House prices surge in a bumper year

Australia’s housing market has recorded its best quarter of growth in 10 years.

Australia’s housing market has recorded its best quarter of growth in 10 years, with a slight moderation in December seen as unlikely to dent investor optimism in 2020.

But while 2019 was a year of records — including the fastest national trough to peak recovery ever documented — higher stock levels may contain price growth in the months ahead, property researcher CoreLogic warned.

The caution came as new figures from the researcher revealed property prices rose 4 per cent nationally through the fourth quarter of 2019, spurred by easier lending conditions and three interest rate cuts that brought the Reserve Bank’s target to a record low 0.75 per cent.

CoreLogic said the December quarter gain was the most significant since November 2009, making the national price resurgence through the second half of 2019 the fastest on record.

Sydney was the biggest beneficiary over the quarter, with a 6.2 per cent rise in values.

Homes in Melbourne mirrored the growth of its northern neighbour, with values climbing 6.1 per cent for the quarter.

Growth was also boosted by persistently low levels of listings, which spurred competitive bidding as buyers returned to the market, in turn pushing prices higher, CoreLogic said.

However, the 1.1 per cent rate of national growth during December market the weakest period of the quarter, following rises of 1.2 per cent and 1.7 per cent in October and November, respectively.

The market momentum was unlikely to continue as listing levels rose and affordability was affected, said CoreLogic’s head of research Tim Lawless.

“The December result would suggest that the pace of capital gains may have been dampened by higher advertised stock levels or worsening affordability pressures through early summer,” he said.

“At a time when incomes are hardly rising and affordability is already stretched, I think we’ll probably find that prospective buyers who would like to be active are simply going to find it very difficult to access the markets they want to play in.”

Brisbane and Adelaide recorded quarterly gains of 2.4 per cent and 1.4 per cent, respectively, while Hobart (3.4 per cent) and Canberra (2.3 per cent) also made gains as they continued to move through the peak of their cycles.

There were losses for Perth, down 0.1 per cent, and Darwin, down 1.4 per cent, over the three months.

For the year, Australian homes climbed 2.3 per cent in value, with the median price across the capital cities now sitting at $622,346.

“The positive year-end result masks a tale of two distinct halves as we saw capital city dwelling values fall by 3.8 per cent over the first six months and then rebound sharply,” Mr Lawless said.

Regional Australia did not perform as well as the cities, down 0.5 per cent for the year to a median price of $380,657.

Sydney and Melbourne median prices now sit at $840,000 and $666,883, respectively.

Melbourne’s inner east, which included the country’s biggest growth suburb of St Kilda, grew the most over the past 12 months, up 12.1 per cent annually.

Sydney’s trendy inner west and suburban Baulkham Hills and Hawkesbury regions followed, each up 8.8 per cent annually.

Independent economist Andrew Wilson said that even if price growth slowed, he expected growth of about 10 per cent in Sydney and Melbourne over the next 12 months and about 5 per cent to 7 per cent in smaller markets like Brisbane and Adelaide.

The predictions were based on continued strong demand from buyers.

“There are still some positive factors that will improve demand going forward,” Mr Wilson said.

“We have the new first homebuyer deposit scheme from the federal government, which will notionally drag an extra 10,000 buyers into marketplace — maybe 3000 in Melbourne and Sydney.

“We are still below our previous peaks in terms of where prices are, so there’s still that sense of discount in the marketplace.

“Of course, the potential is there for further interest rate cuts sooner rather than later, which will mean improved affordability, which will add to the momentum in the market in terms of confidence.”

Mr Wilson said Sydney could cross the $1m median price in February, with the potential to eclipse its 2017 peak this year.

Aside from the nation’s two largest markets, Brisbane and Perth look to be the two cities to watch in 2020, with market fundamentals proving favourable.

The Sunshine State capital showed mild yet consistent growth throughout the second half of the year, up 2.4 per cent for the fourth quarter and 0.3 per cent for 2019 as a whole.

Mr Lawless said one of the trends this year would be confidence beginning to spread out from premium suburbs into suburbia to create a more widespread recovery.

“Potentially, we might start to see a change in dynamic coming into 2020,” Mr Lawless said.

“Some of the more affordable markets where economic and demographic conditions are improving, like Brisbane and Perth, these could be markets to start to actually show a slightly stronger rate of growth in 2020.

“As we move into a more mature cycle of the market, we’ll probably start to see that middle and lower end of the marketplace start to show an improvement relative to the premium end of the market.

“Normally, what we see is that growth trend ripple out into the more affordable areas as those higher-end areas become less affordable.”

But Mr Lawless does not believe the launch of the federal government’s first-home buyer scheme will have a major impact on the market. Introduced as an election promise, the initiative sought to improve accessibility for 10,000 people looking to enter the market by guaranteeing their 5 per cent deposits.

Following the market bottoming out in June, first-home buyers wholeheartedly jumped into the market, which helped lead it out of the doldrums.

The market segment dominated as they took advantage of the improved affordability on offer and the disappearance of overseas investors. But as the tide has begun to turn, many first-home buyers are finding it increasingly harder to enter the market.

Meanwhile, December price growth was down in all capitals from the previous month. Sydney prices were up 1.7 per cent through the month, while Melbourne followed close behind at 1.4 per cent. The smaller markets of Brisbane and Adelaide grew at a slower pace of 0.7 per cent and 0.5 per cent, respectively, while Perth held steady.

Real estate agency Ray White achieved sales amounting to $2.8bn across its national network in December, a result 15 per cent higher than last year.

Chairman Brian White said agents were preparing for a busy start to 2020.

“It is interesting to see the strength of the recovery, particularly in Sydney and Melbourne. To see the strong November results carry through to December and the end of the year just shows the resilience of the market,” Mr White said. “Our offices are pretty busy going into this weekend, which is quite unusual, and we have some big campaigns to launch in January.”