House prices in Australia’s big cities surged in June

Fireworks explode over the Sydney Harbour Bridge and the Sydney Opera House on New Year’s Eve. Photo: Brett Hemmings/ City of Sydney via Getty Images.

Australian capital city house prices rebounded in June, driven by strength in Australia’s southeastern capitals.

According to Corelogic’s Hedonic Home Value Index, prices across the country increased by 1.8% last month in weighted terms, recovering from a 1.1% decline in May.

However, as shown in the table below, the large increase in the national figure masked a noticeable divergence in price movements across individual capital cities.

Source: CoreLogic

Prices in Sydney, Melbourne, Canberra and Hobart all screeched higher, logging gains in excess of 2%, while those in Perth jumped by 1.4%.

While some hefty gains, the strength in the national figure was largely driven by Sydney and Melbourne given they are the largest housing markets in the country.

Elsewhere, prices fell by 0.5%, 1.7% and 2.2% in Brisbane, Adelaide and Darwin.

By type of property, CoreLogic said that unit prices nationally surged by 3.2%, led by enormous gains in Sydney and Melbourne of 4.5% and 2.3% respectively.

House prices grew by a smaller 1.6%, led again by Melbourne and Sydney where they increased by 2.8% and 1.8% respectively.

This table from CoreLogic breaks down price movements for houses and units over June, the quarter and past year by individual capital city.

Source: CoreLogic

Tim Lawless, head of market research at CoreLogic, said that seasonality in the series partially explained the solid rebound in price growth seen in June.

“This stronger month-on-month reading can be partially explained by the seasonality in the monthly growth rates,” he said. “Adjusting for this effect suggests an easing trend in housing value growth has persisted through the second quarter of 2017.”

Reflective of that view, prices across the country grew by 0.8% during the June quarter, a large deceleration from the levels regularly reported throughout 2016 and earlier this year.

Melbourne, home to the fastest growing population of any capital city in 2016, recorded the largest increase in prices of any capital during the quarter at 1.5%.

Elsewhere prices in Sydney, Brisbane and Perth grew by 0.8%, 0.5% and 0.1% respectively over the same period, while those in Darwin, Hobart, Canberra and Adelaide fell by 5.2%, 1.3%, 0.4% and 0.2%.

“This trend towards lower capital gains across the combined capitals index is mostly attributable to softer conditions across the Sydney housing market,” said Lawless.

The national increase over the June quarter was the smallest since late 2015, fitting with a recent deceleration in auction clearance rates, particularly in Sydney and to a lesser degree Melbourne.

“Weaker auction results are further evidence of slowing housing market conditions,” Lawless said.

This may, in part, reflect recent regulatory changes from Australia’s banking regulator, APRA, limiting new interest-only home loans to 30% of total new mortgage lending.

This was introduced in late March, coinciding with weaker housing finance demand in recent months.

“The impact of macroprudential measures announced by APRA at the end of March are still flowing through to mortgage rates and credit policies. We are likely to see further tightening and repricing around investment lending and interest only lending over the coming months,” Lawless said.

The slowdown in the June quarter saw price growth over the past year continue to ease, falling to 9.6% from 12.9% in the year to March this year.

Again, due to their sheer size, this largely reflected a slowdown in the Sydney and Melbourne markets.

Over the past year, prices grew by 12.9% in Sydney, well below the 18.9% level reported just three months ago. For Melbourne, prices grew by 13.7% over the past 12 months, down from 15.9% three months ago.

Price growth is clearly slowing, although, to this point, it’s not been by much.

However, given recent developments, Lawless expects that recent deceleration will continue in the second half of the year.

“Wages growth is tracking at record lows, and mortgage rates are likely to rise further, particularly for investment purposes” he says. “As a result, the expectation is that housing market conditions, most particularly in Sydney and Melbourne, will continue to soften through the remainder of 2017.”