Home prices across Australia increased over the September quarter, according to the newly published Domain House Price Report.
Unit prices were also up slightly over the three month period on a national basis, while the wave of Aussies moving out of cities due to the flexible working arrangements driven by COVID triggered price growth across regional areas in New South Wales and Victoria as well.
The Domain report revealed a mixed result in terms of house prices in Sydney; over the September quarter, prices increased by 1.2%, recovering some of the value lost during the previous quarter. However, the pace of growth was almost four times lower than the same time last year.
“Houses have regained just over $13,000 of the almost $22,000 value lost over the June quarter, and are now about $43,500 below the mid-2017 price peak,” explained Domain Senior Research Analyst, Dr Nicola Powell.
Unit prices in the city continued to decline in value, while the Central Coast saw unit prices jump by close to 10%, seemingly confirming that Sydney residents are participating in the trend of moving to regional areas as a result of new working flexibility.
“Unit values are roughly $56,000 below the mid-2017 peak. The divergence of median house and unit prices has pushed the gap to the largest on record at 58%. This widening price gap will make the financial leap from a unit to owning a house much harder,” Dr Powell said.
For now, strong domestic demand is absorbing the “rapidly rising” new supply coming to market in the city.
“With fewer investors and foreign interest, first-home buyers are taking advantage of the reduced competition, government incentives and low mortgage rates. With high vacancy rates, weak gross rental yields and fewer opportunities for capital gains, it may be some time before investors return,” Dr Powell added.
However, demand seems likely to take a hit as overseas migration has come to a near stop.
“The proposed relaxing of lending standards early next year and the imminent prospect of an interest rate cut will encourage people to borrow, however,” said Dr Powell.
“With less scrutiny placed on borrowers it will become easier to take out a mortgage, making access to credit simpler and quicker. This is likely to boost demand for housing and, in turn, support home values.”
The Domain report illuminated the “incredible resilience” of Melbourne over the quarter, with house prices remaining steady despite the strict and prolonged lockdown following the steep quarterly fall they posted in June.
House prices held steady at $875,980 and unit prices fell a marginal 0.1% to $536,659 over the September quarter.
“Although this is the third consecutive quarter unit prices have fallen, the rate of decline has eased. Prices remain higher than last year, up 1.6% for houses and 2.8% for units,” said Dr Powell.
The quarter's result can be partially attributed to a pullback in buyer and seller activity.
“Stage four restrictions had a dramatic and instant effect on homes listed for sale, at the peak dropping about 70% compared to last year,” said Dr Powell.
“This market hibernation, along with government support measures, has helped to avoid any substantial price falls. The easing of restrictions has already revived activity thanks to pent-up demand that built during lockdown increasing in October.”
Thus far, distressed sales have been stalled by government support measures and mortgage repayment holidays.
“If these supports are removed, and widespread urgent sales occur, the risks of significant price falls becomes greater,” Dr Powell explained.
“But COVID-19 associated job and wage losses have been skewed towards lower income households and a younger demographic, both more likely to rent than own a home.
“Upsizers are less likely to be financially impacted and will be cushioned by record low interest rates. They could also benefit from achieving a better price on their current home and find a bigger discount on higher-priced homes.
“Demand could also be fuelled by relaxed lending standards and further interest rate cuts, although plummeting overseas migration will be a drag for demand,” she finished.