This week Core Logic released a report detailing statistics signaling that the property market is peaking. Executive Research Director Tim Lawless said ‘This isn’t to say housing values are about reverse; a more likely scenario is the housing market is moving through a peak rate of growth and the pace of capital gains will gradually taper over coming months’.
In simpler terms, this doesn’t mean prices are suddenly going to go backwards, rather that the rate they continue upwards will slow.
Here are the seven factors that flag some relaxation to the speed of growth:
- CoreLogic’s home value index.
Each month Core Logic measure the benchmark of housing values with the hedonic Home Value Index. The April figures have shown a clear and broad based slowdown in the rate of growth since late March. - Lower clearance rates.
Auction clearance rates have dropped lower, the Easter period saw a slight softening in auction results. - A rise in vendor activity.
We have begun to see a lift in new listings coming to the market. The beginning of April saw the largest number of new listings for this time of year, 17% above the five year average. However, total advertised stock levels (new listings plus re-listings) remain low, tracking -17.5% below the five year average. - A lift in new housing supply.
There has been a significant jump in construction activity that will begin to add to overall supply levels. Approvals for new dwelling construction are at record highs, and dwelling commencements over the December quarter were almost 20% higher than a year earlier. - Negative population growth.
Right now population growth, which is an important component of housing demand, has turned negative for the first time since 1916 due to closed borders and stalled overseas migration. - Less incentives.
Australia is moving into the next stage of economic recovery where there is less fiscal support. Housing demand was underpinned by incentives such as the HomeBuilder grant and income support as well as state based initiatives such as stamp duty concessions - Higher barriers to entry.
An added barrier to a further acceleration in rising housing prices is affordability. For those that already own a home, keeping up with repayments is easier right now thanks to record low mortgage rates. However, for those ready to enter the market, growth in housing values is largely outpacing incomes, which means it’s tougher for first home buyers to save a deposit. Based on data to September 2020 (which would have worsened by now considering the 8.2% jump in housing values since then) it would take most households 8.6 years to save a 20% deposit.
Although it’s likely the pace of capital gains has peaked, there remains a variety of factors that are likely to keep upwards pressure on housing values.
Tim Lawless said ‘Overall, we are expecting housing values to continue to rise throughout 2021 and most likely throughout 2022, just not at the unsustainable pace of growth that has been evident over recent months.’
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