Home price growth recovery fragile as rates loom over market

The year’s recovery has defied interest rate rises but more stock may take the wind out of the sales, market experts say.

Sales volumes are flatlining after hitting an annual rate of about 480,000 across Australia over the past 12 months. Picture: Max Mason-Hubers

Home prices have experienced a comeback this year but the rises are slowing as more stock hits the market and a recovery could be fragile, according to industry experts.

CoreLogic head of residential research Australia Eliza Owen told a Sydney conference that the Australian market had been resilient but price growth had slowed in recent months after peaking mid-year.

Ms Owen told the Citi conference that sales volumes were flatlining after hitting an annual rate of about 480,000 dwelling transactions across Australia over the past 12 months.

This was back in line with longer-term averages after the Covid-19 boom when sales volumes peaked at about 620,000 in 2021 as interest rates plunged.

She said that the housing market was thinly traded, and values were rising but there was a limit on the level of participation in the market, as more credit-constrained buyers were out.

CoreLogic head of residential research Australia Eliza Owen.

“I think there is a tentative upswing that is very vulnerable to increases in unemployment due to increased supply through the spring selling season,” she said. But she said prospects were stronger in the longer term once interest rates trend lower.

Stockland chief executive communities Andrew Whitson told the conference there was strong support from population growth and supply shortages, but noted the headwinds presented by the lack of affordability.

He said that the developer’s first homebuyer numbers were at historic lows and volumes were also down. The company believed the market would regain its equilibrium once interest rates steady and about two years of wage growth come into play.

Stockland chief executive communities Andrew Whitson.

“We think we will start to see an increase in volumes through financial year 2024 and then we see the recovery gathering momentum into 2025,” he said.

Ms Owen said that new listings had risen over winter – particularly in Sydney and Melbourne – and sales volumes were high enough to keep absorbing listings. But now total stock levels are rising in those cities.

“You’ve got a substantial uplift in new listings across those major cities,” she said. “I think it is starting to subdue the price growth as well.”

Ms Own said that historically, listings activity was led by price growth. “So if the cycle falls back into negative territory and vendors are empowered to do so, they might not sell their property,” she said.

AFG chief executive David Bailey.

Australian Finance Group chief executive David Bailey played down concerns about the mortgage cliff, saying that the impact of a potential cliff was more around those people who had never had a mortgage before and then had to adjust their lifestyles.

Mr Bailey said that Australians paid their mortgages unless they faced a major life event and they had also benefited from the post-Covid growth in wages. “We’re not seeing stress,” he said.

REA executive manager economic research Cameron Kusher said this week that many had forecast large falls this year which not come to fruition, with prices rising 4.3 per cent over the first nine months of this year, with a meaningful lift in sales and an increase in demand for housing despite 400 basis points of interest rate increases.

“While I am not overly bullish on prices I am cautious about forecasting falling prices when stock is low, little new housing is being built, borrowing costs are high and strong migration is leading to significant demand for housing,” he said.