House prices will fully recover in two months

CONSECUTIVE interest rate rises have failed to slow the Australian property market with house prices on track to fully recover from the 2022 downturn by the end of this year.

Just $2,000 separates house prices from a new record and $5,000 for units across the combined capitals, according to Domain’s House Price Report for the September quarter.

Sydney, which a median house price of $1,578,099, and Brisbane ($848,752) are tracking towards record highs by the end of 2023.

Perth ($713,811) and Adelaide ($844,654) have seen record-high house prices while Brisbane ($495,143) and Adelaide ($466,379) are the only cities with record-high unit prices.

Melbourne is now the second-most expensive city in which to purchase a unit ($573,067), overtaking Canberra ($567,059) for the first time since March of 2022.

Domain data showed the recovery moved through its third quarter of growth for houses and second for units, up respectively by 1.9% and 1.8%. Although the pace of quarterly growth has eased by one-third compared to the previous quarter, prices are now higher annually for the first time in a year for houses and since mid-2022 for units.

“These record-high numbers are driven by a series of factors: interstate migration, record levels of overseas migration, a tight rental market, and a chronic undersupply,” said Dr. Nicola Powell, Domain’s chief of research and economics.

“It is worth pointing out that the pace of growth is currently being somewhat contained by the stretched affordability. If mortgage rates weren’t as high as they currently are (5.98% for a new owner-occupied home loan), price growth would be faster with the current housing undersupply. So for buyers who are in the position of considering purchasing, it is important to weigh up the pros and cons of delaying their purchasing timing along with financial planning.”

Powell said choice has also risen for buyers in the quarter, as sellers regain market confidence and pent-up supply makes its mark. September’s auction volumes reached a 16-month high and the total national supply is now 5.1% above July’s low – and 6.5% higher across the combined capitals – with new listings in Sydney, Melbourne, Canberra and Hobart are higher annually.

“For sellers, with the market recovers, it is about pricing the home correctly ahead of the increasing competition,” Powell said.

Table 1. The change in house prices so far this property cycle.

Adelaide leads recovery

Adelaide is currently the best-performing capital city for houses and units, providing homeowners with the fastest quarterly gains. It is also the only capital city with both record house and unit prices. House price growth gathered slight momentum over the September quarter – the most substantial quarterly gain since early 2022 – to rise to another record high. Unit prices continued to grow over the September quarter at an eased pace compared to the steepest quarterly surge the city had seen since 2007 last quarter.

Sydney’s housing market recovery moved through its third quarter of house and unit price growth, which hasn’t occurred since 2021. While Sydney unit price recovery posted the first annual gain in a year and a half, houses – which have regained 9.4% since the trough – have outperformed unit prices for four consecutive quarters, making Sydney one of two capital cities with a record price gap between property types – a house is twice the price of a unit.

The other city is Hobart, where house prices rose 1.9% in the September quarter, a moderate amount compared to the historical average of 3.8%. House prices have risen 2.4% since the March trough. The unit market continues to display volatility, with prices dropped over the quarter and year for the steepest annual fall in roughly a decade.

Melbourne’s housing market recovery gathered a little momentum over the September quarter, with house prices rising faster than the previous quarter to produce the steepest quarterly gain since late 2021.  They have recovered 1.0% since the March trough. Its unit price recovery saw a second consecutive quarter growth, making for the strongest six months since the latter half of 2019.

Brisbane was one of two capital cities to see unit prices reach a record high over the September quarter, along with Adelaide. For the first time, unit prices have outperformed house prices for six consecutive quarters, narrowing the price gap between the types to just over a two-year low. House prices have regained 4.8% since the trough of June last year.

Perth’s housing market continues to benefit from a positive flow of net interstate migration, record levels of overseas migration and being Australia’s tightest city rental market alongside joint Adelaide. House prices rose over the September quarter to another record high, marking the steepest annual increase since mid-2021, hitting double-digit growth. Unit prices increased over the quarter and year to provide the best outcome since 2021.

Darwin remains Australia’s most affordable city. House prices ($577,659) are lower than a year ago, while unit prices rose over the quarter and year – the first positive annual growth since 2022 – to $369,860.

Table 2. The median price of houses and units, September quarter 2023.