- Negative monthly growth needs to be seen, says Mr Lawless
- Policy features, market, and wider economic factors the key "moving parts"
- Other smaller signs include weakened auction clearance rates
With Australian housing values growing by 22.1% last year, and signs the market is slowing down, CoreLogic has revealed how to call a peak in house price growth.
Tim Lawless, CoreLogic’s research director, explained that a range of factors need to be taken into account when deciding if a housing market has reached a peak or not.
Firstly, a consistent trend in negative monthly movements needs to be seen.
“To date, the quarterly trend remains positive across the major regions, with the only exception being Darwin houses, which is the only capital city housing sector to record a negative quarterly change.
“The Darwin reading can be more volatile than other cities due to the small size of the market, so it may be too early to call a peak in this market even though the quarterly growth rate has turned negative.”
“Although we can’t see any evidence that specific housing markets have peaked, it is clear that most markets have moved through a peak rate of growth.”
This peak rate Mr Lawless referred was seen in most cities around March 2021.
Sydney (3.7%), Melbourne (2.4%), Hobart (3.3%) and Canberra (2.8%) all saw their monthly growth rates peak in March last year, with Perth recording a 2.7% monthly growth rate in February 2020 and 2.7% in April.
Since then, all the cities have seen a decline in the growth rate – Sydney recently recorded a smaller monthly growth rate of 0.3% while Melbourne recorded a 0.1% contraction in December.
“The only broad regions avoiding a slowdown in the pace of growth in housing values are Brisbane, Adelaide and regional Queensland,” Mr Lawless noted.
“These markets are benefitting from a healthier level of affordability compared with the largest capitals along with a positive demographic trend and consistently low advertised stock levels.”
“We could see our two biggest capital city markets Sydney and Melbourne hit their peak later this year although the timing is highly uncertain and depends on a broad range of influences.”
Three key factors
Mr Lawless noted that there is a range of “moving parts” that affect the trajectory of housing outcomes, singling out three factors in particular.
These include policy factors such as interest rates and cash availability, market factors such as affordability and advertised stock, alongside wider economic factors such as labour market conditions and wages growth.
“Arguably, the surge in COVID cases associated with the Omicron variant could push some of these policy tightening decisions back, with APRA or the RBA unlikely to tighten their policy settings with so much uncertainty associated with the latest case numbers,” Mr Lawless said.
“There is also some downside risk from a delayed economic recovery associated with less spending activity and heightened uncertainty, although a slower than forecast economic recovery implies rates would stay lower for longer.”
Other factors that can point to a peaking market include weakening auction clearance rates – SQM Research data shows this has occurred across the Sydney and Melbourne markets.
Mr Lawless also noted that housing growth trends tend to gradually slow before moving towards a correction phase.
However, during shocks such as the GFC or during the first few months of the pandemic, housing trends can sharply turn negative.
Time will tell if the market has truly peaked – or there is more room for growth.