Home price downturn wanes but rates pose further risks

The second month in a row of improving home prices suggests the downturn is over but economists warn there's a risk of further falls.

The latest home value index by property experts CoreLogic increased by about half a per cent in April, following a 0.6 per cent lift in March.

The two consecutive months of home value improvements follows a 9.1 per cent fall between May 2022 and February 2023 that began when interest rates started rising.

Sydney leads the market upturn after housing values increased by 1.3 per cent in April and 3 per cent in the last quarter.

Melbourne, Brisbane, Adelaide and Perth also had slight jumps in value last month.

Hobart, Darwin and Canberra are yet to have improvements.

CoreLogic research director Tim Lawless said home value data in conjunction with a number of other indicators suggested a turnaround was under way. 

"Auction clearance rates are holding slightly above the long-run average, sentiment has lifted and home sales are trending around the previous five-year average," he said,

The strengthening property market has prompted some economists to revise their forecasts upwards.

AMP Capital chief economist Shane Oliver said forecasts for a 15-20 per cent top-to-bottom fall out to late this year were too pessimistic and the firm's economists were now tipping prices staying flat or rising slightly over the year.

Next year, Dr Oliver and his colleagues anticipate a five per cent lift. 

"This assumes the RBA cuts rates through next year and the economy has a soft landing," he clarified.

Dr Oliver said high interest rates and the economic slowdown were weighing on prices but these depressing forces were no match for a surge in demand from high immigration levels, tight supply, low listings and buyer confidence buoyed by the imminent end to the interest rate hiking cycle. 

But Dr Oliver said he was not entirely comfortable with revising their forecasts given interest rates hit with a lag.

When the 350 basis points of hikes so far are felt in full, it may force more stressed mortgage holders to sell, as well as cause unemployment to drift up, further weighing on demand. 

He said poor housing affordability would also keep downward pressure on prices, with an average income earner typically looking at a decade-long saving period before they can buy.

ANZ economists have also upgraded their housing price forecasts to reflect improving clearance rates, strong population growth and the improvement in home prices so far.

Economists Felicity Emmett and Adelaide Timbrell said the recent upswing was a surprise and they were now expecting prices to end the year unchanged and lift modestly in 2023.

They previously expected sharp interest rate hikes to keep weighing on prices and cause them to fall another 10 per cent through the year.

"We now think most of the weakness is behind us," Ms Emmett and Ms Timbrell wrote in a note. 

They said strong household income growth and large savings buffers were likely helping to cushion house prices. 

"Indeed, the early recovery in housing prices suggests that the household sector remains resilient despite headwinds from high inflation and rising interest rates."