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This map shows house price growth in Australia is only happening in one area

Australian house prices have grown rapidly over the past year, continuing the trend since the end of the global financial crisis.

Across the nation’s capitals, prices jumped by 10.7% in the year to August, according to data from CoreLogic, leaving the median price at $567,000.

However, as seen in the map below posted by CoreLogic’s head of research, Tim Lawless, on Twitter, that national figure was not reflective of board-based gains across the nation.

Indeed, it was entirely driven by strength in Australia’s southeastern corner, especially in Sydney and Melbourne, Australia’s largest housing markets.

Source: Twitter

Based on SA4 data, breaking states down into large regional areas, prices in many areas within and surrounding Sydney and Melbourne grew by 10% or more over the year, masking falls or significantly smaller gains in other parts of the country.

This divergence reflects stronger economic conditions in both Sydney and Melbourne over the year, partially contributing to strong population growth in both cities over the same period.

The map provides an excellent reminder that Australia’s housing market is not one market, but many, with the strength in the national figure over the past year merely reflecting strong gains in small-yet-highly-populated parts of the country.

However, despite the divergence across the country over the past year, there’s tentative evidence emerging to suggest that price growth in Sydney and Melbourne is now starting to come back to the pack.

According to CoreLogic’s Hedonic Home Value Index, prices in Sydney were flat in August, seeing growth slow to just 0.3% from three months earlier. And while prices in Melbourne grew by 0.5% over the month, leaving the change from May at 1.9%, that too was well below the pace seen earlier in the year.

As a result of the slowdown in Australia’s largest housing markets, prices across Australia’s capitals grew by just 0.1% in average weighted terms in August.

With market conditions in Sydney and Melbourne starting to cool, CoreLogic’s Lawless said prices in both cities could experience modest declines in the final months of the year.

“If the current trends continue, by the end of the year we could see dwelling values across Australia’s two largest housing markets, Sydney and Melbourne, trend lower as they move through their cyclical peaks,” he said.

“Historically, a negative shift in home values has followed every growth phase, so it’s reasonable to expect a period of moderate value falls following such a sustained period of strong capital gains.

“With the Spring selling season about to commence, it will be interesting to monitor the impact of higher inventory levels on the Sydney and Melbourne market, particularly so given evidence of slowing growth conditions accompanied by stock levels already being higher than they were a year ago across both cities.”

John McGrath, executive director of McGrath Estate Agents, was another who recently warned that Sydney and Melbourne’s housing markets were due for a period of consolidation following years of strong price growth.

“We say internally what a good thing it is the market is settling down in Sydney, and we think that over the next few years there will be a short, small correction in small single digits — 3, 4, 5% — but we see nothing worse than that,” he said at a conference held on the Gold Coast in late August.

Complementing those views, recent auction clearance rates and housing finance data continue to point to a moderation in housing market activity in the months ahead.

Only last week auction clearance rates fell to 66.4% across Australia’s capitals, the lowest level seen in over a year. Mirroring the slowdown in price growth, the decline was driven by weaker outcomes in Sydney and Melbourne compared to levels seen earlier in the year.

The moderation in clearance rates followed the introduction of tougher macroprudential measures from Australia’s banking regulator, APRA, earlier this year, limiting interest-only lending to 30% of total new mortgage debt. That came on top of a 10% limit in annual investor credit growth implemented by APRA in late 2014.

Recent housing finance data suggests those attempts to restrict interest-only lending — predominantly favoured by investors — are working.

According to data released by the ABS, the value of investor housing finance slumped 3.9% to $12.063 billion in July, leaving it at the lowest level since August 2016. From a year earlier that represented a fall of 0.1%, the first decline since August 2016. Only eight months earlier it had been growing at 26.5% year-on-year.

That result followed the release of quarterly lending data from APRA earlier this month which revealed that interest-only lending slowed to 30% of total new loans in the June quarter, down sharply from from 36% in Q1.

As a result of APRA’s tighter restrictions, conditions in Australia’s hottest housing markets appear to be cooling down.

Given the current trends, it will be interesting to see how CoreLogic’s house price evolves in the months ahead.

You can follow Tim on Twitter here.

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