🗞️Australian Home Values Surge Amid Pandemic Recovery

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Since the start of the pandemic in March 2020, Australian home values have risen by 35.6%. The market has seen a strong period of growth throughout the pandemic, followed by a brief but sharp drop in values when the rate-hiking cycle began.

The Revelation

By November 2023, the market had fully recovered in value and reached new record highs each month since. But below the headline figure, the market has been driven higher by a lot of different growth across the capital cities and regional markets. This diversity in housing trends has led to many wondering why cities like Perth, Brisbane, and Adelaide are always in high demand, while at the other end of the spectrum, Melbourne and Hobart are experiencing lower demand.

The markets that have done the best have usually started from a low base, with housing conditions and demographic trends pretty weak in the years before the pandemic. The differences in capital growth trends are down to the varying supply and demand in each city. Migration, affordability factors, and the number of new homes being built also affect the supply and demand dynamic.

The annual growth usually peaks around the time the combined capital city market starts to gain ground. In the past 15 years, the biggest range of growth was 23.7 percentage points in the year to September 2022. This was when the combined capital city market was just moving into an annual decline, due to rate rises. At that time, Adelaide home values were still on the rise, up 17.1%, while Sydney home values were down 6.6%.

Eliza Owen, CoreLogic

According to Eliza Owen, Head of Research at CoreLogic, it's possible that when the market shifts, like when interest rates rise, some cities are more responsive than others. This can create a bigger range in capital growth outcomes in the short term. It's easy to see why Sydney, with its expensive, highly indebted market, would see a quicker response in value changes when interest rates rise.

Annual growth has also slowed down recently in the combined capital cities because of high interest rates, bad economic conditions, and affordability issues that are making it harder for home values to keep rising. This could mean that growth in Brisbane, Perth, and Adelaide is going to slow down, and we might see the range of growth narrow across the capital cities.

Strong Market

The housing market is seeing more demand than supply in places like Adelaide, Brisbane, Perth, and Sydney, while Melbourne and Hobart are seeing less demand than supply. Melbourne has the lowest ratio, with 98,223 properties added in the past 12 months, the highest of any capital city. The extra housing stock in Melbourne is shown in the total number of properties on the market, which is 13% above the average for the past five years. Since the GFC, Victoria has seen a pretty high level of new homes being built, which has helped to soak up demand without pushing prices as high as in other states and territories. It's important to understand the demand side of the housing market, and interstate migration trends play a big part in that.

The Data and Sources

The ABS data shows that overseas migration, particularly from NSW and VIC, has made up for a shortfall in interstate migration. However, overseas migrants usually aren't that interested in buying, with recent arrivals more likely to rent. Melbourne is seeing some pretty high rent prices, while housing values have dropped. Cities like Perth and Adelaide have seen a lot of growth recently, with Perth seeing the biggest jump in home values since the start of the pandemic in March 2020. Sydney, Melbourne, Brisbane, Adelaide, Perth, Hobart, Darwin, and Canberra all saw big drops, but they've come off a big value increase.

Where do I go from here?

Owen said that in the next few months, the range of capital growth performance is likely to stay pretty high. This is based on some pretty solid fundamentals in the Perth market and ongoing issues of oversupply in some pockets of Melbourne and Hobart, which are putting downward pressure on values. Longer term, affordability may become a drawcard in some cities where prices have been more stable recently, especially as the value gap between cities closes. This would help to keep capital growth stable in places like Melbourne, Hobart, and Canberra, and it might even slow down the rate of growth in Perth, Adelaide, and Brisbane.

Why does this matter?

This matters because keeping capital growth on an even keel and narrowing the value gap between cities can help create a more balanced and sustainable property market overall. It also makes sure that investment opportunities are fairly distributed across different regions, which helps to promote economic growth and development.

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