Australian house prices rose 1.5% in October, up 22% for the year, but signs point to slowing momentum in 2022

Australian house prices rose 1.5% in October, up 22% for the year, but signs point to slowing momentum in 2022
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  • Half of Australian capital cities recorded property value increases of more than 20% this year, a new CoreLogic report shows.
  • While national growth remained unchanged, regionally market conditions fluctuated, with housing values in some cities continuing to race ahead.
  • CoreLogic’s head of research said the all signs pointed to an end to the explosion of price growth in 2022.
  • Visit Business Insider Australia’s homepage for more stories.

Australian house prices rose 1.5% in October, however signs continue to point to an easing of the growth trends that turbocharged the market this year.

The rise was in line with similar results to August and September, according to the CoreLogic October Home Value Index released on Wednesday.  

However the continuation of trends over the past two months suggests the market continued to lose momentum since moving through a peak of monthly growth in March with 2.8%. 

Nationally, the monthly growth rate eased to 1.49% in October from 1.51% in the previous month.  

While national growth remained unchanged, regionally market conditions fluctuated, with housing values in some cities continuing to race ahead.

Brisbane has taken over as the fastest growing market with housing values up 2.5% in October, followed by Adelaide and Hobart, with both dwelling markets increasing 2% in value over the month.  

At the other end of the spectrum, Perth recorded its first negative monthly result since June last year, with values dropping 0.1%. 

In Sydney and Melbourne, the monthly rate of growth has more than halved since the highs seen at the peak of the hot market in March 2021, when they reached a monthly growth rate of 3.7% and 2.4% respectively.

Tim Lawless, research director at Corelogic, said slowing growth conditions are a factor of worsening housing affordability, rising supply levels, and the end of government stimulus.  

“Housing prices continue to outpace wages by a ratio of about 12 to one,” Lawless said. 

It was one of the reasons why first home buyers are becoming a progressively smaller component of housing demand, he said. 

Adding to this, new listings have surged by 47% since the most recent market dip in September, and housing focused stimulus such as HomeBuilder and stamp duty concessions have now expired.  

“Combining these factors with the subtle tightening of credit assessments set for November 1, and it’s highly likely the housing market will continue to gradually lose momentum,” Lawless said. 

While the monthly pace of growth is easing, the annual trend has continued its upward trajectory, a factor of stronger growth conditions throughout early 2021.  

Nationally, home values are up 21.6% over the year to October, with half of Australian capitals recording an annual growth rate exceeding 20%. 

Most notably, regional Tasmania continues to race ahead with a breakneck rate of price growth in 2021. 

Property on the island led the nation in annual capital gains, with dwelling values rising by 29.1%.  

Regional markets in general recorded a stronger trajectory than the capitals, with housing values up 1.9% in October compared to the 1.4% rise in capital city values. 

‘Clear signs’ the market is beginning to cool 

While overall Australia’s housing market is continuing to record an above average rate of growth, there are clear signs the growth of Australian house prices will slow in 2022.

More listings coming on the market are meeting a buying cohort suppressed by tighter credit conditions and worsening affordability that will also impact Australian house prices.

“As housing becomes less affordable, we expect to see more demand deflected towards the higher density sectors of the market, especially in Sydney where the gap between the median house and unit value is now close to $500,000,” Lawless said.

Another factor, the return of investors, will likely increase demand into the new year.  

“Investor demand across the unit sector could be bolstered as overseas borders open, which is likely to have a positive impact on rental demand, especially across inner city unit precincts,” Lawless said. 

Along with worsening affordability and higher supply, there is the potential for a further tightening in credit policy with an early rate hike looking increasingly likely, Corelogic noted.

Financial markets are already pricing in several rate hikes through 2022 and a growing number of economic forecasters are predicting the first rate hikes to be in late 2022 or early 2023, when inflation is expected to move sustainably within the RBA’s target range of 2-3%. 

This will most likely put the brakes on further growth in housing values within the year, CoreLogic stated.

“The short-term view is for further growth in values, albeit at a slower rate than what has been seen over the previous 12 months,” the report said. 

“As the economy continues to benefit from easing COVID-19 restrictions, current low interest rate should continue to support demand, along with tight advertised supply levels and improving consumer sentiment.”