Australian house price growth overtakes units for the first time in 13 months

• House price value growth was 30 basis points ahead of unit values
• Record rent growth is gradually easing due to demand
• Auction clearance rates have rebounded, hitting a three-week high

Australia’s house price growth is now greater than unit price growth. The CoreLogic June 2023 Australian Unit Market Update found that unit values increased 0.9% compared to houses, which rose 1.2%; the quarterly trend has also seen houses rise to the top, moving up 2.4% over the three months to May, compared to a unit price rise of 2.2% for the quarter.

The annual figures also saw houses ahead of units – albeit for losses; units were down 4.0%, while the annual decline for houses was 7.6%. The report noted the annual performance gap has narrowed from 3.9 percentage points in April to 3.6 percentage points in May.

CoreLogic Economist Kaytlin Ezzy said it’s unsurprising to see units take a backseat to houses as the recovery phase progressed further.

“Historically, unit values are less volatile compared to houses as their relative affordability makes them less sensitive to market conditions,” said Ezzy.

“Although units still offer a sizable affordability advantage over houses, gentler declines through the downswing (-6.1% compared to -9.9% for houses) have seen that gap shrink from around $205,000 in April 2022 to approximately $160,000 in February.

“This narrowing, coupled with the prospect of stronger capital gains, has likely seen some demand shift back in favour of houses, leading to higher monthly increases.”

Kaytlin Ezzy, CoreLogic Economist

Values rising

According to the report, Perth (1.7%), Sydney (1.1%) and Brisbane (1.1%) all saw unit values increase by more than 1% over the month, while Melbourne and Hobart units recorded smaller rises of 0.9% and 0.6%.

After reaching a new cyclical peak in April, unit values across Adelaide fell 0.2% in May, while relatively high supply levels across Canberra and Darwin saw unit values fall 0.1% and 2.0%.

Ezzy said that further rate hikes could stall the recovery, with the June rate hike re-setting expectations for where interest rates would land.

“Although values are currently being propped up by low listing levels, further increases to the cost of debt could both reduce demand and increase the occurrence of distressed listings, which could push values back into negative territory.”

Rolling annual change in values, national houses and units

Source: CoreLogic

Record rent growth easing

Ezzy said that capital city unit rents continued to see strong growth rates, despite some easing.

The monthly trend in capital city unit rents continued to ease for the second consecutive month, with rents rising 1.4% in May, compared to April’s 1.6% increase and a 1.9% lift in March.

Despite the easing, the cumulative strength in unit rental growth saw the combined capitals record a new peak growth rate in both the quarterly and annual trends, with unit rents rising 5.0% over the three months to May and 16.5% over the year.

Demand is easing

The reduced pace of rental growth has coincided with an easing in demand. The report noted vacanc rates loosened from 0.8% in March, 0.9% in April and 1.0% in May, while rental stock levels are approximately 40% below the levels typically expected this time of year.

“With capital city unit rents up $80 per week, or almost $4,200 per year, it’s likely some prospective tenants are coming up against their affordability ceiling.”

“In the absence of a supply response, some renters’ only option will be to increase their household size by letting out the spare room or home office, while others may have opted to delay moving out of home.”

Perth saw some of the stronger unit rent rises, recording 1.7% growth in May; this was followed by Melbourne (1.6%) and Sydney (1.5%). At the other end of the scale, a pick-up in supply levels across both Canberra and Hobart saw unit rental values fall 0.4%.

“Despite the mild easing in growth and vacancy rates, the continued shortage in rental unit listings and strong demand from international students and workers retuning to the city, will likely see capital city unit rents continue to increase at well above the monthly average seen over the past decade (0.2%).”

Auction rates rebound

According to CoreLogic, the preliminary auction clearance rate also bounced back this week, recording a three-week high of 73.8%, however, volumes declined 8% compared to the previous week.

It was also the eighth consecutive week that a preliminary clearance rate of 70% or more was recorded.

Sydney recorded a preliminary clearance rate of 78.7%, which was 4.2 percentage points higher than last week’s result (74.5%), which was revised to 70.8% in the final figures.

However, Melbourne recorded its lowest preliminary clearance rate in 11 weeks, down 2.8 percentage points from last week’s preliminary rate of 72.9%, which was revised to 69.5% in the final numbers.

Capital city auction activity is set to reduce further next week by around -10.5% with roughly 1,600 auctions currently scheduled. This reflects the usual seasonal winter decline in auction activity, with many vendors waiting for spring to bring their homes to market.

Weekly auction clearance results

Source: CoreLogic