Australia’s dwelling values rose by 0.7% in March, indicating a subtle increase from February but still reflects an ongoing slowdown.

CoreLogic’s latest Home Value Index showed that smaller cities continued to drive the overall growth in median dwelling values as Sydney and Melbourne experienced declines.

CoreLogic Research Director Tim Lawless stated that the overall housing market is now moving to multi-speed. However, the outlook remains skewed to the downside.

“At one end of the spectrum Australia’s two largest cities, Sydney and Melbourne, are recording flat to falling housing values, while at the other is Brisbane and Adelaide, where the quarterly pace of growth continues to rise at an annualised pace of more than 20%,” he said.

According to Mr Lawless, there are five main factors that will continue being a downside risk for housing markets.

  • The upward trend in fixed mortgage interest rates and the potential for variable rate rises later in this year
  • The strong increase in house prices during the past year has raised affordability concerns
  • A higher cost of living can impact the disposable income and savings of households.
  • New dwelling supply expected to rise
  • Rising interest rates have a negative impact on consumer confidence
  • What could be done to offset these risks?

    There are several things that can mitigate the potential for a downward trend in dwelling values. These include a stronger economic environment, low unemployment rates, and rising incomes.

    “This should help to keep a floor under housing demand and keep the number of distressed listings to a minimum through a downturn,” Mr Lawless said.

    Returning to overseas migration is also a positive factor for housing demand. However the biggest impact will likely be felt in rental markets.

    This would still incentivise investors, and could possibly flow through to buying demand from permanent migrants.

    Lawless claimed that expanding the deposit scheme would increase demand by adding more slots and creating a regional-specific version.

    “Historically, first home buyers have reacted positively to stimulus measures,” he said.

    Rising fixed rates will have a significant impact

    Shane Oliver, chief economist of AMP, said that the market would reach its peak property prices around the middle part of the year. Then the cycle will begin.

    “The property slowdown is occurring earlier relative to the timing of the Reserve Bank of Australia’s rate hikes this cycle because of the bigger role ultra-low fixed rate mortgage lending played this time around in driving the boom,” he said.

    Oliver stated that over the past 18-months, 40% to 50% of new borrowers have taken advantage of sub-2 percent fixed rates. This is higher than the usual share of fixed rate lending at 15%.

    “Fixed rates have now been rising since the June quarter last year which has been taking the edge of new home buyer demand well ahead of any move by the RBA,” he said.

    In general, house prices are forecast to grow 1% by 2022, after the 22% national increase in 2021.

    Expected price drops of 5%-10% in 2023 and a further 10%-15% in 2024. This could see average prices return to levels last April.

    “This is likely to mask a continuing wide divergence though: Sydney and Melbourne already look to have peaked but laggard cities like Brisbane and Adelaide — and possibly Perth and Darwin which are less constrained by poor affordability — are likely to be relatively stronger this year with gains likely to persist into the second half of the year,” he said.