A build-up in home listings and worsening affordability slashed the rate of house price growth by a third to 1.9 per cent across the combined capital cities during the September quarter, a new report from Domain shows.
Nicola Powell, Domain’s chief of research and economics, said the pace of price increases would moderate further amid rising supply, but the prospect of another interest rate increase was unlikely to halt the broader upswing and reverse the earlier gains.
The higher-than-expected inflation data for the third quarter released on Wednesday has prompted some economists to predict another interest rate rise as early as next month.
“Another lift in interest rate is a concern because it will increase the cost of debt and reduce borrowing capacity further, but a lot of people have already priced in another rate hike, so it’s unlikely to significantly impact demand,” Dr Powell said.
“It’s also worth noting that the housing market moved into recovery at a time when the RBA was raising interest rates aggressively and when consumer sentiment was deeply negative.”
House prices had almost fully recovered from the recent downturn and were on track to hit record high levels by the end of the year, Dr Powell said.
“We’re expecting prices to continue rising, but at a much subdued pace due to increased listings and reduced borrowing capacity,” she said.
“Fresh listings are now coming onto the market quicker than they are being purchased, so total supply is building up, indicating the market dynamics are slowly changing.
“We also can’t underestimate the negative impact of stretched affordability, which is helping contain price growth. Cost-of-living pressures, higher mortgage costs and a higher serviceability buffer limit borrowing capacity and make it hard for some to qualify for a home loan as prices have nearly recovered.”
The deceleration in house price growth was most evident in Sydney, where the quarterly gain slowed by more than half to 2.1 per cent. This coincided with the 14.6 per cent lift in new listings compared to a year ago.
Melbourne’s housing market recovery gathered a little momentum over the September quarter. House prices rose by 0.6 per cent, which was slightly faster than the 0.4 per cent gain in the previous quarter, but well below the 2.8 per cent historical average. Fresh stock rose over the year but by a milder 2.7 per cent.
Brisbane house prices have increased by 1.4 per cent over the past three months, easing marginally from the previous quarter, helped by the sharp drop of 19.2 per cent in new listings.
The lift in new listings has pushed total supply above the five-year average in Melbourne, Canberra and Hobart, but Brisbane, Adelaide and Perth remained severely undersupplied.
“Many of our capital cities are still grossly undersupplied compared to the five-year average, so the fresh stock will take some heat out of the market, but is unlikely to reverse the recovery,” Dr Powell said.
“On the demand side, the strong population growth and tight rental market would likely fast-track home-buying decisions for some people, while those who have been waiting to buy would be enticed by the wider option.”
Adelaide and Perth recorded the highest house price gains over the quarter at 4.4 per cent and 3 per cent respectively.
House prices in Canberra climbed by 1.8 per cent and in Hobart by 1.9 per cent while Darwin posted zero growth for the quarter.
In the unit market, all capital cities posted quarterly gains in prices except in Canberra and Hobart, where values declined.
Meanwhile, Adelaide, Perth and Melbourne notched the largest quarterly gains of 4 per cent, 3.3 per cent and 3.2 per cent respectively.
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