Australian house prices inched higher in September, providing further evidence that housing market conditions are cooling.
According to CoreLogic’s monthly Home Value Index, prices across the country rose by 0.2% following an unchanged reading in August, leaving the increase on a year earlier at 8%.
The group said that capital city prices rose by 0.3%, while those in regional areas rose by a smaller 0.1%.
Over the year, capital city prices rose by 8.5%, well above the 5.6% level seen in regional areas.
However, as seen in the table below from CoreLogic, the modest increase in the capital city figure masked a widely divergent performance by individual market during the month.
By city, Hobart remained the hottest housing markets across the country.
Prices in Australia’s most southern capital jumped by 1.7% over the month, leaving the increase over the quarter at 3.4%. Over the year, prices in the city grew by 14.3%, the fastest of any capital city over the same period.
That annual percentage increase was the fastest reported since 2004.
Prices in Melbourne — Australia’s fastest growing city in terms of population increase — also rose strongly, jumping 0.9% over the month, leaving the increase on a year earlier at 12.1%.
CoreLogic said that prices in the city continued to be supported by strong auction clearance rates and low levels of stock on the market
Canberra’s housing market also outperformed with prices rising 0.6% over the month.
However, continued strength in those markets masked weaker performances in other centres, including in Australia’s largest and most expensive housing market, Sydney.
Prices in the harbour city fell 0.1%, the first monthly decline reported in 17 months. At 0.2%, the quarterly increase was also the weakest since prices went backwards in early 2016.
Tim Lawless, head of research at CoreLogic, said that Sydney result was driven by weakness in detached dwelling prices rather than for high-density housing.
“Across the Sydney housing market, it was the detached housing sector that pulled the monthly and quarterly growth rates lower,” he says.
“While unit values are also appreciating at a slower rate, detached housing values were 0.3% lower over the month of September and 0.2% lower over the quarter while unit values recorded a subtle rise.”
Lawless said that affordability constraints may explain the recent divergence between house and apartment prices.
“Potentially the affordability challenges facing Sydney buyers within the detached housing sector are pushing more demand towards the medium-to-high density sector, where, based on median values, houses are almost $290,000 more expensive than units,” he says.
Of the other capital cities, prices in Brisbane and Perth rose by 0.3% and 0.1% respectively while in Adelaide they were flat.
Along with Sydney, Darwin was the only other capital to register a decrease with prices falling 0.7%.
For the quarter, prices across the nation’s capitals rose by 0.7% in average weighted terms, well below the recent cyclical peak of 3.5% seen in late 2016.
“This slowing in the combined capitals growth trend is heavily influenced by conditions across the Sydney market where capital gains have stalled,” says Lawless.
Looking ahead, Lawless says that prices in Sydney and Melbourne will probably trend lower in late 2017 or early 2018, he says that continued strong demand for housing, along with the likelihood that interest rates will remain at low levels, “will help to support a floor under housing prices going forward.”
In particular, he points to strong population growth in Melbourne and Sydney as a major factor that will underpin demand for housing.
“The fastest rate of population growth is in Victoria at 2.4%, which is likely one of the key factors contributing to the resilience of Melbourne’s housing market to a broader slowdown in value growth,” he says.
“Net overseas migration surged higher across most of the states over the March quarter, reaching new record highs across both Victoria and New South Wales.”
This table from CoreLogic has further information on dwelling price movements across the country, including by time frame and type of property.
Interestingly, unit prices in Brisbane and Melbourne — where concerns about overbuilding are the most acute — rose over the month and the quarter.