Despite a drop in transactions and lowered consumer confidence, positive growth in dwelling values has been recorded in most regions across the country, with national house prices up by 0.3% in April.
National property values: April 2020
Overall, dwelling values have increased by 0.3% for the month, 2.1% for the quarter, and 8.3% compared with this time last year. According to CoreLogic, Australian housing values have shown no evidence of material decline in April.
While most regions have shown an increase in dwelling values, the pace at which values grow has slowed, dropped from 0.7% in March, to 0.3.% in April. This slowdown has meant that April’s result is the smallest month-on-month movement since June 2019.
According to Mr Tim Lawless, CoreLogic’s Head of Research, while housing values were up in April, the trend weakened from mid-to-late March. This time period coincides with the implementation of social distancing policies, which had a large effect on consumer confidence.
While dwelling values have generally improved, home listings are 35% lower year-on-year, and 43% lower than the five-year average. However, there’s a silver lining to lowered activity; according to Mr Lawless, lower supply may protect housing values.
“The reduction in advertisement stock levels at a time of low demand is another factor that should help to insulate housing values from a more material downturn,” he said.
Interestingly, it’s the most expensive housing markets that are being impacted the hardest. CoreLogic’s stratified hedonic index shows that the top quartile of the housing market has weakened the most, with quarterly gains reducing from 6.6% towards the end of 2019, to 2.4% over the three months ending with April.
Across capital city housing markets, the top quartile recorded a 0.1% lift in home values, compared with a 0.3% increase across the middle of the market and a 0.2% increase across the lower quartile. This downward trend was most pronounced in Melbourne’s upper quartile market where dwelling values were down 0.8%.
This is in line with what we’ve seen in the past, as premium housing markets have been more reactive to changes in the economy.
Across the board, every capital city except Melbourne and Hobart recorded an increase in dwelling values in April. But, capital city markets showed weaker performance compared with regional markets.
Rents and rental yields
With Australian borders remaining closed to tourists and continued restrictions on short term rentals, an influx of properties have entered back into the rental market resulting in a surge in supply. Job loss from tenants have also resulted in a decline in demand as many negotiate lower rent or choose to move back in with their parents.
These combined pressures of higher supply and lower demand has weakened rents further in April with rents down across seven of the eight capital cities. The largest drops are seen on the east coast with rents falling -1.1% in Hobart, -0.7% in Sydney, -0.7% in Canberra and -0.5% in Melbourne.
Perth is the only capital city to see a lift in rent over April with an increase of +0.1%.
When looking at gross rental yields, Sydney reaches a new record low of 2.92% while Darwin comes out on top as the capital city with the highest rental yield of 5.8%.
In regional areas, regional Vic has the lowest rental yield in April at 4.5% while Regional NT records +6.7%. The national gross rental yield sits at +3.7%.
What does this mean for the Australian property market? What is the outlook for the months ahead?
The rental market
The rental market is expected to be impacted more significantly in the coming months. According to Tim Lawless, rental yields in Sydney and Melbourne are likely to reduce further as vacancy rates rise with lower rents. Australia’s largest cities have a higher level of risk compared to other markets due to their high exposure to overseas migration as a source of housing demand and downturn in foreign students.
While there has been a significant drop in transaction volumes and listings, Australian housing values have remained resilient, posting and increase over the month.
Mr Lawless states that “the magnitude of housing values falls depends on a broad range of factors with most hinging on the timing and extent of social distancing policies being lifted.”
The good news is that so far, the strong effort by Australians to social distance has been successful in flattening the spread of Coronavirus as the country’s cases fall below 1,000 for the first time in over five weeks.
State Governments around Australia have announced plans to slowly lift restrictions. This week, the Western Australian state government announced an ease on restrictions which will allow up to ten people at a time to attend open homes or visit display homes.
Mr Lawless concludes that the coming months will provide more clarity on the direction of the housing market and one of the most important indictors for the property market is consumer sentiment. “If consumer spirits start to bounce back to more normal levels, this is when we should start to see housing activity lift from their current low levels”.