full
The housing market has started this year on a stronger footing, and after five consecutive months of national home price growth, stronger market conditions are becoming more pervasive and price rises becoming more widespread.
National home prices are now up 1.55% from their low recorded in December 2022. The capital city markets are driving the recovery and prices are up 1.97% across the combined capitals year to date. In fact, home prices in the combined capital cities in May have recorded the strongest quarterly growth since the December quarter of 2021.
The decision by the Reserve Bank to lift the cash rate in May did not deter the current home price rebound and the rise in prices seen so far this year gathered pace in May, broadening and accelerating across markets.
Although the reduction in affordability implies larger price falls than have been seen to date, the downward pressure on prices from the substantial tightening already delivered is being counterbalanced.
While interest rates were the primary driver of home price falls seen for much of 2022, there are other factors like the supply of properties for sale, labour market conditions, rate of immigration, home building, state of rental markets and interstate and regional migration that all also affect home price growth, as well as how it is distributed across the country.
For now, the deterioration in affordability is being offset by stronger housing demand relative to stock on market.
Stronger housing demand is being bolstered by the rebound in net overseas migration, tight rental markets amid shortages in rental supply, and ongoing labour market tightness with slowly increasing wages growth. And although supply constraints have eased slightly with respect to total stock on market, the flow of new listings remains soft, keeping a floor under prices with sellers benefitting from less competition with other vendors.
Fewer properties are hitting the market compared to the same time last year, creating a more competitive buying environment and buoying home values as there remains excess buyer demand keeping prices resilient to the falls the calculated shift in borrowing capacities would imply.
These factors are offsetting the impact of substantial interest rate rises.
In recent months auction activity has improved, and clearance rates remain firm after rising above levels seen in the back half of 2022 when interest rates quickly rose, and prices were falling in most markets. A testament to the improvement in market conditions following five consecutive months of price growth.
Although interest rates are likely at or close to peak levels, they may still rise further, and the economy is expected to slow.
These factors may weigh on home prices in the months ahead and the pace of price rises may slow if we see an increase in stock on market, but with the recovery in home prices becoming entrenched and the fundamentals of housing demand remaining strong there is little to suggest prices will fall in the months ahead.
With the bulk of the tightening cycle completed much of the uncertainty buyers have experienced with respect to borrowing capacities and mortgage servicing costs is reducing, and is set to continue to reduce, meaning a better sense of how far their budget will go. This alongside stronger housing demand and the limited supply environment are likely to support an ongoing lift in home prices.
Market conditions have firmed in the past five months and price rises have become more widespread indicating the recovery has become more pervasive. We expect home prices to continue to lift in the months ahead, buoyed by population growth and rental price increases, with a return to annual price growth expected across most capital city markets.
Home prices rose 0.45% across the combined capital cities in May and are now 3.16% below their peak levels recorded in March 2022.
In recent months, home price growth has been stronger in the combined capital cities than regional areas, with regional areas recording a small 0.03% lift in May. Except for Tasmania and the Northern Territory, capital city markets outperformed their regional counterparts on a monthly basis in every state in May.
Year-to-date regional home prices have risen by 0.53% since their low point recorded in December 2022 while the combined capital cities have seen prices rising 1.97% since their low point also recorded in December 2022. Regional Queensland and regional SA are the exceptions here, with home prices in both these regional areas recording stronger growth than their capital city counterpart’s year to date.
However, regional markets outperformed capital city markets throughout much of the last year and on an annual basis continue to record lesser price falls with prices just 1.55% off peak levels in regional markets.
Comparing annual growth, regional markets have still outperformed their capital city counterparts in every state except regional Queensland. Price falls in regional Queensland have reversed entirely with home prices rising 0.32% in May 2023 and now up 2.72% year to date, bringing home prices in regional Queensland back to a fresh price peak. Strong demand for homes in Southeast Queensland and a strong rebound in Gold Coast home prices is likely a contributing factor here.
Although the pace at which net internal migration flows into the regions were occurring through the pandemic period has eased, they have remained elevated relative to pre-Covid levels. These population flows alongside comparative affordability advantages resulted in regional areas holding up better than capital city areas as rates quickly rose and prices fell in 2022. So far this year combined capital city markets have recorded a stronger pace of price growth.
The current price rebound became more widespread in May and prices rose in every capital city except Darwin.
Canberra (+0.65%), Perth (+0.64%), Sydney (+0.58%) and Adelaide (+0.58%) recorded the largest increases in May, with recent falls reversing in Canberra and Hobart as these capitals joined the rebound.
These dynamics have been influenced by the availability of properties for sale, with lower stock levels concentrating potential buyer interest and underpinning home prices, as well as stronger housing demand.
The unemployment rate remains close to a multi-decade low, promoting a sense of job security. Wages growth, while running behind inflation, has increased. Further net overseas migration has hit record levels and is expected to remain elevated which will further add to housing demand. And rental markets are extremely tight across the country.
Home prices in Canberra saw the greatest lift in values out of all the capital cities in May with home prices rising 0.65% in May, the fastest monthly growth of all markets and its fastest pace of monthly growth since March 2022.
0.41% to reach a fresh price peak, similarly, home prices in Perth increased by 0.21% to a new peak. The comparative affordability of both city’s homes has seen these markets outperforming throughout the past year. Low stock levels are also helping to insulate home values.
Home prices in Adelaide (+0.58%) and Perth (+0.64%) continued to climb, hitting a fresh price peak in May.
So far in 2023, prices are up 3.07% in Perth, making Perth the strongest performing capital city market year-to-date.
Adelaide and Perth bucked the price falls seen in most markets in 2022 and are the strongest capital city markets over the past year, with prices at fresh record highs in both markets. Adelaide is the strongest performing capital city market over the past year (up 5.60%). Perth has also outperformed the other capital cities with home prices up 4.21% over the past year. The comparative affordability of both city’s homes has seen these markets outperforming throughout the past year. Low stock levels are also helping to insulate home values.
Sydney home prices are up 2.94% this year. Prices rose for the sixth consecutive month in May – up a further 0.58% – and are now up 3.03% from their low in November 2022. Sydney also saw the largest correction with home prices falling 7.19% from peak to trough which may have seen opportunistic buyers reengage in recent months. After climbing 3.03% over the past six months home prices in Sydney are now down just 4.38% from their peak.
After several years of outperformance, Hobart recorded 13 consecutive months of price falls continuing into 2023. But as national housing market conditions have firmed throughout the first five months of 2023, and the current price rebound has become more pervasive and widespread, Hobart has now joined the national price rebound, lifting 0.07% in May.
Buyers in Hobart have consistently enjoyed more choice with respect to the supply of properties available for sale relative to the other capital cities and historical levels in Hobart, removing a pillar of support for prices.
Despite the small 0.07% lift in May Hobart saw the longest and largest decline of any market this downturn and prices are now down 5.94% from their price peak recorded in March 2022.
However, home prices in Hobart are still up considerably compared to pre-pandemic levels. And although home prices have fallen from their peak in most markets, the same is true of every capital city and regional counterpart Australia-wide.
National house prices rose 0.29% in May, with unit prices rising 0.52%, marking five consecutive months of price rises for both property types. From their respective peaks in March 2022 to their low point recorded in December 2022, house prices nationally fell 4.28% compared to just 2.89% for units. With houses experiencing a faster deterioration in value against the substantial tightening already delivered.
Maximum borrowing capacities for would-be buyers have been reduced by around 30% shrinking buyers’ budgets, these affordability constraints alongside the relative value units offer after seeing much slower value growth through the pandemic period have helped to buoy apartment buyer demand, with apartment prices recording lesser declines and now a greater uplift. Since their respective lows in December 2022 national unit prices have risen 2.28% compared to 1.40% for houses.
Regions in South Australia, Queensland, regional NSW and WA topped the country to record growth of close to 12% in some areas over the past year. South Australia, where home prices in Adelaide and Regional SA have continued to rise to fresh peaks, is unsurprisingly the stronghold, home to the top four of the top ten highest growth regions.
These markets continue to benefit from pandemic induced preference shifts, relative affordability advantages and migration shifts. Tight supply conditions in these markets are also increasing competition among potential buyers, which has buoyed values.
With the deterioration in affordability potential buyer demand and home prices have held up better in markets which are more affordable on a relative basis.
Looking across the capitals, comparing annual growth rates the outperformance of more affordable regions and the peripheral parts of cities is clear. Higher willingness to pay for larger homes and the reduced commuting requirements, have seen these areas perform strongly since the onset of the pandemic.
But looking at home price growth over the past quarter in these smaller geographical areas its clear that price rises have become more widespread and in many cases markets that led price falls or saw faster declines lead the recovery so far.
This is most obvious in Sydney, the market that was first to see prices fall and that saw the steepest declines. Every metro SA4 region in Sydney has seen a lift in prices over the past quarter with gains becoming more widespread as the current price rebound reaches its sixth consecutive month in Sydney.
Following the slowing pace of price falls seen into the end of last year, the housing market downturn has reversed in most markets.
After five consecutive months of national home price growth stronger market conditions are becoming more pervasive and price rises have become more widespread, accelerating and broadening across markets.
While interest rates were the primary driver of home price falls seen for much of 2022, there are other factors that also affect home price growth, as well as how it is distributed across the country.
Although the reduction in affordability implies larger price falls than have been seen to date, the downward pressure on prices from the substantial tightening already delivered is being counterbalanced by stronger housing demand and ongoing softness in the flow of new listings.
The path for home prices in the months ahead will be influenced by many opposing factors, including the level of supply hitting the market alongside the trajectory of interest rates.
Headwinds remain with the full impact of rate rises already delivered yet to be felt and the possibility of further tightening still in play. There is a risk that the Reserve Bank raises interest rates further than expected, which could dent recent price rises.
However, it is more likely the bottoming process will continue, with prices continuing to lift buoyed by population growth and rental price increases, with a return to annual price growth expected across most capital city markets.
Positive demand drivers stemming from the shortages in rental supply and rebound in international migration are in play in the capital city markets. In addition, the unemployment rate remains close to a multi-decade low, promoting a sense of job security. These factors alongside slowly increasing wages growth will add to housing demand against a backdrop of tight supply.
A home shortage exacerbated by high construction costs and industry challenges will also underpin values as the population grows.
* The PropTrack Home Price Index measures the monthly change in residential property prices across Australia to provide a current view on property market performance and trends. PropTrack Home Price Index uses a hybrid methodology combining repeat sales with hedonic regression. The repeat sales method matches resales of the same property while the hedonic regression estimates values based on the value of similar properties. The hybrid model allows two properties in the same Australian Bureau of Statistics Statistical Area 1 (SA1) region, of the same type, to be matched and controls for differences in property characteristics, as in a hedonic regression. The PropTrack Home Price Index is a revisionary index with the whole back history updated monthly with current transaction information.
** This report uses realestate.com.au internal data and data sourced from third parties, including State government agencies. It is current as at the time of publication. This report provides general information only and is not intended to constitute any advice and should not be relied upon as doing so. If you wish to cite or refer to this report (or any findings or data contained in it) in any publication, please refer to the report as the ’PropTrack Home Price Index Report – September 2022’. See report for Copyright and Legal Disclaimers.
