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 1. Insights


PROPTRACK HOME PRICE INDEX – NOVEMBER 2022

Eleanor Creagh, Senior Economist

Updated 1 Dec 2022, 12:52pm

First published 1 Dec 2022, 8:22am



The PropTrack Home Price Index shows that national home price falls in November
accelerated from October's slower pace of declines, recording a 0.16% drop.

Australian home prices are now 3.81% below their peak.

Prices fell in every capital city except Adelaide, with Darwin (-0.49%) and
Melbourne (-0.33%) recording the largest falls.

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Further rate rises set to continue downward price trend

01:09


Whilst the pace of price falls eased in Sydney (-0.14%), home prices have
slipped persistently since March, and have experienced the steepest drop of any
market.

Sydney prices are now 6.44% below their November 2021 levels.

Download the full PropTrack Home Price Index – November 2022

Price falls deepened in November in most parts of the country - particularly in
major markets like Sydney. Picture: Getty

--------------------------------------------------------------------------------

Home prices posted very slight declines in Brisbane (-0.04%), Perth (-0.04%),
and Canberra (-0.02%) in November.

South Australia continues to defy the downturn, with prices in Adelaide rising
0.25% to a new peak. Home prices in regional South Australia recorded the
strongest pace of growth in November and this is the strongest performing market
in the past year, up 0.30% in November to also reach a new price peak.

Regionally, prices fell fastest in QLD (-0.49%).

Adelaide and Brisbane remain the strongest performing capitals over the last
year.




DOWNTURN DEEPENS AS INTEREST RATES CONTINUE TO RISE

The pace of home price falls accelerated in November from October's slower pace
of declines.

National home prices have fallen for the eighth month in a row, with the fastest
interest rate tightening cycle since the 1990s weighing on home prices in most
parts of the country.

While the pace of price falls remains significantly less than the larger falls
seen in June and July when rates first started rising, the downturn has
continued to deepen and prices nationally are now down 3.81% from their peak in
March.

In the period ahead, with additional rate rises on the horizon, borrowing costs
will continue to increase and maximum borrowing capacities be further reduced,
weighing on prices.

The significant reduction in borrowing capacities implies further price falls.

However, the downward pressure from interest rate rises may be countered by
positive demand drivers stemming from tight rental markets and rental price
pressures, rebounding foreign migration, accelerating wages growth, and
persistent housing supply pressures over the long run.




CAPITAL CITIES BELOW NOVEMBER 2021 PRICE LEVELS

Home prices fell 0.16% across the combined capital cities in November and are
now below levels seen a year ago.

In contrast, regional areas continue to exhibit a slower pace of price falls,
although regional areas also recorded a 0.16% monthly decline in November prices
remain up 3.89% on levels seen in November 2021.

In the capital cities, prices are down 3.09% over the past year.

Demand for more affordable regions and larger homes has provided downside
support resulting in regional areas faring better than capital city areas in
2022.

In addition, conditions remain tougher for regional buyers, with the number of
properties listed for sale still well below pre-pandemic levels, meaning
regional buyers have less choice and less negotiating power.

That's another reason why the regions are exhibiting a slower pace of price
falls relative to the capital cities.

Options for buyers have improved in most capital cities and especially in Sydney
and Melbourne, where total listings have remained above the prior decade average
in recent months, helping to ease competition.

Comparing the available stock on market to pre-pandemic averages, it's clear to
see there’s much less choice for buyers in the regions.

This is particularly the case in regional SA – the strongest performing region
over the past year, where home prices are up 15.92% since November 2021 and
still rising to fresh record highs.




ADELAIDE HITS A FRESH PEAK, WHILE DARWIN LEADS PRICE DECLINES

Sydney home prices fell again in November (-0.14%) after significant falls in
recent months, while Melbourne home price falls accelerated in November,
slipping 0.33%, which was the second largest price fall out of the capital
cities.

Sydney prices are now 6.44% below their level a year ago, with Melbourne prices
down 4.49%. From their peaks earlier in the year, prices have fallen 6.28% in
Sydney and 4.75% in Melbourne.

In November, across the capitals, Darwin (-0.49%) led the price declines. In
Canberra, prices are now 0.54% below their level a year ago.

Hobart prices fell 0.27% in November to sit 2.92% below their peak in April.
However, prices remain 1.06% higher than levels seen in November last year.



Adelaide and Brisbane continue to exhibit a lesser pace of price falls and
remain the strongest capital city markets, having benefited from many of the
same lifestyle and affordability trends that have boosted the regions since the
onset of the pandemic.

Adelaide is the strongest performing capital city market over the past year (up
12.63%) with prices hitting a fresh peak in November. Brisbane home prices are
up 4.72% year-on-year despite small falls (-0.04%) seen in November.

Perth, similarly more affordable on a relative basis, has also outperformed the
other capital cities with home prices up 4.13% over the past year, after falling
just 0.57% from their peak in August.

Regional SA continues to defy the downturn with prices rising 0.30% to a fresh
peak in November. Regionally, prices fell fastest in Queensland (-0.49%).

House prices fell 0.17% in November, with units falling by a small 0.08%, with
detached dwellings experiencing a faster deterioration in value against rapidly
rising interest rates.

Affordability constraints, shrinking budgets, strong rent growth, and the value
units offer are all helping to prevent apartment buyer demand from falling as
fast.




PANDEMIC PREFERENCE SHIFTS AND RELATIVE AFFORDABILITY CONTINUE TO PLAY A ROLE IN
PRICES

Regions in SA, southeast Queensland, and regional NSW topped the country to
record growth of close to 20% in some areas over the past year.

SA is unsurprisingly the stronghold, home to half of the top ten highest growth
regions.

These markets continue to benefit from pandemic-induced preference shifts,
relative affordability advantages, and migration shifts.




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As interest rates have quickly risen, not only have mortgage servicing costs
surged but borrowing capacities have been impacted, meaning conditions are
tougher for prospective buyers.

With the fast pace of rate rises, potential buyer demand and home prices have
held up better in markets that are more affordable on a relative basis.

Looking across the capitals, the outperformance of more affordable regions and
the peripheral parts of cities is clear. Higher willingness to pay for larger
homes and the reduced commuting requirements have seen these areas perform
strongly since the onset of the pandemic.




OUTLOOK

Rising interest rates have quickly rebalanced the housing market from last
year’s extreme growth and remain front and centre of the fall in home prices.

National prices have fallen for the eighth month in a row after peaking in March
2022, with prices falling a further 0.16% in November – now 3.81% below their
peak. However, the pace of price falls remains significantly less than the
larger falls seen in June and July when interest rates first started rising.

National annual price growth is now sitting at -1.08%, the slowest pace since
August 2019, with the fastest interest rate tightening cycle since the 1990s
weighing on home prices in most parts of the country.

Now the cash rate is sitting at 2.85%, with the substantial 275 basis points of
tightening pushed through to date, maximum borrowing capacities have dropped by
more than 20%.

Combined capital city prices are below their level a year ago, as are prices in
Sydney, Melbourne, and Canberra. Those three markets are continuing to lead peak
to trough falls so far, despite not leading price falls in November.

Interest rate increases continue to be the primary driver of home price falls. A
further 25bp rate rise in December, taking the cash rate above 3%, is all but
certain.

With additional rate rises on the horizon, borrowing costs will continue to
increase and maximum borrowing capacities will further reduce, shrinking buyers’
budgets.

The significant reduction in borrowing capacities implies further price falls.
It will take time for higher interest rates to fully affect prices, so they are
likely to continue to fall throughout this year as interest rates continue to
rise.

Once interest rates peak in 2023, price falls are likely to ease, with values
stabilising as interest rate uncertainty reduces.

The Reserve Bank's rapid rate hikes have had a major impact on housing markets.
Picture: Getty

--------------------------------------------------------------------------------

However, the downward pressure from rate rises will be countered to a degree by
positive demand effects that stem from tight rental markets and rental price
pressures, rebounding foreign migration, stronger wages growth, and over the
long run, housing supply pressures.

Regional markets, as well as Brisbane and Adelaide, continue to exhibit a lesser
pace of price falls buoyed by shifting lifestyle priorities, migration trends,
and affordability advantages since the onset of the pandemic.

To date these shifts have continued to buffer price falls, but reversals of the
pandemic-induced preference shifts present a risk for these markets over the
longer-term.

While increasing borrowing costs are a headwind for prices, the Australian
economy has so far weathered the substantial rate rises to date, with
unemployment at close to a 50-year low beginning to drive stronger wages growth.

If sustained, wage growth will eventually rebuild borrowing capacities somewhat.

Increased investor activity, as well as immigration, are likely to underpin
markets in large cities and units - which are now cheap relative to other
property types.

However, the path of interest rates and how the economy eventually responds to
tighter policy remains a key determinant for market conditions and the pace and
depth of price falls.

* The PropTrack Home Price Index measures the monthly change in residential
property prices across Australia to provide a current view on property market
performance and trends. PropTrack Home Price Index uses a hybrid methodology
combining repeat sales with hedonic regression. The repeat sales method matches
resales of the same property while the hedonic regression estimates values based
on the value of similar properties. The hybrid model allows two properties in
the same Australian Bureau of Statistics Statistical Area 1 (SA1) region, of the
same type, to be matched and controls for differences in property
characteristics, as in a hedonic regression. The PropTrack Home Price Index is a
revisionary index with the whole back history updated monthly with current
transaction information.

** This report uses realestate.com.au internal data and data sourced from third
parties, including State government agencies. It is current as at the time of
publication. This report provides general information only and is not intended
to constitute any advice and should not be relied upon as doing so. If you wish
to cite or refer to this report (or any findings or data contained in it) in any
publication, please refer to the report as the ’PropTrack Home Price Index
Report – September 2022’. See report for Copyright and Legal Disclaimers.


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