The housing markets across Australia have lost momentum after a combination of higher interest rates, rising inventory levels and a lower sentiment. The capitals of Sydney and Melbourne have shown a significant fall of -1.0% and -0.7% respectively with Canberra recording its first monthly decline since July or 2019 at -0.1%. Other main capitals such as Adelaide, Brisbane and Perth are still recording growth.
Sydney has fallen progressively since February, while Melbourne has fallen in values across 4 of the past 6 months. Canberra had maintained an increase in values of 2.2% in the 3 months to May, however has recorded a slight decline amid softer house values and affordability constraints. It must be noted in spite of this, housing values are still significantly higher when compared to pre-pandemic levels with Sydney still recording 22.7% above pre-COVID and Canberra recording 37.9%.
Speculation around the impact of rising interest rates is considered to be only one factor in causing a softening of the housing market, with a further increase to the cash rate occurring on June 15 by 0.75 percentage points which is the third so far this year and the largest since 1994. This increase was made to help curb the rate of inflation which is seen as the fastest pace of inflation in over 40 years.
Since the recent trend of softening market conditions across most regions over the past year, the annual rate of change has eased significantly over recent months dropping down to 11.7% across the combined capital cities which is down from a peak of 21.4% in the 12 months ending January 2022.
It must be noted that some of the regional markets will be somewhat insulated from the decline in housing values as there is still an ongoing imbalance between supply and demand as stock levels remain low across the regions.
When it comes to the capitals, Sydney and Melbourne have a higher inventory in stock levels when compared to 12 months ago. Overall, Sydney’s advertised listings increased 5.1% higher than this time last year and is 1.5% above the five-year average. Melbourne’s advertised stock levels have increased 1.3% and 8.1% respectively. This has helped tip the balance towards buyers again in the current market.
In June last year, 2,400 auctions were held across the combined capital cities. Of the 1,968 results collected so far to the 20th of June 2022, 57.8 per cent were successful, the lowest preliminary clearance rate since August last year. The previous week returned a preliminary clearance rate of 58.5 per cent, revising down to 54.8 per cent at final figures which is the lowest final clearance rate recorded since late July 2020. This time last year, 74.1 per cent of reported auctions were successful.
When it comes to the rental market, CoreLogic’s Hedonic Rental Index increased 1.0% in May which takes the quarterly rate of growth to 3.0%. This change has meant that the annual rentals have increased 8.8% across the combined capital cities and 10.8% across the combined regions. It must be noted that unit rents have been rising at a faster annual pace than the house rents.
Gross rental yields are up to 2.59% compared to a low of 2.42% in Sydney December 2021; Melbourne yields have increased from a record low of 2.74% in December 2021 to 2.86%.