Property Market Growth Has Peaked | Where Can You Buy?

Published by Otto Dargan on May 12, 2021

According to CoreLogic, while property prices are still rising, the pace of growth slowed in April 2021.

Tim Lawless, Head of Research at CoreLogic comments, “The slowdown in housing value appreciation is unsurprising, given the rapid rate of growth seen over the past six months, especially in the context of subdued wages growth. With housing prices rising faster than incomes, it’s likely price sensitive sectors of the market, such as first-home buyers and lower-income households, are finding it harder to save for a deposit and transactional costs.”

What signs show the housing market has reached peak growth?

  • The dwelling values in most capital cities have been declining since March 2021 and a slowdown in the pace of capital gain is evident.
  • An increase in stock levels will help supply catch up with demand, especially when buyer activity slows amidst new supply lifts. The market added 26,470 newly advertised properties. This is the largest number of new listings for this time since 2016 and 17% above the five-year average.
  • Approval for new dwelling construction is at a record high, and dwelling commitment over the December quarter was 20% higher than a year earlier and 5.5% higher than the decade average.
  • Australia is experiencing negative population growth for the first time since 1916. The pandemic led to border closures and stalled migration, which had a huge and direct impact on rental markets.
  • As Australia is moving towards economic recovery, the schemes and incentives in place during the pandemic are ending. With affordability constraints and less migration, housing demand will be negatively impacted.
  • The rising house values are outpacing incomes. Affordability is a challenge, as first-home buyers need a bigger deposit. Based on data from September 2020 (which was before the 8.2% lift in national housing values), it took 8.6 years to save a 20% deposit. Buying a property in Sydney and Melbourne took 11.4 years and 9.8 years, respectively.

How much of the market is affordable?

With property prices rising rapidly, how much of the market is still affordable for buyers?

  • High-income earners can afford 85.1% of dwellings.
  • Middle-income earners can afford 57.1% of dwellings.
  • Low-income earners can afford 17.6% of dwellings.

Lending data from the Australian Bureau of Statistics (ABS) shows that 51.6% of housing finance in March 2021 was from upsizers, downsizers or movers. These are not first-time buyers. These cohorts could use equity to increase their borrowing power.

Finance for first-home buyers has decreased by 4.8% over the last two months.

An REA Insights Buy or Rent Report 2021 revealed:

  • If house prices experience a modest 3% growth each year, it will be cheaper to buy than rent 57% of dwellings across Australia.
  • Low interest rates are a driver for favourable buying conditions.
  • Renting remains an affordable option, especially in Sydney and Melbourne.

Where is it cheaper to buy than rent?

Capital City Suburbs Savings Per Month
Sydney Tacoma, NSW 2259 $578
Melbourne Waterford Park, VIC 3658 $472
Brisbane Kilcoy, QLD 4515 $1,014
Adelaide Elizabeth South, SA 5112 $772
Perth Hilbert, WA 6112 $811
Hobart Clarendon Vale, TAS 7019 $993
Darwin Zuccoli, NT 0832 $1,449
Canberra Coombs, ACT 2611 $1,001

Where is it cheaper to rent than buy?

Capital City Suburb Savings Per Month
Sydney Vaucluse, NSW 2030 $11,413
Melbourne Toorak, VIC 3142 $8,672
Brisbane Teneriffe, QLD 4005 $2,725
Adelaide Rose Park, SA 5067 $2,856
Perth Peppermint Grove, WA 6011 $6,491
Hobart Battery Point, TAS 7004 $2,834
Darwin Brinkin, NT 0810 $760
Canberra Griffith, ACT 2603 $3,252

For property investors, a high rental return, compared with interest rates, means many locations have positively geared properties.

How is the property market doing?

Housing values lifted by 1.8% in April.

Home values were up 6.8% over the past three months, making them 10.2% higher than the COVID-19 low we experienced in September 2020.

  • At the combined capital levels, house values rose 8.6%, double the pace of unit values, at 4.3%, over the first four months of 2021. The price growth in the unit market is stunted by weak investor activity and supply overhang in high-rise precincts.
  • The four weeks ending 25 April 2021 revealed 40,630 new residential property listings. This is 14% above the five-year average.
  • Advertised stock levels were 25% below the five-year average. Even when new listings are above average, strong buyer demand is keeping advertised stock levels low.
  • Auction clearance rates were above 70% throughout April.
  • Sydney and Melbourne are experiencing falling tenant demand due to stalled migration. Unit rents in Melbourne were down 7.6% over the past 12 months.
  • Nationally, the gross rental yield fell from 3.72% to a record low of 3.5%. The trend is most evident in Sydney, where gross yield is averaging just 2.69%. In Melbourne, gross yields are averaging just 2.87%.

Are you interested in buying your first home or a seasoned investor looking to diversify your portfolio?

Either way, our mortgage brokers are here to help you. Call us on 1300 889 743 or enquire online today.