New Outlook on Housing Market in Australia

New Outlook on Housing Market in Australia

According to the CoreLogic monthly report, housing values continued to rise through the first month of 2021 with CoreLogic’s national home value index up 0.9% over the month. The January movement takes Australian home values to a fresh record high. Housing values have surpassed pre-COVID levels by 1.0%, and the index is 0.7% higher than the previous September 2017 peak.


The report shows that every capital city and broad rest-of-state region recorded a rise in housing values over the month, ranging from a 2.3% surge across Darwin to a relatively mild 0.4% rise in Sydney and Melbourne.
Continuing a trend that became evident early in the pandemic, regional housing values rose at more than twice the pace of the capital city markets.

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Rental Market

Mr Lawless reports that the rental market dynamic has changed substantially through COVID but there are some early signs that weakness across the unit sector is starting to level out, if not turn around.


Rental demand has transitioned towards detached and lower density housing markets since the pandemic, partly reflecting the disruption to rental demand from overseas migration, but also the stress of changed working conditions, caused by COVID restrictions, in industry sectors that are traditionally more aligned with rental demand. Additionally, with more people working from home, demand for larger housing options has lifted.

Rental Units Vs Detached Houses


The report reviews that unit rents in Melbourne and Sydney are down 7.8% and 5.6% respectively over the past year, but in some positive news for landlords, the rate of decline is easing across these markets; in fact, Sydney unit rents posted the first month-on-month rise in January since March last year and Melbourne unit rents held firm over the month. Unit rents across Brisbane and Hobart have also been on a downwards trajectory through COVID, however recent months have shown a similar trend of rising rents as conditions start to stabilise.


Part-time job numbers have now fully recovered back to pre-COVID levels and more businesses are embarking on a return to work program which could be helping to support renewed demand towards inner-city rental accommodation. Additionally, with rental rates now lower for inner-city units, improved rental affordability could be attracting more people back to inner-city renting.

In addition, Mr Lawless pointed out that geographically, Perth and Darwin stand out with the largest rental increases. The annual lift in house rents is well into double-digit territory while unit rents are also posting strong gains. The strong rental conditions in these regions come after a long run of falling rents and low levels of investment activity. The result is an extremely tight rental supply at a time of rising demand, while affordability is relatively healthy due to the sustained fall in rents between 2013 and 2018. Despite the substantial lift in Perth and Darwin rents over the past year, the median rental rate in Perth is still $90/week lower than the 2013 peak, and Darwin rents remain $145/week below their previous record high in 2014.


However, the report states that gross rental yields have been under some downwards pressure as housing values outperform rents. Gross rental yields have fallen over the past 12 months; combined capital city yields are down 9 basis points, and the combined regional areas have recorded a 19 basis point drop. Although the general trend is towards yield compressions, there are a few broad regions where rents have risen faster than housing values, resulting in higher yields over the year. The gross yield in Perth is up 11 basis points to reach 4.4% and Darwin yields are 16 basis points higher at 6.0%.

Summary


Overall, the January results from CoreLogic show the housing market has started the year on a firm footing, setting the scene for further price rises throughout the year.
Many of the housing market headwinds have dissipated as the Australian economic recovery consistently outperforms forecasts. Labour markets are continuing to improve even though JobKeeper is winding down, mortgage repayment deferrals have reduced to just 2.4% of all mortgages and buyer activity is well above average, even though overseas migration has virtually stopped.

Low-interest rates have been a key factor in supporting the housing market recovery. Mortgage rates are likely to remain at record lows for the foreseeable future, with little chance interest rates could rise this year. This is because inflation and unemployment are still along way from reaching the RBA’s objectives of full employment and returning the annual inflation rate to the target range of between 2 and 3%.

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