Is the dwelling price correction over? Matthew Hassan

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Is the dwelling price correction over? Matthew Hassan

Matthew HassanDecember 7, 2020

EXPERT OBSERVER

The correction in Australian dwelling prices that has been running since late 2017 may have ended.

The CoreLogic home value index, covering the eight major capital cities, dipped 0.1% in June to be down 8.0% over the year – still weak but marking the first month to month improvement in the annual growth rate since its peak at +11.3%yr in mid 2017.

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Is the dwelling price correction over? Matthew Hassan

Sydney and Melbourne both recorded their first monthly price gains since the correction began in 2017. However, prices continued to slip elsewhere with most other capital cities showing a deterioration over the last three months.

Melbourne dwelling prices rose 0.2% in June, paring the annual pace of decline back to 9.2% over the year. Units are leading the turnaround, prices in this segment up 0.7% over the last two months. Prices in the top 25% of properties by value also outperformed slightly, albeit coming off more material declines through the correction.

Sydney dwellings recorded a 0.1% price gain in June, the annual pace of decline slowing to 9.9% over the year. The gain here centred on the middle and top tiers of the market which have moved through a more material correction over the last two years. Units slightly outperformed.

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Is the dwelling price correction over? Matthew Hassan

Other major markets were considerably weaker in the month, Brisbane, Perth and Adelaide all recording monthly price declines and accelerating annual rates of contraction.

Perth's long-running correction is showing few signs of reprieve, prices down 0.6% in the month, and 9.1% over the year.

Brisbane, which was stable through 2018, has continued to see modest but worsening price slippage in 2019, prices down 0.6% in the month, and 2.6% over the year.

Adelaide has also slipped into a slight correction, prices down 0.5% in the month, and 0.3% over the year.

Conditions were mostly soft cross the smaller markets as well: Canberra down 0.9% in the month, lowering annual growth to just 1.4% over the year; Darwin down 0.9% in the month, the long-running correction re-accelerating to 9.6% over the year (a similar theme to Perth); but Hobart recording a 0.2% gain in the month holding annual growth in positive at 2.9% over the year.

Overall, the weakness still evident in other markets takes some of the gloss off the clear improvement showing through in Sydney-Melbourne.

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Is the dwelling price correction over? Matthew Hassan

It also cautions against putting too much emphasis on the improving tone from weekly auction results which are not representative of conditions outside of these two markets.

The contrasting performance of the major cities may be an indication that swings in investor demand around the Federal election have been key – this segment tends to be more active in Sydney and Melbourne – and that other factors such as those around affordability, credit availability and borrowing capacity may still be weighing on owner occupier demand.

The finance approval data should shed some light on this in coming weeks.

The mix should become more balanced over the the second half of 2020 lower interest rates and a likely relaxation in regulatory guidelines for loan assessments comes through.

For the record, Westpac expects dwelling prices to remain patchy in 2019, with a stabilisation showing through more clearly in 2020.

Any rebound in prices before then is likely to quickly run into affordability constraints.

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Is the dwelling price correction over? Matthew Hassan