Property prices boomed 13.5% this year – but momentum is beginning to fade

Regional markets like Lennox Heads have boomed during the pandemic.
  • Australian property prices rose 13.5% nationally over the last financial year.
  • Darwin, Hobart and Canberra led the country, with prices in all three cities rising by about 20%.
  • The Sydney market, meanwhile, jumped 15%, with median prices rising by $130,000 in just 12 months.
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Australian real estate finished the financial year with a bang, as prices broke records once again.

Prices jumped another 1.3% in June, according to new CoreLogic data, with the market ending the 2020-21 financial year 13.5% higher than it began it.

“This is the highest annual rate of growth seen across the Australian residential property market since April 2004, when the early 2000’s housing boom was winding down after a period of exceptional growth,” Australian head of research Australia Eliza Owen said.

Hobart and Sydney prices jumped another 3% and 2.6% respectively in June, leading Australia’s state capitals higher. They were tailed by 2.3% growth in Canberra, 1.9% in Brisbane, and 1.8% in Melbourne.

Combined, the cities rose 1.9% over the month, being trumped in turn by regional markets, up 2%.

Looking out over the last 12 months though, there has been clear divergence between the different property markets.

Darwin had the biggest year, after prices climbed an astounding 21% between July 2020 and June 2021. Hobart took out silver rising 19.6%, while Canberra rounded out the podium places finishing 18.1% higher.

It paints a grim picture for those looking to buy. The median home in Hobart now costs $100,000 more than it did last year while prices in Canberra have risen around $120,000. Meawnhwhile in Sydney, where prices jumped 15% in 12 months, the median asking price is up $130,000, coming in just shy of $1 million.

The absurd run-up in prices has been attributed to a range of factors, including record low interest rates and bumper demand that has quickly absorbed whatever housing stock has made it to market. This has only been further stoked by an Australian economy that has rebounded rapidly on the back of unprecedented fiscal and monetary stimulus.

“In May, the unemployment rate fell to 5.1%, and the underutilisation rate fell to 12.5%, the lowest level since February 2013. Consumer confidence remained elevated through June, although down from the recent April highs,” Owen said. “Elevated savings accumulated through COVID-restrictions last year, along with a more confident consumer sector, has encouraged consumption of larger goods, such as housing.”

But it would seem that Australia’s combined property markets can’t sustain this kind of growth forever, with Owen noting that “there are some markets where performance is starting to ease more notably”.

While the recent monthly rise was still almost five times the decade average, it has fallen from a March peak of 2.3%. Meanwhile, the heat is more quickly coming out of the top end of the market, as price growth drops from 9.2% to 8% amongst the most expensive properties on the market.

“This easing in the pace of growth at the top end of the market is another clear sign of a shift in momentum. The rest of the market tends to follow movements at the high end, and this is the first time in nine months that the high-tier growth rate has not accelerated,” Owen said.

Weighing in on Thursday, CBA economists expect price growth to continue – albeit at a slower rate – during the second half of the year.

“The leading indicators of dwelling prices remain strong. New lending is growing at a fast pace and auction clearance rates remain high. We expect prices to continue to lift but the pace of the monthly gains should slow,” senior economist Kristina Clifton said.

Rising prices are forcing young Australians to reconsider their options

As prices continue to break record highs however the appetite for property does not seem to be abating.

The latest figures from NAB show that 15% of Australians intend to buy a home this year, up from 13% at the end of last year.

Despite having to stump up a significantly larger first home deposit, Australians under the age of 30 make up the largest cohort of eager buyers, representing nearly 40% of the market.

Some of that demand has been inflated by government guarantee programs, such as the first home buyer scheme. The Commonwealth Bank estimates the scheme has pushed buyers into the market five years quicker than they would have been.

But would-be homeowners aren’t the only ones trying to get into the hot market. Reflecting changing demographic of buyers, a further 9% of Australians say they’re scouting out an investment property. NAB said the demand has lifted lending by two-thirds this year as buyer stay to keep up with prices.

“The health and financial shock of the pandemic drove a decline in investor interest last year. This year we have seen the return of investors as economic conditions have improved,” NAB executive Andy Kerr said.

NAB labelled the booming desire to buy as ‘aspirational’. As capital city prices rise by six-figure increments, however, borrowers’ attempts to keep up look more akin to desperation.

Slower rates of growth look to offer little reprieve in the coming months.