Australian Property Market Resilience and Decline Amidst Rate Hike Cycle

The Australian property market has experienced a mix of resilience and decline during a historic two-year rate hike cycle. This has resulted in stark contrasts across cities, suburbs, and regions. In analyzing the performance of the property market before and after the rate hike cycle, data from CoreLogic Australia reveals that home values across the nation have only risen by 2.8% since April 2022. This is in stark contrast to the substantial 31.7% increase observed in the two years leading up to the rate hike cycle.

According to Tim Lawless, the Research Director at CoreLogic, the relatively small capital gain over the past two years is a result of the -7.5% drop in national values during the early phase of the rate hiking cycle. This drop occurred between May 2022 and January 2023. However, since the national Home Value Index bottomed out in January 2023, values have consistently risen every month and are now 11.1% higher.

Lawless emphasizes that while the perception might be that property values are continually increasing, it is important not to overlook the short and sharp downturn that occurred immediately after the first rate increases. He explains that since the market bottomed out, there have been 15 consecutive monthly increases in values nationally. However, this performance is not indicative of the entire market, as there is significant diversity in the housing market’s performance beneath the headline figure.

The percentage change in housing values throughout the rate hiking cycle to April 2024 varies across different cities and regions. For example, Perth has seen a surge of 25.7% in house values, while Hobart has experienced a drop of -11.2% in house values. In Sydney, house values have increased by 0.4% in the past two years, while in Melbourne, houses are now 4.2% more affordable than they were in April 2022.

Lawless explains that such discrepancies in growth rates highlight the diversity of market conditions over the past two years. This reflects the complexity within local markets, where some cities have exhibited resilience driven by robust economic fundamentals and housing demand. On the other hand, cities like Melbourne, Hobart, and Canberra, where housing is more affordable now compared to two years ago, have faced challenges such as higher supply, affordability constraints, and weaker demographic trends.

Despite the rate hikes, many Australian suburbs have seen little impact on their property market performance. In fact, 43.6% of suburbs reached a record high in April 2024. Capital city suburbs have shown more resilience compared to regional areas, with almost half (49.1%) hitting a peak last month compared to 35.0% of suburbs in regional areas.

Lawless attributes this strong demand for housing in many areas to factors such as record high migration levels, persistently tight rental conditions, and an undersupply of dwellings. He notes that these figures indicate that buyers are determined to enter the housing market, regardless of rate hikes and the rising cost of living.

In terms of specific suburbs, the top 10 suburbs with the strongest house value growth over the past two years are all located in Western Australia. Armadale, in Perth’s south-east growth corridor, topped the list with a 60.0% increase since April 2022. Perth itself had an impressive 97.3% of suburbs at a record high in April 2024, surpassing other cities like Adelaide and Brisbane.

On the other end of the spectrum, the lowest growth suburbs are concentrated in regional markets, particularly in areas of the Richmond Tweed in New South Wales. These areas accounted for the weakest change in house values since April 2022. Lawless attributes the large drop in values to a combination of a natural correction after values overshot fair value and severe weather and flooding events that impacted northern NSW in early 2022.

When it comes to the impact of rate hikes, suburbs in Hobart, Melbourne, and the Australian Capital Territory (ACT) have been hit hardest. In Hobart, 98.0% of suburbs have seen a decline in dwelling values since the rate hike cycle began, followed by Melbourne at 87.8% and the ACT at 87.6%. Lawless explains that these markets have felt the impact of rising interest rates due to a better balance between the underlying demand/supply fundamentals, which has led to widespread falls in property values across most suburbs.

He further explains that Hobart and Canberra experienced housing activity during the height of the pandemic but have since faced a rise in listings, affordability constraints, and subdued demographic conditions such as negative interstate migration levels. Melbourne’s underperformance, on the other hand, can be attributed to softer housing market conditions during the pandemic, a drop in net overseas and interstate migration rates, and recent policy changes that have dampened buyer confidence.

In contrast, Adelaide and Perth have shown resilience in the face of higher mortgage rates and reduced borrowing capacity. Adelaide has not seen any suburbs record a decline in values since April 2022, while only one suburb in Perth has recorded a decline. Lawless explains that buyers, including investors, have turned to Perth and Adelaide due to their relative affordability, strong rental conditions, and higher gross rental yields. The demand has outweighed supply, leading to a significant increase in values over the past year.

In summary, the Australian property market has experienced a mix of resilience and decline during the historic two-year rate hike cycle. While home values have only risen by 2.8% since April 2022, there is significant diversity in the market’s performance across cities, suburbs, and regions. Factors such as robust economic fundamentals, housing demand, supply constraints, and affordability constraints have all played a role in shaping the performance of different housing markets. Despite the rate hikes, many suburbs have reached record highs, indicating strong demand for housing in certain areas. However, other regions have seen declines in property values, reflecting the complexity and diversity within the Australian property market.

Source: https://downunderrealty.com