House Prices Back at Record Levels
House prices are once again at significant highs in Australia, with a surge in February sending most capitals back to record levels. All state capitals other than Darwin experienced price gains, with Sydney leading the way and Melbourne not far behind. While Sydney is still down 3.7% from its peak in mid-2017, and the coronavirus will definitely impact the market, positive conditions will encourage many Aussies to return to the property market.
The Sydney property market saw the biggest moves in March compared to February, with prices up 1.7% after falling by 15% during the recent downturn. While prices are still down 3.7% from their peak, the median house price in Sydney is once again above a million dollars. Melbourne also had a positive month with prices up 1.2%, which was enough to send the Victorian capital to record high values.
The overall national value increase was 1.1%, with all state capitals experiencing growth other than Darwin. Hobart and Canberra were both up 0.8%, the regional market grew by 0.7%, Brisbane was up 0.6%, Perth grew by 0.3%, and Adelaide was up by 0.1%. While Perth had a positive month, housing values remain 21% below their peak. Darwin home prices have also been struggling over recent months, falling another 1.4% to put them 33% from their peak values.
According to CoreLogic's head of research Tim Lawless, there are stark differences between markets, many of which are not likely to go away any time soon: "The diversity across regional Australia is extreme, with drought-affected areas impacting the regional index... Meanwhile, the regional centres adjacent to the largest capitals, as well as coastal lifestyle markets, show a stronger performance." Over the quarter, regional markets have risen by a rather sobering 1.9%, which is much lower than that national average of 3.0%.
There is some positive news in the regions, however, with Tasmania's regional markets making up three of the top four non-capital city markets. "Tasmania's home values have been rising swiftly, with housing values rising faster across regional Tasmania than Hobart," said Mr Lawless. Tasmania was the only state where the regions performed better than the capital, with key lifestyle and agricultural markets both driving growth.
The current coronavirus pandemic will obviously have a profound effect on the property market, just like it will on every other aspect of Australian life. With property assets involving such high prices and long cycles, however, the impact may be limited compared to the rest of the economy. While prices will inevitably go down, data released before the outbreak is beneficial in highlighting the potential response of certain markets during the recovery period.
Before the coronavirus really took hold, CommSec's senior economist Ryan Felsman said real estate was looking like an increasingly attractive investment: "Well, record-low mortgage rates, rising home prices, strong auction clearance rates, limited housing supply, improving access to home loans and now financial market volatility are encouraging Aussies to return to the property market." While it's still very early days in terms of the pandemic, the market seems to be reacting fairly well so far.
Positive forces and trends are still relevant, although certain markets are likely to feel the impacts of the coronavirus more than others. According to Trent Wiltshire, an economist at Domain, "A significantly higher unemployment rate would hit the property market hard. It would have the biggest impact on the Brisbane and Perth markets, as these markets are most exposed to the Chinese economy." While all states are likely to experience a slowdown in coming months, many experts anticipate a strong rebound in second half of the year.