Australian property values are seeing a slowdown in the monthly rate of growth. This trend is expected to carry into 2022, as affordability constraints rise, mortgage rates bottom out, and a higher number of new listings takes some pressure off market conditions. 

Since the monthly rate of growth in Australian dwellings peaked in March 2021 at 2.8% (or the equivalent of about a $16,000 gain on the median Australian dwelling value), monthly increases have settled to 1.5% (or a monthly increase of approximately $10,000). 

The reduction in monthly increases is most prominent at the ‘high’ end of the Australian dwelling market (or the 25% of values, where dwellings values are around $1,000,000 or more). Since peaking at 3.5% in March, Australia’s high end monthly changes in dwelling values has slowed to 1.5% through October. The monthly growth across different value segments is shown in figure 2. 

Figure 1. Monthly growth rate in Australian dwelling values

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Figure 2 shows the current upswing has seen greater volatility in the top 25% of dwelling values, with relatively steady conditions across the low end of the market (the low end of the market is considered valuations at around $466,000 or less). 

Over the past 12 months, the highest value segment has seen the greatest level of gains (25.4%), compared with 18.4% across the middle of the market, and 16.7% across the low end. However, the volatility at the high end of the market, demonstrated by the rapid decline in growth rates, suggests the high end of the market can also expect a larger downturn in property values. 

Figure 2. Monthly growth rate in Australian dwelling values – high, middle and low value tiers

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How are value changes tracking in the capital cities? 

While growth rates are slowing at the national level, the October home value index results revealed some differences in momentum across the capital city markets. Each capital city growth cycle is considered to the right and below, revealing that five of the eight capital city markets are seeing a slowdown in monthly growth rates. 

Sydney. In Sydney, dwelling values saw one of the fastest slowdowns in the monthly growth rate. Following a peak monthly increase in dwelling values of 3.7% in March 2021, growth has rapidly slowed to 1.5% through the month of October. This is in part due to the inherent volatility in more expensive markets like Sydney. The slowdown in growth rates is likely being triggered by affordability constraints, and the higher levels of new listings being added to the market in recent weeks. 

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Melbourne. The Melbourne market has seen the third-fastest slowdown in monthly growth rates of the capital cities. Following a monthly peak of 2.4% in March 2021, the increase in Melbourne dwelling values slowed to 1.0% through October. Melbourne has seen various headwinds to the dwelling market amid extended lockdowns and a drag on rental demand with the closure of international borders. More recently, Melbourne saw the largest uplift in new listings volumes across the capital cities, with CoreLogic counting 10,914 new listings added to the market for sale over the past four weeks (17% above the five year average). 

Despite the slowdown, a monthly growth rate of 1.0% is still well above the decade average monthly movement of 0.4%.

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Brisbane. Monthly growth rates across Brisbane dwellings seem to be re-accelerating. Property values increased 2.5% in the month of October, the highest monthly increase across the city through the current upswing, and the highest monthly increase since November 2003. 

The Brisbane housing market has seen some extraordinary tailwinds through COVID-19, including strong interstate migration, normalised remote work and low exposure to the virus itself. Years of relatively subdued growth rates have made typical dwelling values across the city appear affordable ($642,097 in October), at least relative to Melbourne ($780,303) and Sydney ($1,071,709).  

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Adelaide. Similarly to Brisbane, the Adelaide housing market has seen its highest monthly increase since 2003, with capital gains of 2.0% through October. The momentum was led by a 2.2% rise across houses, but even units saw an increase in monthly growth rates to 1.0% through the month. 

The Adelaide dwelling market has recently benefitted from a stronger interstate migration trend, relative affordability to other capital cities and a low level of available properties for sale, with total listings sitting -34.1% below the five year average.  

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Perth. The dwelling value change across Perth was -0.1% over the month of October. The virtually flat reading was down from a peak of 2.7% through February 2021, making Perth the market with the fastest slowdown in growth rates. This slowdown in momentum may be due to a few different factors, including extended state border closures, renewed affordability constraints for first home buyers and a recent uptick in new listings volumes. 

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Hobart. Across Hobart, the monthly increase in dwelling values has slowed from 3.3% in March 2021 to 2.0% in October. A 2.0% growth rate is still very high, and is equivalent to a $13,274 increase to the median dwelling value over October. Hobart’s persistently strong increases in value represent very strong demand, including from interstate buyers, against extremely tight levels of stock. CoreLogic counted just 660 properties for sale across Greater Hobart in the past four weeks. 

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Darwin. Due to the relatively small size of the market, monthly growth rates are volatile across Darwin dwellings. Nonetheless, there does seem to be a trend of slowing increases. In the three months to October, monthly increases averaged 0.1%, down from a peak monthly growth rate of 2.7% over April. Despite inching higher, Darwin dwelling values are still -15.0% below the record high value reached in May 2014. 

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Canberra. Similarly to Hobart, the Canberra housing market has seen extraordinary levels of demand against low levels of available stock. In what may be some reprieve for buyers, the monthly rate of increase has shown signs of slowing from the recent peak of 2.6% in July 2021. Since then, monthly increases in dwelling values across Canberra have slowed to 1.9%.  

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It is important to keep in mind that while the rate of property value growth is continuing to slow nationally each month, even these reduced rates of increase are relatively high. In fact, the decade average monthly movement in Australian home values is 0.4%, far lower than the current ‘slowing’ rates of increase. 

Through 2022, monthly growth rates are expected to continue declining. This is due to a combination of factors, including a tighter credit environment, more normalised listings levels, and affordability constraints putting downward pressure on demand. While a strong inflation reading for the September quarter has increased expectations of a tighter monetary environment as soon as 2022, recent statements from the reserve bank suggest an earlier-than-expected hike could be in 2023. This will also be important to follow, given a higher cash rate and mortgage rates would likely put downward pressure on prices.