Property prices across Australia’s three largest capitals edged up during the first half of March in a sign that positive momentum is building in the housing market, the latest figures reveal.
CoreLogic data published on Wednesday showed house prices have risen 0.3 per cent in the first two weeks of March across Sydney, Melbourne, Brisbane, Perth and Adelaide.
CoreLogic research director Tim Lawless said it’s the latest sign that Australia’s housing downturn, which began amid rising interest rates last year, is easing.
“On a rolling four-week basis, which provides a useful proxy for monthly change, Sydney (+0.8 per cent), Melbourne (+0.2 per cent) and Perth (+0.1 per cent) are all recording a lift in values,” Mr Lawless said on Wednesday.
“Brisbane remains unchanged over the past four weeks, and Adelaide is now the weakest of the five largest capitals with values down (-0.4 per cent).”
However, Mr Lawless said that it is still not clear whether the latest data is a turning point for property prices or merely represents the “eye of the storm” before further interest rate hikes.
He said there are still “considerable downside risks” that could weigh on prices during 2023.
“The next few months will be critical to understand whether the housing market is indeed moving through an inflection point or if it is simply the eye of the storm,” he said.
Factors affecting prices
Veteran housing economist Andrew Wilson said the latest signs show property prices are starting to recover in markets like Sydney and Melbourne, which led the downturn last year.
“Sydney led the market down at the start of last year after having the strongest boom and now looks like pulling the market back up,” Dr Wilson said.
“We shouldn’t be surprised, given the auction clearance rates have been hovering around 70 per cent in Sydney and Melbourne this year. Those sorts of results translate into higher prices.”
Dr Wilson said two key factors are putting upward pressure on prices, even in the face of higher interest rates – rising demand as migration returns after COVID-19, and a lack of supply.
This view was echoed by Mr Lawless, who pointed to a rise in overseas migration and a lack of new housing listings as key reasons that prices have started to recover from last year’s plunge.
“The return to a more positive trend in housing values has occurred alongside a persistently lower-than-normal flow of new listings coming on the market,” Mr Lawless said.
“CoreLogic reports capital city listings over the past four weeks were 19.9 per cent below the previous five-year average for this time of the year. Such low advertised supply is likely to be a central factor keeping a floor under housing prices.”
And while demand has fallen nationwide as higher interest rates have constrained borrowing power, Dr Wilson said higher migration is providing a stop-gap that is supporting prices.
Property prices are, however, still much lower than they were a year ago when rates were lower.
Interest rates key to outlook
Dr Wilson said it’s still not clear the property market is headed towards an upswing, with the prospect of further interest rate hikes still weighing on the outlook.
“It’s the cycle reaffirming itself in terms of its positivity after the downturn of last year,” Dr Wilson said.
“We’re still down on a year ago in Melbourne and Sydney though … it’s not a clear upswing in the cycle, yet.”
Mr Lawless said the outlook for interest rates remains key to property prices, with the possibility that the market could begin falling again if the RBA presses ahead with tightening.
“One of the key metrics to watch will be the flow of new listings coming on the market. Any sign of a larger-than-normal level of freshly advertised stock could signal that prospective vendors aren’t willing or able to wait out the downturn any longer,” Mr Lawless said.
“A rise in advertised supply to above-average levels could be a signal this recent trend of growth has run out of steam.”
