CoreLogic’s national Home Value Index (HVI) recorded a 0.3% rise in October, the 21st month of growth since the cycle commenced in February last year.

The subtle positive movement was supported by the mid-sized capitals, led by Perth with a 1.4% rise over the month, offsetting declines in Darwin (-1.0%), Canberra (-0.3%), Melbourne (- 0.2%) and Sydney (-0.1%), as well as regional Victoria (-0.2%).

As the market cools, annual growth in national home values has continued to ease, reducing to 6.0% over the 12 months ending October, down from a recent peak annual growth rate of 9.7% in February.

Source: Corelogic HVI 1st November 2024.

The -0.1% fall in Sydney home values was the first monthly decline since January 2023, following a short but sharp -12.4% drop in values between February 2022 and January 2023.

Weaker conditions have been led by the most expensive areas of the market, with a -0.6% fall in upper quartile house values over the month and a -1.1% drop over the past three months.

In comparison, Sydney’s lower quartile house and unit values both recorded a half-a per cent rise in values in October.

The stronger performance across the more affordable end of the market is a consistent theme across the capital cities.

A combination of less borrowing capacity and broader affordability challenges, as well as a higher-than-average share of investors and first-home buyers in the market, is the most likely explanation for stronger conditions across the lower-value cohorts of the market.

The past three months have seen the lowest quartile either record a higher growth rate or smaller decline relative to the upper quartile or broad middle of the market across every capital city except Canberra.

While the mid-sized capitals are still leading the pace of value growth, these markets are also losing momentum

Perth continues to lead the nation with a 1.4% rise in values over the month, but this is well down from the growth seen over the February to June period earlier in the year when monthly gains were averaging more than 2%.

Adelaide values have risen by more than 1% each month since March, but conditions look to be slowing here as well with October’s 1.1% gain

marking the lowest monthly rise since June.

Brisbane’s monthly gain of 0.7% was the lowest since July.

Slower growth in home values has been accompanied by a rise in advertised stock levels

Based on a rolling four week count of listings to October 27th, advertised inventory has increased 12.7% since the end of winter across the combined capitals, with the largest increase occurring in Perth where listings are 20.6% higher, albeit from an exceptionally low base.

Total listings are now 13.2% above the previous five-year average in Sydney and 13.0% higher in Melbourne.

Despite the rise in listings across the mid-sized capitals, Perth, Adelaide, and Brisbane are still seeing advertised stock levels more than -20% below the five-year average for this time of the year.

These markets remain well and truly in favour of sellers, although the balance is starting to gradually improve.

Alongside the rise in advertised supply, the number of home sales looks to be fading

Estimates for capital city sales activity over the three months ending October were down -7.5% from three months earlier and -1.6% lower than at the same time last year.

With higher levels of advertised supply and less purchasing activity, selling conditions have loosened.

Capital city auction clearance rates held below the 60% mark through most of October, while private treaty metrics are showing a subtle rise in median days on the market, especially in cities where advertised stock levels are above average.

	Onset of Covid to October 2024(%)	$	Δ from peak to October 2024	Series peak to date
Sydney	29.1%	$269,048	-0.1	24-Sep
Melbourne	9.9%	$69,913	-5.1%	22-Mar
Brisbane	66.9%	$354,112	<at peak>	<at peak>
Adelaide	70.8%	$335,194	<at peak>	<at peak>
Perth	76.0%	$347,564	<at peak>	<at peak>
Hobart	27.7%	$141,285	-11.9%	22-Mar
Darwin	23.4%	$93,309	-7.5%	14-May
Canberra	30.8%	$200,108	-6.5%	22-May
Regional NSW	49.3%	$243,562	-2.8%	22-May
Regional VIC	30.6%	$131,755	-8.5%	22-May
Regional QLD	67.2%	$272,419	<at peak>	<at peak>
Regional SA	67.9%	$178,128	<at peak>	<at peak>
Regional WA	72.1%	$225,677	<at peak>	<at peak>
Regional TAS	46.1%	$162,298	-3.9%	22-May
Combined capitals	34.4%	$229,066	<at peak>	<at peak>
Combined regional	54.1%	$225,917	<at peak>	<at peak>
National	38.6%	$225,360	<at peak>	<at peak>

Outlook

The housing outlook looks a little dimmer than it did a few months ago amid rising advertised stock levels, a slowdown in purchasing activity and a clear loss of momentum in value growth.

On the upside, there is a trend towards lower inflation, meaning a cut in interest rates is looking likely in the first quarter of next year, while labour markets are holding tight and low levels of new housing supply persist.

Each of these factors should help to keep a floor under prices.

The inflation update for Q3 was encouraging, with core inflation now at 3.5%. Based on the trimmed mean CPI, consumer prices are now rising at the slowest quarterly pace since Q3 2021.

The annual increase in the housing component of inflation fell to just 2.8%, the lowest reading since Q3 2021 thanks to a sharp -7.6% decline in utility costs attributable to energy rebates.

Tight labour markets are another factor supporting the housing sector, with the national unemployment rate holding at 4.1% over the past two months amid solid jobs growth and record levels of workforce participation.

Such strong labour force outcomes are helping to keep mortgage arrears low, at around 1.7%.

However, strong labour market outcomes could also support higher inflation if accompanied by wages growth.

The weak trend in new housing construction looks entrenched, with dwelling approvals holding below average, commencements trending lower and the number of dwellings under construction diminishing.

A material turnaround in residential construction activity over the coming year remains unlikely given feasibility challenges and tight labour supply.

Supply-side policies aimed at improving project feasibility, such as funding infrastructure costs, are likely to be well received and should provide some immediacy in kickstarting shovel-ready projects.

While the delivery of new housing supply remains insufficient, it’s hard to see housing values move through a material downturn.

On the downside, affordability challenges persist across most sectors of the Australian housing market.

Economic activity is soft and households have largely drawn down their savings buffers accrued through the pandemic.

Looking at affordability measures, debt servicing ratios were at a record high in the June quarter and dwelling values relative to household incomes were also close to record highs.

While lower interest rates will help to improve serviceability and boost sentiment, a tightening of credit regulations is another potential risk if household debt levels rise as rates come down.

As highlighted in the September Financial Stability Review, the RBA sees residential property as a key sector where “domestic vulnerabilities could increase if households take on excessive levels of debt.”

This view was reiterated by the IMF, recommending a preemptive approach in managing household indebtedness.

Lending standards are likely to be closely monitored once the rate-cutting cycle commences.

About Tim Lawless
Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au