Housing undersupply continues to boost prices

Home values increased 0.6 per cent during March in the 14th straight month of price growth, according to CoreLogic’s latest Home Value Index (HVI).

For the March quarter, the HVI rose 1.6 per cent, which has added approximately $12,000 to dwelling values. Since the trough between April 2022 and January 2023 (declining 7.5 per cent), the national HVI has increased by 10.2 per cent or by $71,832.

According to CoreLogic, the HVI has risen to new record highs each month since November 2023.

Meanwhile, PropTrack’s Home Price Index also recorded a new peak in March, with national home prices rising by 0.34 per cent. Prices are now up 1.57 per cent so far this year, sitting 6.79 per cent above March 2023 levels.

CoreLogic research director Tim Lawless said despite economic headwinds of rate hikes, cost-of-living pressures, and deteriorating affordability softening housing conditions, an “undersupply of housing relative to demand continues to keep upwards pressure on home values”.

“The diversity in housing value outcomes can be explained by significant differences in factors like housing affordability, demand-side pressures from population growth and shortcomings in housing supply,” Lawless said.

“Housing remains in short supply and purchasing demand is still high due to interstate and overseas migration rates that are well above average.”

Eleanor Creagh, PropTrack senior economist, said despite an increase in the number of homes hitting the market in 2024, “demand has absorbed the surge leading to further price increases”.

“Housing demand is also being buoyed by population growth, tight rental markets, resilient labour market conditions and home equity gains,” Creagh said.

“Meanwhile, the sharp rise in construction costs and labour and materials shortages have slowed the delivery of new builds, hampering the supply of new housing.”

She added that the supply and demand imbalance is likely to “further offset the impact of affordability constraints and a slowing economy” with prices expected to continue to rise in the months ahead.

AMP deputy chief economist Diana Mousina commented that Australia “now has chronic undersupply” that can only be resolved through elevated levels of construction and/or a “significant slowing of property growth”.

Mousina added that AMP expects home prices to increase by 5 per cent over 2024, however, warned of risks arising such as housing supply not improving and household rate cut expectations further fuelling housing demand.

“Despite the government’s “Housing Accord Policy” that aims to build 1.2 million homes in five years, we are nowhere near that number with building approvals running at 162.7k over the past year,” Mousina said.

Commonwealth Bank of Australia (CBA) senior economist Bellinda Allen commented that home prices are climbing faster than the major bank had anticipated to date this year.

“We had thought that rising affordability challenges and a reduction in borrowing capacity from the material lift in interest rates would weigh on home price growth,” she said.

“Instead the undersupply of housing at a time of increased demand across all types of owners (investors, upgraders and first home buyers) has continued to drive prices higher.

“Adding to this the material lift in construction prices of new homes, and the troubles in the rental market have lifted the attractiveness of buying an existing property. Foreign buyers are also more active in the market.”

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