Australia’s housing market continues to cool, with property in Sydney seeing its biggest quarterly fall since March 2016.
The CoreLogic Home Value Index for November showed that home prices remained flat across the country in average weighted terms, as they did in October.
Quarterly price growth across capital cities and regional areas was just 0.2%, down from 0.3% in October.
That left annual price growth at 5.2%, which has now halved since hitting a recent peak of 10.4% in May 2017.
House prices nationally fell by 0.2% after a 0.1% drop in the previous month, offset by a 0.3% rise in unit values.
Prices nationally were dragged lower by the Sydney market, which dipped by 0.7% in November resulting in a quarterly price fall of 1.3%.
“Softer housing market conditions across Sydney, which comprises roughly one fifth of national dwelling stock (and approximately one third by value), has a material influence over the headline growth trends,” said Tim Lawless, CoreLogic’s Head of Research.
House prices in Sydney dipped by 1.1% in November, while unit values rose by 0.2%. That leaves annual house price growth in Sydney at just 4.4%, down from 7.7% in the previous month.
Partially offsetting the falls in Sydney, Melbourne’s property market posted a 0.5% increase in November.
While prices in Melbourne continue to climb, the rate of annual growth has slowed to 10.1% from a peak of 13.1% in July.
Compared to Sydney, Lawless attributed the stronger recent performance of Melbourne’s property market to higher relative affordability and increased net migration flows.
Dwelling prices in Perth edged higher for the third straight month, with house prices up by 0.3% while unit price growth was flat.
Lawless noted there’s now “mounting evidence that the Perth housing market may finally have bottomed out”, with homes selling faster and stock levels reducing.
Canberra property prices recorded the biggest rise in October of 0.9%, while Hobart rose by 0.6%. The Tasmanian capital continues to outpace all other capitals with annual growth of 11.5%, down from 12.7% in October.
Across the other capital cities, Brisbane and Adelaide saw a continuation of the recent flat growth trend while house prices in Darwin continued to fall.
“Since Darwin home values peaked in May 2014, they have fallen by 20.8% and to-date there is no sign of those falls levelling,” Lawless said.
Across regional areas, dwelling prices rose by 0.2% in November in weighted terms, leaving the annual rate of growth at 9.8% (down from 10.4% in October).
House prices have outperformed units in most capital cities in recent months, with the exception of Sydney and Perth.
“For Sydney’s apartment market, the biggest differential is that with affordability now stretched, units have become the preferred purchase option for price-sensitive buyers,” Lawless said.
Lawless attributed the stronger price growth of houses more broadly to a desire among owner-occupiers to live in low-density areas.
He also noted the impact of recent interest-rate hikes on investor loans — in the wake of macro-prudential measures introduced by APRA — which had cooled investor activity in the apartment market.
Gross rental yields for both houses and units were relatively unchanged from the previous month.
Rental yields in Sydney and Melbourne continue to lag other capitals, with the yield on Sydney houses edging lower to 2.8% in November.
Looking ahead, Lawless said the latest results provide a fairly clear indication that Australia’s housing market has peaked.
He added that as the market cools, policy makers face a difficult challenge to support consumer sentiment with more limited tools at their disposal.
“The downturn in dwelling values is tracing along a similar trajectory which followed the previous major macro-prudential policies announcement in December 2014,” Lawless said.
“However this time, it’s unlikely there will be a lifeline thrown to the housing market via cuts to the cash rate.”
“With housing values falling, the key focus for Australia’s largest asset class, valued at $7.4 trillion, is whether we will see an erosion of consumer confidence, which may have a flow on effect for other sectors of the economy.”
Despite the Sydney-led decline in national dwelling prices, Lawless said activity in smaller capitals and regional areas may continue to track positively.
He added that any further drop in home values is unlikely to be severe – “particularly given the 48% increase we have experienced in capital city values since early 2012”.
“This will likely occur because of rapidly growing populations and a stronger labour market against an already declining pipeline of new housing supply that will sustain some levels of demand.”