National house values reverse at a more rapid rate now

Oksana Patron

27 October 2022

Although national house values rose 32.5% between September 2020 and April 2022, since their April’s peak they have been reversing at a more rapid rate, having fallen -5.3%, while values across the unit sector declined by a more moderate -3%, according to CoreLogic.

Key economist, Kaytlin Ezzy, said that as the annual trend approached negative territory, it was more likely the annual performance gap would begin to widen in the other direction, with unit values being more resilient to affordability constraints and rising interest rates.

According to the report, the downwards trend in unit values was confined to the upper quartile of the market through the first few months of the down phase, however, the more recent trend saw value declines became more geographically widespread as declines spread to the middle and lower quartile of the unit market.

Across the capitals, 70.8% of the 982 unit markets analysed in the Q3 Mapping the Market report declined over the September quarter, up from 39.8% over the June quarter.

“Capital city unit values across the middle of the market fell -2.2% over the September quarter, while the quarterly change in unit values across the more affordable lower quartile fell into negative territory in September, declining -0.4% over the past three months,” Ezzy said.

At the same time, national unit rents continued to surge, up 1.1% in September, compared to a 0.5% rent rise seen across houses.

“While there are some early signs the pace of rental growth has started to slow, with the quarterly trend recording a cyclical peak of 3.7% in July before easing to 3.5% in September, the annual trend recorded a new record high, with unit rents rising 11.8% over the 12 months to September,” the report found.

The outlook for unit values remained linked to the trajectory of interest rates, and with interest rates expected to rise further, it would be unlikely unit values could find their floor until interest rates stabilise, according to Ezzy.

While falling values had potentially helped some first home buyers clear the deposit hurdle, with the cash rate now 2.5 percentage points above the emergency low rates seen in April (0.10%), the conversation around affordability shifted towards mortgage serviceability.

“Despite median unit values across Australia falling by around $19,000 since April, the typical monthly mortgage repayment on a new owner-occupier loan is now approximately $600 higher than before the first rate rise,“ Ezzy said.

“However, there are some possible tailwinds on the horizon. The pace of monthly unit value declines eased slightly in September, from a -0.9% fall recorded in July and August, to -0.7% in September. While still early days, this could be a sign that unit values are passing their peak rate of decline.

“Additionally, the pace of interest rate rises has also started to slow, with the RBA announcing a 25 basis point rise in October, suggesting that the tightening cycle could be shorter than previously expected.”