Property Market

Outlook
August 2023

Author: Cameron Kusher, Director Economic Research, PropTrack

Contents

Housing in Australia: Property prices Sales volumes New listings

A recap & outlook

Total listings Enquiry Median days on site New homes market

Finance
Housing in Australia: A recap & outlook
National property prices increased 2.3% over the first
six months of 2023, signalling a shift in the housing
market and reversing the declines experienced in the
prior six months. Despite the better-than-expected
price growth, home prices declined 0.1% over the
financial year.

Recent increases in sales volumes, relative to the

second half of last year, coupled with limited supply of
properties available for sale and few new listings
coming to market, have contributed to the bounce
back.

Property prices increased despite rising interest rates

and reduced borrowing capacities. The frequency and
magnitude of cash rate increases have slowed, but
official interest rates have continued to rise, and it is
not clear if they have peaked.
From here, the direction of the housing market will
likely be influenced by the volume of housing stock
available for sale. Low volumes of new and existing
properties persisted In June, but this may soon
change.

A large cohort of fixed-rate borrowers’ mortgages

are set to expire from their current interest rates of
around 2% and reset to around 6%. The possible
impact of higher repayments on these borrowers
won’t be seen until 2024.

In the meantime, we expect property prices to

increase slowly for the remainder of this year, with
the outlook for prices in 2024 much less clear.
How much higher will prices rise?

National property prices increased by 34.9% from the

start of the pandemic in March 2020 to their recent
peak in March 2022, one of the fastest periods of price
growth on-record. Since March 2022 when national
property prices reached a peak, they have fallen by
1.9%, with the falls occurring between April and
December 2022 and a rebound in prices since.

Although there has been a significant increase in

interest rates, with potential further rises to come, we
anticipate moderate price increases to continue over
the coming months. The rebound has largely been
driven by an uptick in transaction volumes, and the
ongoing low volume of stock available for sale.

Adelaide and Perth, along with regional WA, are the

only regions in which home prices are currently at their
peak. At the same time, home prices are furthest from
their peak in Hobart (-7.2%), Canberra (-5.5%) and
Melbourne (-5.2%).
By the end of 2023, we are forecasting home prices will be
between 2% and 5% higher. Forecasts for 2024 are
considerably more difficult, given the uncertainty of many
factors.

Interest rate changes act with a lag and given the

significant and rapid increases in rates over a very short
period, households will continue to experience the impact
of those increases into next year. Further to this, a
significant number of borrowers are currently on fixed rate
mortgages that are set to expire and reset to substantially
higher rates. This will inevitably have an impact on
household budgets and spending.
The Reserve Bank is forecasting a slowing of economic
growth, but as always, the magnitude and impact of
that slowdown is unclear. It is uncertain if and when the
forecast slowdown will necessitate interest rates to
ease, but we expect cuts to commence in 2024.

Of course, there are many other factors that will

influence property prices in 2024. Two notable
considerations include the supply of stock for sale and
whether the banking regulator reduces
the serviceability assessment buffer from its current
3%.

At this stage, we are forecasting modest price growth

in 2024. However, significant changes to the overall
economic performance, interest rates or lending
conditions, could result in vastly different price growth
outcomes.
 Dwelling price forecasts
2023 and 2024 calendar year
 Median house and unit prices
June 2023

Median selling prices

The national median house price over the three
months to June 2023 was $770,000, while the
median unit price was $590,000. Across the
combined capital cities, median house prices were
$856,000, while units were $610,000. By
comparison, regional median house prices were
$625,625 and regional unit prices were $526,000.
 House price premium relative to units
The last few years of exceptional price growth have
resulted in house price rises significantly outpacing
increases in unit prices, particularly in the capital cities.
Median house price premium relative
The median house price premium relative to the unit price is
to median unit price
currently the widest on record in Sydney (83%) and
Adelaide (57%). It is very close to historical wide premiums
in Melbourne (50%) and Perth (45%). In Brisbane (52%),
Hobart (36%), Darwin (58%) and Canberra (65%) the
differential is not at historic highs, but it is higher than the
long-term average.

The rise in interest rates, and subsequent reduction in

borrowing capacities, coupled with ongoing increases in
rental rates, saw unit demand and prices initially hold-up
better than houses. According to the PropTrack Home
Price Index, unit prices have increased at a faster pace than
houses so far this year.

Inner-city living became less attractive to many during

COVID-19 lockdowns and restrictions. With life now largely
back to normal, this trend is already reversing and
expected to continue to do so. These factors, plus the
affordability gap, should drive more demand for higher
density housing types. The strength of the rental market
may also drive interest from investors in CBD inner- and
middle-ring units. However, the differential in pricing
between houses and units is likely to remain large.
Price changes over the 2022-23
financial year
Throughout the 2022-23 financial year, national
property prices fell by 0.1%, while over the
previous financial year they increased by 9.6%. Annual change in dwelling prices
The 2022-23 financial year was a tale of two (capital cities vs regional areas)
halves, with prices falling 2.3% over the first six
months before rebounding 1.5% over the second
half.

Capital city property prices increased by 0.1%

over the financial year, with a decline of 2.8%
over the first six months. The second half of the
year saw an increase of 3%, leaving prices 2.2%
below their March 2022 peak. In regional areas,
prices fell 0.6% over the year, sitting 1.5% below
their April 2022 peak. Regionally, property
prices have grown 0.8% over the past six
months, following a 1.3% fall over the first half of
the year.

The unit market has seen prices hold up much

better over the past year than houses. Unit
prices rose 0.9%, while house prices fell 0.3%.
Compared to their previous peak, unit prices are
0.2% lower and house prices are down 2.2%.
 Over the 2022-23 financial year, dwelling prices
increased in Sydney (1%), Brisbane (0.1%), Adelaide
Annual change in dwelling prices (5.3%) and Perth (5.7%) with falls across all other
June 2023 capital cities. The largest falls were in Hobart (-
6.4%), Canberra (-3.5%) and Melbourne (-2.9%). Only
Hobart and Darwin have recorded price falls over
the past six months.

Regionally, prices increased year-on-year in

regional Queensland (2.6%), regional SA (8.9%),
regional WA (6.8%) and regional NT (3.1%). At the
same time, prices fell over the year in regional NSW
(-2.4%), regional Victoria (-2.6%) and regional
Tasmania (-0.7%). Prices have continued to fall over
the past six months in regional Victoria, and were
unchanged in regional NSW, while they have risen
elsewhere.
Higher interest rates are making it more expensive to
service mortgage debt, and lenders are offering less
finance to would-be buyers. However, a rebound in
sales this year and a low volume of stock for sale
continues to support prices. The rapid rise in national
population is also fueling housing demand, which in
turn supports prices. While these conditions persist,
we expect moderate price growth to continue.

The potential headwinds for property prices include

further interest rate increases. Additionally, mortgage
arrears increasing from historic lows as many
borrowers reset from extremely low fixed mortgage
rates, and the potential for more stock to hit the market
due to these factors and rising prices, may influence
the market.
Monthly count of preliminary sales of properties listed Sales volumes
on realestate.com.au (national) Preliminary sales volumes look at the number of
sales each month, as reported by real estate agents
across the country on realestate.com.au. It provides
a real-time glimpse of sales trends, and excludes
data from the valuer general, which can take a
varying length of time to be available.

In June 2023, the number of preliminary sales

nationally was 3.7% lower year-on-year. However,
sales volumes were higher than over any of the final
six months of 2022. Sales volumes in June 2023
were 18.4% lower compared to June 2021, but 23%
higher than June 2020 and 38.2% higher than in
June 2019. Throughout the first half of this year,
sales volumes have consistently been higher than
they were over the second half of last year.
Preliminary sales volumes in June 2023 were higher
than a year ago in Sydney (13.5%), Perth (1.7%),
Hobart (0.7%) and Canberra (8.5%) and were Year-on-year change in monthly preliminary sales,
unchanged in regional NT. Elsewhere, sales June 2022 vs June 2023
volumes were lower than last June, with the
greatest falls in Darwin (-22.8%), regional WA (-
22.6%) and Adelaide (-12.7%).

The trends are quite diverse in terms of sales, with

most regions seeing a rebound in sales so far this
year. The rebound in sales has generally reflected
the more recent bounce in prices. With more buyers
and stock levels still low, quality properties listed at
a competitive price are being snapped-up quickly.

It seems likely that sales volumes will remain strong

over the coming months, and we anticipate a
stronger spring sales period this year.
 Monthly new listings New Listings
(capital cities vs regional areas) New listing volumes are highly seasonal and
volatile on a month-to-month basis. New listing
volumes were very strong throughout early 2022.
However, as prices began to fall and fewer buyers
were active in the market, the number of new
listings fell over the second half of 2022 and
continued to reduce in early 2023.

The number of new listings peaked in March 2022

and has trended lower since. While new listings
remain much lower than they were a year ago, they
are now back to average levels for this time of year.
In June 2023, new listing volumes were 14.8% lower
compared to June 2022, but remain 1.5% higher than
the June average over the past five years.
Across the combined capital cities, new listings in
June 2023 were 14.6% lower year-on-year, although
they were 2.1% higher than the June average over Year-on-year change and change from 5-year average
the past five years. In the combined regional for new listings, June 2023
markets, new listings were 15% lower year-on-year
to be 0.4% higher than the June average over the
past five years.

In each capital city, new listings were lower year-

on-year. Regional NT was the only non-capital city
market with more new listings. Regional SA (-3.1%)
and regional Victoria (-6.2%) saw moderate declines
in new listings, while Perth (-25.7%), Brisbane (-
23.2%) and Hobart (-22.6%) saw the largest falls.

The number of new listings coming to market is

much lower than a year ago. However, they sit at
around average levels over recent years. There are
now some signs that vendors are increasingly
prepared to list. Should the lift in new listings occur,
it would afford buyers more choice and may result
in a slowing of price increases.
 Monthly total listings Total Listings
(capital cities vs regional areas) With new listing volumes in June 2023 rising to
recent average levels, the volume of total listings
on the market is lower than a year ago and
historically low.

In June 2022, the number of properties available for

sale was 1% lower than in June 2022. While total
listings were marginally lower over the year, they
remained historically low and were 30% lower than
the average for June over the past five years.

The number of total properties listed for sale

throughout the combined capital cities was 9.6%
lower year-on-year in June 2023, and 17.8% lower
than the June average over the past five years.
Across regional markets, the number of total
listings was 10.2% higher over the year but still
39.5% lower than the five-year June average.
Regional Tasmania (43.6%), Hobart (43.3%) and
regional Victoria (39.5%) recorded the greatest Year-on-year change and change from 5-year average
year-on-year increases in total listings across for total listings, June 2023
capital city and regional areas. At the same time,
Perth (-20.6%), Sydney (-15%) and regional WA (-
11.1%) had the largest declines in total listings.

Melbourne (0.8%), Hobart (1.2%) and Canberra

(11.3%) were the only regions with total listings
higher than the five-year average. Regional WA (-
57.5%), regional SA (-56.3%) and regional
Queensland (-48.6%) had the greatest decline in
stock, relative to the five-year average.

The volume of stock for sale remains historically

low. Although sales volumes are higher, buyers
remain discerning, meaning that vendors will need
to set appropriate prices and be willing to adjust
prices to market expectations, if they want to
transact in the current market. A significant number
of properties have been listed for a long time but
have not adjusted prices lower in order to sell. This
means that new listings are an increasingly
important driver of sales.
 Average enquiry per listing Enquiry per listing
(capital cities vs regional areas) Enquiry per listing looks at the number of
enquiries made on a property, via email, phone
call or SMS. As well as key actions, including
saving inspection times, to indicate the volume
of people contacting agents about properties.

In June 2023, the average property listed for sale

across the country was receiving 10 enquiries.
This was compared to an average of 9 enquiries a
year earlier.

The typical property listing in a capital city,

received 14 enquiries in June 2023, up 27.3% from
11 enquiries a year earlier. In regional markets,
enquiries have fallen 16.7% over the year, from an
average of 6 to an average of 5. There has been a
large decline in enquiries per listing from their
peaks throughout the pandemic, however, it
remains higher than pre-pandemic levels.
Sydney (37.5%), Brisbane (20%), regional
Queensland (14.3%), Adelaide (5.9%) and Perth
(57.1%) were the only markets nationally to record
an increase in enquiry per listing over the year. Year-on-year change in enquiry per listing
There was no change in Melbourne and regional
June 2023
WA. At the same time, regional Tasmania and
regional NT (both -50%) and Darwin (-40%)
recorded the biggest falls.

The overall volume of enquiry per listing was

highest in Sydney, followed by Brisbane and
Adelaide. It was lowest in regional NT, followed by
regional Victoria, regional WA, regional Tasmania
and Darwin.

With sales volumes rebounding and the volume of

stock remaining low, there has been a recent
rebound in the number of enquiries per listing. With
more buyers competing for a relatively low volume
of stock for sale, if stock levels remain low, we are
likely to see enquiry per listing rise further over the
coming months.
Monthly days on site
(national) Median days on site
The median length of time a property is listed on
realestate.com.au before selling is higher than a
year ago but has remained relatively steady for
most of the past 12 months. In June 2023, the
median days on site was 43 days, unchanged
from the previous month and higher than the 39
days a year earlier.
Sydney was the only capital city or rest of state
market in which days on site in June 2023 was
lower than it was a year earlier.
Sydney (28 days), Adelaide (29 days) and
Melbourne (31 days) had the shortest days on site
in June 2023, while regional NT (106 days),
Darwin (86 days) and regional WA (77 days) had
the longest.
 Median days on site
June 2022 vs June 2023

Days on site fell 5 days over the year in Sydney and

was unchanged in Melbourne. Darwin (+36 days),
regional Tasmania (+29 days) and Hobart (+25
days) have seen the largest increases in days on
site over the year.
It is surprising we haven’t seen more significant
declines in days on site so far this year, given the
increase in sales volumes and low supply relative to
a year ago. Should prices continue to lift, and
supply remain constrained, we may see a reduction
in days on site over the coming months.
 New homes market
Quarterly number of house and unit commencements Through the initial stages of the pandemic,
(national) demand for new homes surged. This was due to
extremely limited number of new listings in the
established market, as well as significant
demand brought on by the HomeBuilder Grant
for first-home buyers. New home enquiry
volumes reached historic highs in late 2021, but
we have seen enquiry volumes moving back in
line with pre-pandemic levels.
The HomeBuilder Grant has created a backlog of
work for builders, and many continue to face
increases in the costs of materials and labour.
The most recent producer price indices data
shows that the cost of inputs into housing
construction increased 7.4% year-on-year to
June 2022 and was up 32.5% from March 2020 to
June 2023. Cost escalations slowed and were
lower over the year.
 Quarterly number of houses and units under
The number of new properties under construction construction (national)
remains historically high. However, the number of
new commencements has slowed and is expected
to reduce further. Higher interest rates and
increased costs are making it more challenging for
developers to access finance, and to obtain enough
presales to press-on with new projects.

Given the escalating costs and uncertainty around

delivery times for new housing, we are already
seeing demand for new homes slowing. Moving
forward, we expect that a greater share of buyers
will seek existing stock. Longer-term, there will
undoubtedly be higher demand for new homes
once cost escalations subside, and rapid
immigration continues.
 Housing finance: Owner-occupier
Monthly value of lending to owner-occupier (subsequent purchasers)
subsequent buyers Owner-occupiers making subsequent purchases
remain the greatest source of mortgage demand, and
that seems unlikely to change any time soon. While
owner-occupier subsequent buyers are expected to
continue to represent the greatest share of
mortgages, the share of lending to this cohort has
been drifting lower.

The escalation in lending to owner-occupier

subsequent buyers, was exceptional throughout the
pandemic, as many existing homeowners took
advantage of historic low interest rates to trade-up.
Prior to the pandemic, the historic monthly peak in
lending to owner-occupier subsequent buyers was
$11.4 billion in early 2017. This rose to a peak of $17.4
billion in January 2022, although demand slowed
quickly thereafter, both prior to and as interest rates
increased. The monthly value of lending to owner-
occupier subsequent buyers fell 33.2% between
January 2022 and February 2023. Between February
2023 and May 2023, the monthly value of lending to
owner-occupier subsequent buyers rose 4.9%.
Owner-occupier (first home buyers)
The HomeBuilder Grant, which was available from mid-
2020 until early 2021, led to a surge in lending to first- Monthly value of lending to owner-occupier
home buyers. The monthly value eclipsing previous first home buyers
historic highs. Since peaking in January 2021, the value
of lending to first-home buyers fell by 50.3%, to a recent
low in January 2023. The major factors in the drop in
lending have been the removal of the stimulus, the fact
that property prices have increased at a much faster
pace than wages, and the rapid rise in interest rates and
subsequent reduction in borrowing capacities.

Between January 2023 and May 2023, the value of

lending to first home buyers has risen by 18.5%. The
share of new lending to first home buyers (16.7%) is now
above its long-term average (16.1%). With rental markets
extremely tight, and major capital city rents expected to
rise further and interest rates seemingly nearing their
peak, the recent rebound in lending to first home buyers
is anticipated to continue. The high cost of renting, and
the uncertainty and competition, paired with a peak in
the interest rate cycle, is likely to encourage more
people to shift from renting to buying their first home.
This comes despite the fact that in most instances it
remains cheaper to rent than service a mortgage.
Monthly value of lending to investors
Investors
After the monthly value of lending to investors
peaked in February 2022, the value fell by 32.4%
up until its recent low in February 2023. Between
February 2023 and May 2023, the monthly value
of lending to investors has increased by 10% and
is the highest it has been since October 2022.
While there has been a rebound in lending to
investors over recent months, the share of total
new lending to investors in May 2023 was 34.2%.
This remains below its long-term average share
of 35.8%, as it has consistently done so since
June 2017.
The tightness of the rental market has been well
documented, and the higher rental rates and
relatively lower rate of price growth is pushing
gross rental yields higher from their historic lows.
Higher rental returns and price growth returning in
many areas should be making investment in
residential more attractive. However, for would be
investors, risk-free returns are improving as interest
rates shift higher. Further, land taxes are increasing,
and there are concerns about the possible
introduction of rental caps. These are discouraging
higher levels of investment and encouraging a
heightened number of investors to continue to exit
the market.

Although the increase in investor purchasing has

been moderate to date, we would expect the recent
moderate rebound to continue. Particularly as the
interest rates hiking cycle likely peaks shortly.
Monthly value of lending for refinances

External refinancing
The monthly value of external mortgage
refinancing has surprisingly fallen slightly from
its record highs over recent months. With interest
rates changing on a regular basis currently, and a
large cohort of pandemic-era borrowers seeing
their fixed rate periods expiring, we expect
external refinance lending to remain heightened
over the coming months.
Property Market
Outlook

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