Australian home values continued to trend higher in April with CoreLogic’s national Home Value Index (HVI) rising 0.6%. This was on par with the pace of gains recorded in both February and March, with the month-on-month rise adding approximately $4,720 to the national median dwelling value.
April’s increase takes the current growth cycle into its 15th month, with housing values up 11.1% or approximately $78,000 since the trough in January last year.
In the face of high interest rates, low sentiment, worsening affordability and ongoing cost of living pressures, housing values have continued to trend higher.
The persistent rise in housing values, despite an array of downside factors that would normally act to push prices lower, can be drawn back to the insufficient supply of housing relative to demand.
There are a few ways to measure housing supply; one is to measure how many homes are available to purchase based on advertised listings. Over the four weeks ending April 28th, CoreLogic estimates there were 76,265 homes listed for sale across the combined capitals; -17.6% below the previous five-year average. At the same time, the number of residential sales in April was estimated to be 2.4% higher than the previous five-year average for this time of the year.
Such a mismatch between available supply and demonstrated demand is keeping markets skewed in favour of sellers in most cities. Capital city homes are currently selling in a median of 27 days compared with the decade average of 30.7 days and most cities are recording lower than average levels of vendor discounting.
“In the hottest market, Perth, homes are selling in median of just 10 days and discounting rates are averaging just - 2.4%. In weaker markets, like Darwin, Hobart and ACT, homes are taking more than 40 days to sell,” Mr Lawless said.
We can also see evidence of low supply in the number of homes being built. The year to September 2023 saw roughly 174,000 new dwellings completed compared with underlying demand for around 264,000 dwellings (based on population growth divided by an average household size of 2.5 people).
The undersupply of well-located housing is recognised as a national crisis, however the hurdles blocking a rapid and significant housing supply response remain substantial: high construction and holding costs as well as tight labour supply for construction related trades. Time frames between a dwelling commencement and completion have blown out and profit margins remain thin.
Eventually housing demand and supply will converge, driven by slowing population growth and, at some stage, a ramp up in residential construction activity. Given persistently low levels of dwelling approvals, the timeline of a material ramp up in completed housing supply is still a long way off, but there remains a substantial number of dwellings yet to be completed in the construction pipeline. Fewer dwelling commencements should help to increase capacity for completion of existing projects.
In the meantime, it looks as though interest rates could stay ‘higher for longer’. The 1.0% rise in inflation through the March quarter has seen many economists, as well as financial markets, push their forecasted timing for rate cuts back, and reignited some speculation that interest rates could rise again.
With high interest rates, the recent upside surprise on inflation, a gradual loosening in labour markets, growing housing affordability challenges and a slowdown in economic activity, the downside risk for housing markets is building.
Despite the worsening risk profile, housing values are likely to be propped up by the mismatch between housing supply and demand; a situation that doesn’t look like it will change in the near future.
SOURCE: CoreLogic Home Value Index / Released 01 May 2024
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