May 2023 delivered the highest rate of monthly property price growth seen since November 2021 as listings continued to tumble and buyer demand swelled, CoreLogic's latest report detailed1.
After months of cautious language from economists around a new phase of the property cycle, Westpac declared that "Australia's housing market correction is now over.2"
The prospect of further interest rate hikes does present a risk to gains for the remainder of the year, though. So what comes next?
CoreLogic's May 2023 report showed the Australian median property price shooting up by +1.2 per cent.
Unlike previous months, positive growth was seen in virtually every capital city and regional market.
Sydney again lead the recovery with a +1.8 per cent upswing, while Brisbane also turned in a very strong +1.4 per cent growth for the month.
Both Melbourne and Adelaide saw rises of +0.9 per cent, and Perth hit another all-time high with +1.3 per cent growth.
After an extended period of price declines, Hobart returned to positive territory with a +0.5 per cent boost. Canberra and Darwin were also up by +0.4 per cent.
Gains were generally softer across the regions, however combined growth still hit +0.5 per cent for May.
CoreLogic's Research Director Tim Lawless explained that "buyers are becoming more competitive and there’s an element of FOMO creeping into the market."
"Amid increased competition, auction clearance rates have trended higher, holding at 70 per cent or above over the past three weeks. For private treaty sales, homes are selling faster and with less vendor discounting.”
The ongoing shortage of listings has remained one of the key factors driving price growth as buyer competition continues to ramp up.
Total stock on the market is now close to -25 per cent lower than the five-year average, giving buyers less and less to choose from in their property search.
Over the past three months there has been an average of 35,143 new listings coming to the market across the country. Over that same period there have been an average of 39,760 sales.
"This disconnect between available supply and housing demand is a central factor placing renewed upwards pressure on housing values," Mr Lawless said.
"The last time capital city stock levels were this low, at this time of the year, was in 2007. This was also a period of rapid overseas migration and rising housing values."
The spring selling season is only three months away now, and Mr Lawless questioned whether sellers may look to get in early before the typical rush in warmer months.
If spring 2023 does bring a significant uplift in listings, that could help to calm the accelerating price growth seen so far this year.
Rental markets have remained exceedingly tight across the country, and that's driven more buyer demand to help stimulate price growth.
More and more pressure has been put onto tenants as rental vacancy rates hover around record lows while asking rents soar.
"While rental demand remains high, we aren’t seeing much sign of a supply response," Mr Lawless explained. "Capital city rental listings were -36.4 per cent below the previous five-year average at the end of May."
Louis Christopher, Managing Director of SQM Research, proposed that "an increasing number of tenants have been turning themselves into First Home Buyers,"3 adding upward pressure on property prices.
Indicators show investors are also beginning to return to the market. Investor loans increased from a monthly low of 11,500 in January to 15,300 in March according to ABS data4.
The CoreLogic report pointed out that capital city units are "where rents are rising at blistering speed," an area that investors may continue to gravitate towards.
Despite one of the sharpest interest rate hiking cycles in history, there has been a clear upward trend in the housing market throughout 2023.
Listings continue to dwindle while buyer demand ramps up further. There is, however, still the risk of further interest rate hikes as inflation remains persistent.
Even so, Mr Lawless said "while higher interest rates might quell some of the demand side pressures as borrowing capacity and sentiment reduce further, demand from record levels of net overseas migration will remain."
Mortgage stress and the potential for a rise in distressed sales could be the bigger risk. The pace of growth could slow if we see a substantial increase in listings.
Mr Lawless remained confident that low unemployment and healthy levels of household savings should safeguard against that outcome.
"It would be naive to think mortgage arrears won’t rise through the second half of the year, however a material lift in motivated sellers seems unlikely," he said.
We're now into the quieter winter months, yet buyers are still out in force. There could be a balancing of supply and demand come the spring selling season, though, if sellers look to capitalise on recent growth.
1. CoreLogic News, 'CoreLogic Home Value Index surges with strongest monthly growth since November 2021', 1 June 2023
2. Westpac IQ, 'Westpac Housing Pulse May 2023', 31 May 2023
3. SQM Research Weekly Newsletter, 'Rental Vacancy Rates Rise to 1.2%', 16 May 2023
4. Australian Bureau of Statistics, 'Lending indicators', 5 May 2023
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