CoreLogic’s Home Value Index results for October show an increase in national dwelling values of 1.2 per cent from September, reportedly the largest month-on-month uptick in value seen since May 2015.
October is the fourth consecutive month to experience growth in national property prices, following a consistent decline totalling 8.4 per cent nationally between October 2017 and June 2019.
Home prices across the combined capital cities are now up 3.6 per cent above their June 2019 floor, however remain 5.4 per cent below their peak, a similar level to where they were three years ago.
The uptick in property values was largely driven by spikes in Sydney and Melbourne, although growth was recorded in every capital city apart from Perth.
Lower mortgage interest rates and improved credit availability has encouraged buyer demand, according to CoreLogic research director Tim Lawless.
Market recovery in Melbourne overtook that of Sydney throughout October, with dwelling prices rising 2.3 per cent in the Victoria capital, the largest monthly surge seen in the city since November 2009.
Melbourne home values are now up 6.0 per cent since hitting their floor in May, whereas Sydney prices have risen 5.3 per cent in the same period.
The other capital cities have seen varied rates of quarterly growth, apart from Perth and Darwin, which both saw decreases in the three months to October, however CoreLogic suggests the rate of decline in both cities is slowing.
Looking at year-on-year figures, seven sub-regions in capital cities managed to make gains in the year to October 2019, including prestigious localities such as Melbourne’s inner and inner eastern suburbs.
These prestigious suburbs were also among the areas that saw a significant downturn during the decline of the market, highlighting the extent of improvement in recent months, said Mr Lawless.
Notably, over the three months ending October 2019, 38 of the 46 capital sub-regions recorded an improvement in dwelling values, demonstrating the “depth of the current housing market recovery”.
Looking to the rental market, rates have fallen across five of the eight capital cities in the three months ending October 2019.
The largest declines were seen in Darwin, where rents are 1 per cent lower over the past three months, and Sydney, where rents are down 0.7 per cent. The only capital cities where rents were up over the rolling quarter were Brisbane (0.2 per cent) and Adelaide (0.3 per cent).
According to Mr Lawless, these softer rental conditions can be attributed to a variety of factors, including an abundance of supply due to previously unprecedented levels of investor participation in the housing market between 2012 and 2017, as well as a significant increase in dwelling construction skewed towards rental accommodation in the high rise apartment sector.
Further, a larger than normal number of renters have transitioned to first home buyers in light of the recent market downturn, thereby denting rental demand.
As such, rental yields have also taken a hit.
Gross rental yields across the combined capitals have fallen to 3.65 per cent, which is the lowest gross yield since November last year.
However, while yields have fallen, so too have mortgage rates.
At the end of September, the average three-year fixed rate for an investor mortgage was 3.8 per cent, according to CoreLogic.
The property research group said it is likely that the three-year fixed rate for investor mortgages is now lower than capital city gross rental yields for the first time since at least 2007 (when CoreLogic’s rental yield series commenced).
This suggests that more properties will be showing a positive cash flow for investors, and renters may be better off purchasing a home and paying down a mortgage rather than continuing to rent.
Mr Lawless suggests that favourable buying conditions and increased borrowing power is to thank for steadily improving conditions in the housing market.
“It’s becoming increasingly clear that the housing market rebound is gathering pace, both geographically and across the broad valuation cohorts, off the back of lower mortgage rates and improved access to credit, as well as an improvement in affordability relative to the market peak several years ago and consistently high demand via population growth,” he said.
While buyer demand picks up steam, the number of properties hitting the market is still down 12 per cent compared with last year, and 17 per cent below the decade average.
Mr Lawless stated that stock levels have not been this low since the global financial crisis.
“There has been a shortage of new listings for several years, which has likely resulted in some pent up demand from home owners looking to sell,” he said.
“Despite the improved selling environment, new stock additions remain low for this time of the year, which is likely a reflection of ongoing uncertainty and low confidence.”
Mr Lawless also noted that Australia’s overall sluggish economy, largely stagnant wage growth and ongoing low levels of consumer spending also might contribute to low stock levels.
“Buying and selling a home requires a high degree of commitment, which becomes much harder when there are doubts around household finances or job prospects,” he said.
He concluded: “In addition, total advertised stock levels are 11 per cent lower relative to last year and tracking at the lowest level since 2010.
“Such a small pool of available stock against rising buyer demand is creating some competitive pressure amongst buyers, which is adding to urgency in the market and supporting upwards pressure on values.”