Housing markets around Australia have recorded a strong year amid various economic uncertainties. According to CoreLogic, the national Home Value Index rose 19% over the 2021 financial year, which is one of the highest annual gains in history.
Due to the rapid growth in the short time period, the market has shown signs of losing steam, which is reflected in the lower monthly growth rate in comparison to the last few months.
Notably, the aggregate growth rate of houses across 5 capital cities was 14.6% and units, 5.2%. The discrepancy is largest in Sydney where houses and units gained 19.33% and 5% 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 still outpaced total supply, with 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 yields 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%.
Current affordability concerns 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 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.
ASX vs Residential Property
We compare the volatility over the period from 2004 to 2021 between the ASX and detached houses across 8 capital cities.
We found that the ASX is significantly more volatile than the residential market, almost two times higher than Sydney and three times higher than Melbourne. This realistically reflects the characteristics of residential assets vs shares, the former usually takes a long time to sell and buy, as well as housing is a necessity, while the latter is highly driven by short term economic indicators and emotion.
To sum up, despite the current surge, the market is projected to lose steam in the new financial year due to affordability issues. However, the growth rate is projected to remain above the long-term average in the proximity of 7%-9%/per year due to the new market conditions including low interest rates, the rolling out of the vaccination program and the return of foreign buyers once the borders reopen.
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