City homes reclaiming home price growth mantle from regions: REA

Outpaced by regional home prices during the pandemic, city growth is rising again amid the vaccine rollout, says REA Group.

A recent auction in Sydney’s Maroubra. Picture: Dylan Coker

Monthly capital city home price growth has outpaced regional price growth for only the second time in 12 months, according to the REA Group’s home price index.

The online real estate ad company’s director of economic research, Cameron Kusher, said surging buyer demand had resulted in hot market conditions and climbing house prices.

“Rising consumer confidence in Australia on the back of open interstate borders and the rollout of a COVID-19 vaccine has buoyed the market,” he said.

“The record search activity on realestate.com.au that we have been monitoring over the last six months is now flowing through to pricing.”

Mr Kusher said that while the recovery in Sydney (up 0.5 per cent) and Melbourne (up 0.4 per cent) had been slow, prices were picking up and “we expect to see this momentum continue in the coming months”.

There were signs that cities were coming out of their pandemic-driven slowdown, and they may recover some of their lustre as people considered staying put, he said.

“Price growth in capital cities has been stronger than in regional markets over the past two months so it will be interesting to see if this trend continues, as vaccines roll out in Australia and we head towards a new COVID-normal,” Mr Kusher said. “Undoubtedly the lure of regional Australia with its lower property prices and desirable lifestyle remains strong, but we may see those who intended to make a tree or sea-change reconsider their regional move as cities reopen.”

Over the past month, dwelling prices in capital city markets increased 0.4 per cent, edging above the 0.3 per cent in regional areas. Regional markets last year outperformed capital city markets, but so far in 2021 markets in capitals are leading the charge.

Despite the recent turnaround, regional markets over the past year recorded growth of 9.6 per cent, double that of capital cities, at 4.8 per cent.

Moreover, house price growth (0.4 per cent) continued to outpace unit growth (0.1 per cent) in February. Looking at the last 12 months, house price growth (6.9 per cent) was more than three times that of unit price growth (2.1 per cent).

Regional Victoria (11.3 per cent), regional Tasmania (11.2 per cent) and Darwin (10.5 per cent) recorded the greatest price increases over the past year. Regional Northern Territory (0.9 per cent), Melbourne (3.9 per cent) and Sydney (4.3 per cent) recorded the lowest rates of price growth over 12 months.

Mr Kusher noted that the market could face challenges as some fiscal stimulus comes out of the system, but he did not expect this to derail the housing market.

The main hurdle would be “what happens as government and banking support is wound down over the coming months”.

“While the share of mortgages on deferral remains low, the removal of JobKeeper and JobSeeker may lead to an increase in forced property sales,” he said. “I expect that any increase in forced sales will be small and property prices will keep rising.”