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Home Value Growth over June
- National:7%
The national index has found a groove, rising between 0.5% to 0.8% month on month since February. The persistent growth comes despite an array of downside risks including high rates, cost of living pressures, affordability challenges and tight credit policy. The housing market resilience comes back to tight supply levels which are keeping upwards pressure on values.
6% to 10% average annual outcome…
- Combined capitals: 0.7%
- Combined regionals: 0.6%
- Capital Cities
- Perth: 2.0% after 2.0% last month
- Adelaide: 1.7% after 1.8% last month
- Brisbane: 1.2% after 1.4% last month
- Sydney: 0.5% after 0.6% last month
- Canberra: 0.3% after 0.5% last month
- Hobart: 0.1% after -0.5% last month
- Darwin: 0.0% after -0.3% last month
- Melbourne: -0.2% after 0.1% last month
Source: CoreLogic
DEMAND
- Demand side factors have been influential, especially with interstate migration rates tracking well above average in WA, Queensland and previously SA.
- Strong housing demand, despite downside factors, is also evident in the estimated volume of home sales.
- Nationally, the annual number of homes sold was 8.6% higher than a year ago and 4.8% above the previous five year average.
- The largest jump in annual sales relative to the historic five-year average has been in Perth, where the number of homes sold last year was 29% above average levels.
Source: CoreLogic
SUPPLY
- An undersupply of housing remains the primary factor keeping upwards pressure on home values despite a growing element of downside risk.
- We can loosely categorise housing supply into advertised listings, which provide a measure of available supply, newly built homes and rental supply. We could also add social housing to the list.
- Each of these components remain insufficient to varying degrees, to cater for housing demand which is why we are seeing values persistently rising at a time when interest rates and inflationary pressures are high, sentiment is deeply pessimistic and credit policy is tight
Source: CoreLogic
ARREARS
- Despite what is likely to be an increased level of financial hardship among households, the latest data from APRA for the March quarter shows mortgage arrears are rising but contained.
- The combined arrears rate (loans 30-89 days past due plus non-performing loans) reached 1.6% in the first quarter of the year, but slightly lower than arrears at the onset of COVID (1.8%).
- With inflation remaining high and the risk of another rate hike or a longer period before interest rates come down, its likely mortgage stress and arrears will rise further.
- The risk of financial stress is amplified by a combination of high household debt levels and loosening labour market conditions.
- Given the strong and broad based rates of capital gain over the past four years, most homeowners who need to sell should be able to clear their mortgage debt.
- CoreLogic’s latest Pain & Gain report highlighted the vast majority of vendors are selling their homes for a gross profit on resale, with only 5.7% of homes selling at a gross loss, the lowest portion in fourteen years.
- Similarly, the RBA’s latest Financial Stability Review estimated only around 1% of home loans had a debt level higher than the asset value.
Source: CoreLogic
EXPECTATIONS FOR HOUSING MARKET
- Although the risks facing the housing sector are growing, we are still expecting home values to rise, at least into the near term.
- A material rise in new dwelling supply is likely to be a long time coming, considering approvals are holding well below average and barriers to construction, including compressed profit margins and scarce labour supply, remain significant.
- Until supply and demand rebalance there is likely to be further upwards pressure on home values.
Source: CoreLogic
Median Values
Median values – ALL DWELLINGS
- National – $793,883
- Combined capitals – $878,414
- Combined regional – $627,872
- Capitals –
- Sydney – $1,170,152
- Brisbane – $859,240
- Canberra – $870,071
- Melbourne – $783,205
- Adelaide – $767,974
- Perth – $757,974
- Hobart – $645,850
- Darwin – $504,687
Median values – HOUSES
- National – $860,454
- Combined capitals – $992,473
- Combined regional – $644,604
- Capitals –
- Sydney – $1,466,475
- Canberra – $986,414
- Brisbane – $953,028
- Melbourne – $948,879
- Adelaide – $824,669
- Perth – $791,926
- Hobart – $691,339
- Darwin – $589,166
Median values – UNITS
- National – $649,464
- Combined capitals – $670,541
- Combined regional – $548,757
- Capitals –
- Sydney – $855,468
- Brisbane – $622,567
- Melbourne – $610,102
- Canberra – $587,051
- Hobart – $532,172
- Perth – $530,744 – PERTH OVERTOOK ADELAIDE
- Adelaide – $530,514
Looks like Perth and Adelaide will both overtake Hobart soon
- Darwin – $363,748
Annual growth trends
- Perth: 23.6%
- Brisbane: 15.8%
- Adelaide: 15.4%
- Strong conditions have remained a feature of the mid- sized capitals, especially Perth, Brisbane and Adelaide.
- Combined capitals: 8.3%
- National: 8.0%
- Growth of 8% nationally over the 23-24 financial year – stark contrast to the FY2022-23 when CoreLogic’s national index was down -2.0%. In that year, annual growth was weighed down by a -7.5% drop in values in the nine months following May 2022, when the cash rate target started to rise.
- Despite the strong annual gain, the trend growth rate has eased since the highs of mid-2023 when the quarterly rate of change peaked at 3.3%.
- Combined regional: 7.0%
- Regional markets have shown a similar trend to the capitals, with Regional WA leading the pace of capital gains with a 1.5% rise in June and 16.6% increase over the financial year. Regional SA and Regional Qld have also recorded strong growth conditions while regional Victorian dwelling values fell by half a percent over the year and regional Tasmania recorded a mild 0.7% rise.
- Sydney: 6.3%
- Darwin: 2.4
- Canberra: 2.2%
- Melbourne: 1.3%
- Hobart: -0.1%
Hobart (-0.1%) and Regional Victoria (-0.5%) were the only broad regions to record a fall in values over the financial year
Rental Market
Rental growth is easing but remains well above average
- National rental index recording a monthly rise of 0.4% (lowest since September last year), and
- Annual rise of 8.2% (lowest since November last year).
The slowdown in rental growth is most evident across the UNIT sector of Australia’s three largest capitals.
- Sydney’s unit market has recorded the largest drop in annual rental growth over the past financial year, reducing from 17.1% in June 23 to 7.1% in June 24
- The annual change in Melbourne unit rents has eased from 9% to 7.5% in the period, and
- growth in Brisbane unit rents has dropped from 3% to to 8.5%.
- These cities also have the most exposure to overseas migration, which has slowed sharply since moving through record highs last year
- With net overseas migration continuing to normalise we could see a further easing in rent growth, especially across inner city unit markets.
- There is also likely to be seasonal factors at play, as rental demand from students tends to peak in the first quarter of the year.
Another factor contributing to slower rental growth across the UNIT sector is likely to be affordability.
- National unit rents are up 22% over the past two years compared with a 16% rise in house rents over the same period.
- CoreLogic affordability metrics to March showed the median income household would need to dedicate 32.2% of their gross annual income to rental payments, the highest portion on record.
Despite the slowdown in rental growth across some markets, rents are still rising at an above average pace across most regions and housing types.
- Nationally, the DECADE AVERAGE rate of annual rental growth prior to the pandemic was just 2.0%.
Gross rental yields have stabilised, holding around 3.5% across the capitals since early 2023 and regional yields holding around 4.4%.
Source: CoreLogic
Source: CoreLogic
Relief is in sight for tenants – and the Reserve Bank’s inflation outlook – as figures show asking rents plateauing or even falling in some markets after several years of sustained increase
Listing company Domain’s quarterly update for June shows that although house and unit rents across the combined capitals and in most cities are at record highs, the pace of growth is easing
- Houses
- Sydney house rents flatlined from March – for the first time in 1 ½ years
- Perth’s house rents were unchanged for the first time in almost three years.
- Hobart house rents declined over the quarter.
- Units – Rents in Melbourne, Perth and Hobart held steady, and they fell in Canberra and Darwin.
It’s the weakest outcome over a June quarter over a number of years for many cities
It’s clearly a slowdown in the pace of growth across every capital city.
- SQM Research last month reported the largest monthly percentage decline in rents at the capital city level since April 2020.
Source: AFR
Listings Activity
TOTAL listings – 5 YEAR AVE
- The growth trends are reflected in advertised stock levels, with the strongest markets continuing to show a severe shortage of homes available for sale.
- Nationally – total advertised supply is nearly -18% below the previous five year average.
- The number of homes advertised for sale in Perth were -47% lower than the previous five year average.
- On the other hand, Melbourne listings have risen to be 14% above the five year average
- Hobart listings have been elevated for several years, tracking 46% above average.
TOTAL listings – ANNUAL movement
- The number of homes advertised for sale in Perth were -23% lower than at same time last year
- Adelaide (-43%) and Brisbane (-34%) are also recording real estate listings that are significantly below average for this time of year.
NEW Listings
- Most cities are now seeing more new listings coming to market as vendors become more active.
- Nationally, the flow of NEW listings was tracking 12% higher than a year ago
- 4% above the previous five year average.
- However, most of these homes are being purchased as fast as they are added to the market, with total advertised supply levels nearly 18% below the previous five year average.
- The rise in new listings could be a signal that more homeowners are motivated or needing to sell.
- It is clear that savings accrued through the pandemic are being drawn down for some households due to the combination of a high cost of living and elevated debt levels running up against interest rates that look set to remain higher for longer.
Source: CoreLogic
Consumer Sentiment
Consumer Sentiment index lifts slightly to 83.6, after 82.2 in May
A. Time to buy a dwelling index
- Fell to 72.8, after 76.5 in May
- The ‘time to buy a dwelling’ index fell 4.8% to 72.8, returning to recent lows and in the bottom 5% of readings recorded since the mid-1970s.
- The biggest declines in buyer sentiment were in capital city markets have recorded strong price gains over the last year:
- Western Australia (–20.5%),
- Queensland (–15.5%) and
- South Australia (–14.5%),
- The associated deterioration in affordability has taken buyer sentiment to extreme lows with ‘time to buy a dwelling’ index reads in the 60-70 range.
- In contrast, the NSW index rose 12.7% to 81, a somewhat surprising gain but still leaving buyer sentiment well below its long run average of 117.4.
B. House price expectations index
- Lifts to 163.8 points, after 161.1 in May
- Despite the weakening in buyer sentiment, price expectations rose to a new cycle high.
- The Westpac Melbourne Institute Index of House Price Expectations rose 1.7% to 163.8, on par with the peak recorded in early 2021.
- Interestingly, the biggest gain was in Victoria (+6.4%) where prices have been slipping lower since mid-2023, the declines clearly doing little to deter expectations, possibly even adding to them.
Source: Westpac Melbourne Institute
Lending indicators
Bond Yields
- 3 year – 4.18
- 10 Year – 4.41
Source: investing.com
Interbank Futures
| Trading day | No change | Decrease to 4.10% |
| 4 Jun | 95% | 5% |
| 5 Jun | 95% | 5% |
| 6 Jun | 95% | 5% |
Source: ASX
Unemployment
In seasonally adjusted terms, in May 2024:
- unemployment rate increased to 4.0%, from 4.1%,
- participation rate remained at 66.8%
- underemployment rate remained at 6.7%
Source: ABS
RBA
Rate Increases
- Total rise so far – 4.25%
- 2024 – TBD (no increase yet)
- 2023 – 1.25% increase
- 2022 – 3% increase
- Start date – 4 May 2022
- Last one 8 Nov 2023
- Number of pauses since last increase – 5
RBA decision – 18 Jun 2024
At its meeting today, the Board decided to
- leave the cash rate target unchanged at 4.35 per cent and
- the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.
Inflation remains above target and is proving persistent.
- Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
- But the pace of decline has slowed in the most recent data, with inflation still some way above the midpoint of the 2–3 per cent target range.
- Over the year to April, the monthly CPI indicator rose by 3.6 per cent in headline terms, and by 4.1 per cent excluding volatile items and holiday travel, which was similar to its pace in December 2023.
- Broader data indicate continuing excess demand in the economy, coupled with elevated domestic cost pressures, for both labour and non-labour inputs.
- Conditions in the labour market eased further over the past month but remain tighter than is consistent with sustained full employment and inflation at target.
- Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth.
- Recent data revisions suggest that consumption over the past year was stronger than previously suggested.
- At the same time, output growth has been subdued, and consumption per capita has been declining, as households restrain their discretionary expenditure and inflation weighs on real incomes.
The outlook remains highly uncertain.
- The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth.
- The central forecasts published in May were for inflation to return to the target range of 2–3 per cent in the second half of 2025 and to the midpoint in 2026.
- Since then, there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth.
- At the same time, the revisions to consumption and the saving rate and the persistence of inflation suggest that risks to the upside remain.
- Recent budget outcomes may also have an impact on demand, although federal and state energy rebates will temporarily reduce headline inflation.
- The persistence of services price inflation is a key uncertainty. Also, although growth in unit labour costs has eased, it remains high.
- Productivity growth needs to pick up in a sustained way if inflation is to continue to decline.
- There is uncertainty around consumption growth.
- Real disposable incomes have now stabilised and are expected to grow later in the year, assisted by lower inflation and tax cuts.
- There has also been an increase in wealth, driven by housing prices.
- Together, these factors are expected to support growth in consumption over the coming year.
- But there is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labour market.
- More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while conditions in the labour market remain tight.
There also remains a high level of uncertainty about the overseas outlook.
- Output growth in most advanced economies appears to have troughed.
- There has been improvement in the outlook for the Chinese and US economies, and many commodity prices have picked up.
- Some central banks have eased policy, although they remain alert to the risk of persistent inflation.
- Nevertheless, geopolitical uncertainties, including those related to the conflicts in the Middle East and Ukraine, remain elevated, which may have implications for supply chains.
Returning inflation to target is the priority.
- Returning inflation to target within a reasonable timeframe remains the Board’s highest priority.
- This is consistent with the RBA’s mandate for price stability and full employment.
- The Board needs to be confident that inflation is moving sustainably towards the target range.
- To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.
- Inflation is easing but has been doing so more slowly than previously expected and it remains high.
- The Board expects that it will be some time yet before inflation is sustainably in the target range.
- While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- The Board will rely upon the data and the evolving assessment of risks. In doing so, it will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market.
- The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.
Source: RBA
Inflation
Core Inflation – May
- The monthly CPI indicator rose 4.0% in the 12 months to May.
- Up from 3.6% rise in 12 months to April
This increase was slightly above market expectations of 3.8%, and the reading of 4.0% marks the highest level since November 2023.
The monthly CPI indicator has been on an upwards trend since Feb 2024, after plateauing in December 2023
- The most significant price rises were
- Alcohol and tobacco (+6.7%)
- Housing (+5.2%)
- Transport (+4.9%)
- Food and non-alcoholic beverages (+3.3%)
- The annual movement for the monthly CPI indicator excluding volatile items and holiday travel was also 4.0% in May, down from 4.1% in April.
- This series excludes Fruit and vegetables, Automotive fuel, and Holiday travel and accommodation.
Annual trimmed mean inflation was 4.4% in May, up from 4.1% in April
Source: ABS
Outlook for Interest Rates
Mixed outlook among experts on what this means for interest rates
- The CPI reading of 4.0% for May 2024 has influenced a more hawkish outlook from some analysts.
- The consensus from the articles is that the RBA may need to raise the cash rate in August to address ongoing inflationary pressures
- Deutsche Bank expects the RBA to raise the cash rate by 0.25% in August, predicting an increase to 4.60%.
- Finder’s survey of experts indicates that while a majority expect the RBA to hold rates steady in the near term, there is a growing expectation of potential rate cuts later in the year.
- About one-third of the surveyed experts anticipate a rate cut by August,
- while a larger proportion (around 40%) expect cuts to begin by December 2024 or later
- AMP Chief Economist Shane Oliver predicts three rate cuts in 2024, bringing the cash rate down to 3.6% by year-end
- CBA Chief Economist Stephen Halmarick expects the RBA to begin cutting rates in September, with three cuts forecasted for 2024 and additional cuts in 2025. This outlook is based on anticipated alignment with inflation targets
- Moody’s Analytics Economist Harry Murphy Cruise suggests that the RBA will likely start cutting interest rates in the second half of 2024, as inflation, particularly in services, remains stubbornly high
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