Five signs that may indicate a market peak

There are several signs that could potentially tell whether Australia’s housing markets could reach its peak this year, says an expert from CoreLogic.

CoreLogic Research Director Tim Lawless stated that there are five indicators that can tell if a market is nearing its peak. These include:

• Slowing in house price growth
• Rising levels of stock advertised
• Limitations on affordability
• Auction clearance rates are lowered
• Weakening vendor metrics like longer days on the market and higher levels of discounting.

“There are a lot of moving parts that will affect the trajectory of housing outcomes,” Mr Lawless said.

However, despite the apparent monthly slowdown in prices, the 22.1% growth in house prices over the past year still does not mean that capital cities and the “rest of state” markets have already reached their peak.

“To categorise a market peak across a region, we would generally be looking for a consistent trend in negative monthly movements,” he said.

“To date, the quarterly trend remains positive across the major regions, with the only exception being Darwin houses, which is the only capital city housing sector to record a negative quarterly change.”

Despite the downward trend in Darwin, it’s still too early to conclude that the market has reached its peak in the city due to its volatility.

According to Mr Lawless, there are many factors that influence market movements. These factors include policy-related factors like interest rates and credit availability.

In determining market movements, demand factors like advertised stock and affordability play an important role.

“Arguably, the surge in COVID cases associated with the Omicron variant could push some of these policy tightening decisions back, with APRA or the RBA unlikely to tighten their policy settings with so much uncertainty associated with the latest case numbers,” Mr Lawless said.

“There is also some downside risk from a delayed economic recovery associated with less spending activity and heightened uncertainty, although a slower than forecast economic recovery implies rates would stay lower for longer.”

Attaining the peak rate

Lawless stated that while there is no proof that certain housing markets are at their peak, most markets have reached their peak growth rate.

“What I mean by that is the point at which markets achieved their biggest monthly growth rate. We saw most of the capitals moved through a peak rate of growth around March last year,” he said.

Only Brisbane and Adelaide managed to withstand the slowdown of monthly growth and achieved respective gains 2.9% and 2.6% for December.

“These markets are benefitting from a healthier level of affordability compared with the largest capitals along with a positive demographic trend and consistently low advertised stock levels,” he said.

Lawless stated that once a market has reached its peak, investors and buyers should be aware that values will likely decline.

“The duration and severity of the decline is dependent on a broad range of both macro and micro factors,” he said.

National house price declines have been uneventful since the 1980s. They range from a mere 1% during the 10% investment loan speed limit to 8.4% in the 2017-2019 downturn.