The robust growth in house prices shows no sign of slowing down, with the latest data from CoreLogic showing dwelling values are rising at the fastest rate in 32 years. According to CoreLogic, national house prices rose at 2.8% in March, the most significant increase we’ve seen since October 1988.
In March, all capital cities saw strong growth, led by Sydney with a solid 3.7% increase in dwelling values. While the weakest capital city was Adelaide, which still saw 1.5% growth. Regional Australia also continues to perform strongly, increasing in value by 2.5%. The last time house prices rose this quickly in Sydney was during the last boom in 2015, before the credit tightening policies introduced by APRA.
The strong result in March now means that both Sydney and Melbourne have fully recovered from the small COVID-induced downturn in mid-2020. Sydney prices are now back above their 2017 highs by 2.6% and have fully recovered from the -14.9% fall we saw after the last boom. Similarly, Melbourne house prices are also fully recovered and are also back at record high levels.
We are also starting to see the larger capital cities overtake the smaller capitals that had previously seen robust growth. The first quarter also closed with strong gains across the board, with dwelling values up by 5.8% nationally. In terms of the units vs. houses, there is still clearly stronger demand for lower-density property as houses increased by twice as much as units over the first quarter.
At the same time, it is still the upper end of the market that is producing the bulk of the gains. In March, the upper quartile of homes increased in value by 3.7% March, outpacing the lower quartile that showed a 1.6% increase.
Tight Listings Continue for Now
The strong gains continue to come on the back of low-interest record rates and tight supply. The RBA has made it clear interests rates are likely to remain low for the next few years, while listings are also at historically low levels.
Graph of the Cash Rate Target
Total listings across the country are still at 25% below the five-year average. However, that could be slowly starting to change as new listings are on the rise as homeowners gain confidence and look to capitalize on the state of the market. New listings are currently 3% above the five-year average and appear to be trending higher.
For the time being, markets across the country are clearly favoring sellers. However, CoreLogic notes that things will likely slow down from the current record-setting pace. So far, the strong demand from buyers has not been met by increases in inventory levels. However, the sellers will return to the market at some point as we’ve already started to see new listings on the rise.
Similarly, there has been a large influx of first home buyers, whose decision to purchase a property has likely been brought forward by the range of Government incentives on offer. Many of these incentives are set to end this year if they haven’t already.
While it has been stated that interest rates are likely to remain low for some time if the housing market continues to overheat, there is also some possibility that we could also see tighter credit policies, which, as we know, can have an immediate impact on demand. For the time being, house prices will likely continue to rise, according to CoreLogic. However, we should expect the pace of the growth to slow down.