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Home values expected to reach ‘new record’ in 2023

Home values have experienced a steady upward trajectory for eight consecutive months, nearly recouping previous losses.

According to CoreLogic’s national Home Value Index (HVI), September saw a 0.8 per cent increase, marking the eighth consecutive month of growth in the recovery trend.

This followed a revised 0.7 per cent rise in August (originally reported as 0.8 per cent), bringing the quarterly growth rate of national home values to 2.2 per cent.

However, this quarterly growth has moderated compared to the 3.0 per cent gain reported in the June quarter, signaling a slowdown as advertised stock levels rise.

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This shift follows 10 consecutive months of decline, resulting in an 8.4 per cent decrease in property prices, from peak to trough.

However, CoreLogic’s research director Tim Lawless noted that since the trough in January, the national index has recovered by 6.6 per cent.

Mr Lawless anticipates that, at the current rate of growth, the national HVI will reach a new nominal high by the end of November.

The data coincides with PropTrack's home price index for September, which observed buyer and seller confidence is improving "significantly" in the major capitals.

PropTrack observed a sharp increase in the number of properties hitting the market in Sydney and Melbourne, which has improved choices for buyers.

However, strong demand has led to continued price increases, and it is likely that prices will rise further.

Capital city values

Across the capitals, Sydney has bounced back boasting an annual increase in home values of 7.3 per cent, raising its median property value to $1.1 million.

Melbourne, on the other hand, has exhibited a more subdued performance, reporting a 1.5 per cent annual increase, resulting in a median value of $776,716.

Perth and Adelaide have both reached new record highs in dwelling values, experiencing increases of 8.8 per cent and 5 per cent, respectively, with median values now at $618,363 and $691,591.

According to Mr Lawless: “Brisbane looks set to reach a new record high in October, with home values currently only 0.6 per cent below their previous peak.”

Brisbane’s median home values have risen to $761,739, marking a 5 per cent annual increase.

In contrast, Hobart and Canberra have more ground to cover before staging a nominal recovery, with dwelling values remaining 12.4 per cent and 7.0 per cent below their cyclical highs from the previous year, Mr Lawless said.

Supply constraints fuelling home values

Indeed, the surge in home values is closely correlated with a supply shortage.

“The three capitals recording the highest capital gain each have advertised supply levels that are around 40 per cent below their previous five-year average," Mr Lawless noted.

However, the influx of new listings has been steadily increasing since early June.

Over the four weeks ended 24 September, the flow of new capital city listings was 14 per cent higher than at the same time last year and 8.0 per cent above the previous five-year average.

Mr Lawless stated: “More listings imply more choice for buyers, and more choice means less urgency, more time to deliberate on the purchase, and negotiate with the vendor.”

Additionally, AMP’s economist Shane Oliver agreed that the rebound in prices since January this year, contrary to expectations of further price declines, reflects a worsening shortfall in supply relative to underlying demand for homes.

Mr Oliver anticipates that national average home prices are likely to see an 8 per cent gain, with Sydney’s home prices expected to rise by 12 per cent.

“This will take prices to record, or around, record levels,” Mr Oliver said.

Mr Oliver’s base case is that property prices will experience an additional 5 per cent rise next year as interest rates begin to fall.

He explained that the rebound in immigration, which has driven the fastest population growth since the 1950s, coinciding with a slowdown in the supply of new dwellings, has caused the property market to enter a significant undersupply situation.

This, in turn, has exacerbated already tight rental markets, leading to rent increases and motivating renters to consider buying earlier than they would have otherwise.

Westpac’s senior economist Matthew Hassan observed that prices across major capital cities are now just 1 per cent below their previous peak in 2022.

Given that the cash rate has remained steady at 4.1 per cent, the increase in home values, coupled with higher interest rates, has made housing affordability “extremely stretched” and is likely to constrain future price gains.

[Related: Loss making sales and arrears tick up]

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