Dramatic slowdown in the Australian property market, house price growth decelerates

Highlights

  • The Australian property market is showing some signs of a slowdown.
  • Property price growth slowed to the lowest level since January in November 2021 across Australia.
  • The capital city trends demonstrated greater diversity during the last month.

The Australian housing prices have been breaking records since the outbreak of the COVID-19 pandemic, making it more expensive for first-time homebuyers to purchase their dream home. While property prices continue to remain at the upper end of the curve, the housing market is showing some evident signs of a slowdown.

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As per the property consultant CoreLogic, the property prices recorded a surge of 1.3 per cent in November, marking an increase for the 14th-straight month. Despite the recent rise in housing prices, the pace of price growth in November was the slowest since January 2021. However, the property consultant observed diversifying conditions as affordability pressures mount and stock levels rise.

What does the latest data say?

The latest data suggests a slowdown in the property price growth of major capital cities – Sydney and Melbourne – where prices increased by 0.9 per cent and 0.6 per cent, respectively. The deceleration in price growth emerged as the number of homes listed for sale kept increasing.

Over recent weeks, stock levels have become far more normalised in these capital cities. While stock levels across Melbourne are sitting 7.9 per cent above the five-year average, the total listings in Sydney were at just -2.6 per cent below the five-year average.

On the flip side, Brisbane and Adelaide recorded the fastest pace of growth in November. The home values in Brisbane were 2.9 per cent up in November (highest since October 2003), while home values in Adelaide were 2.5 per cent up (highest since February 1993). The divergent trends across these capital cities were due to different supply dynamics.

Slowdown in the property price growth of major capital cities

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Interestingly, the slowdown in property market conditions was less evident across the regional areas, where the monthly pace of capital gains has improved over the last three months. From a capital growth perspective, Regional New South Wales (2.4 per cent month/29.1 per cent year) and Regional Tasmania (2.5 per cent month / 29.8 per cent year) were the standouts.

The regional areas were seen to be benefitting from the increasing popularity of remote working arrangements, together with renewed demand for lifestyle and coastal properties. In several cases, more affordable housing options drove capital gains in regional areas.

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Is the property boom nearing its peak?

The slowing momentum of property prices across the major capital cities suggests that the latest housing boom might be nearing its peak. Most of the factors that have been driving property prices higher have lost some potency in recent months.

The advertised inventory is rising across most regions, strengthening the supply-side dynamics. At the same time, fixed-term mortgage rates are increasing, which might act as a disincentive for some buyers, who were primarily flocked to the housing market due to record-low mortgage rates. At a time when the nation’s banking regulator has tightened lending rules, one can expect a further slowdown in housing activity in the months ahead.

What lies ahead for the Australian property market?

However, it is hard to neglect some tailwinds that may continue to support an upward trajectory in home values over the short term. As Aussies become more and more vaccinated, one can expect less frequent disruptions from the pandemic. Meanwhile, the reopening of international borders, which is likely to resume overseas migration, will also be a net positive for housing markets. Nevertheless, the new Omicron variant presents some additional risk for these tailwinds.

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