Housing markets around Australia continued the strong growth momentum in May 2021. According to CoreLogic, the national Home Value Index rose 2.2% over the month. However, the monthly rate of growth has started to decelerate in comparison to the last 6 months.
At the current monthly growth rate, nationally, the annualized growth is estimated to be 26% per year. We project that the market will continue to decelerate in the next 6 to 12 months due to affordability issues, as well as the potential systematic risks posing to the banking system.
Notably, the aggregate growth rate of houses in 5 capital cities is 11% and of units is 3.27%. The discrepancy is largest in Sydney where houses and units gained by 15% and 2.8% respectively.
Vendors are motivated to list their properties for sale to capitalise on the current price surge. Therefore, fresh listings added to the housing market have picked up, with the number of new listings tracking 15% above the five-year average.
Despite increasing listings, demand for houses remains outpacing total supply, making the total number of homes for sale remaining approximately 24% below the five-year average.
The surge of house prices across Australia has driven down rental yield significantly, where Sydney and Melbourne recorded the lowest rental yield at 2.6% and 2.9% respectively, while the other capital cities recorded at approximately 4%.
The affordability issue places pressure on first home buyers more than other segments of the market, and there are already signs that first home buyer demand is pulling back, especially in Sydney and Melbourne.
Taking advantage of the fast-moving market, investors are returning to the market, motivated by prospects for continued capital gain and low-interest rates.
The RBA has decided to keep the cash rate unchanged, citing the lending to the housing market remains within the system safety level, and the economy still needs support to recover during the post-pandemic period. This decision is aligned with the RBA’s position to keep the cash rate unchanged for a foreseeable future.
To sum up, despite the current surge, the market is projected to lose steam in the 6-12 months due to affordability issues. However, the growth rate is projected to remain above the long-term average at the proximity of 7%-9%/per year thanks to low-interest rates and the optimism of international border opening.
Source: CoreLogic
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