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The Latest CoreLogic’s Home Value Index (HVI)
- by admin
- Posted on January 1, 2024
Key takeaways
CoreLogic’s national Home Value Index (HVI) rose 8.1% in 2023, a significant turnaround from the -4.9% drop seen in 2022, but well below the 24.5% surge recorded in 2021.
December’s 0.4% increase saw 2023 finish with a relatively soft monthly rise in home values.
This was the smallest gain in our national monthly HVI since values started rising in February.
Despite the annual 8.1% increase, the year was punctuated by diversity, with the annual change in housing values ranging from a 15.2% surge in Perth to a -1.6% fall across regional Victoria.
One of the main trends through the year has been the widening disparity in the rate of home value growth across the capital cities.
Dwelling values have been rising at more than 1% each month on average across Perth, Adelaide and Brisbane since May, while in Melbourne and Sydney the pace of growth has slowed sharply since the June rate hike.
The diversity across the capital cities can be broadly attributed to demand and supply – the cities where home value growth has been lower or negative through the year are showing higher than average levels of advertised supply alongside annual home sales which ended the year below the five year average.
Capital cities have generally recorded stronger growth conditions relative to regional areas.
CoreLogic’s national Home Value Index (HVI) rose 8.1% in 2023, a significant turnaround from the -4.9% drop seen in 2022, but well below the 24.5% surge recorded in 2021.
December’s 0.4% increase saw 2023 finish with a relatively soft monthly rise in home values.
This was the smallest gain in our national monthly HVI since values started rising in February.
After monthly growth in home values peaked in May at 1.3%, a rate hike in June and another in November, along with persistent cost of living pressures, worsening affordability challenges, rising advertised stock levels and low consumer sentiment, have progressively taken some heat out of the market through the second half of the year.
Source: Corelogic January 2nd 2024
Despite the annual 8.1% increase, the year was punctuated by diversity, with the annual change in housing values ranging from a 15.2% surge in Perth to a -1.6% fall across regional Victoria.
One of the main trends through the year has been the widening disparity in the rate of home value growth across the capital cities.
Dwelling values have been rising at more than 1% each month on average across Perth, Adelaide and Brisbane since May, while in Melbourne and Sydney the pace of growth has slowed sharply since the June rate hike.
Melbourne values declined through November and December while Sydney home values are stabilising with a monthly growth rate of just 0.2% in the final two months of the year.
The smaller capital cities have been soft through most of the year, with Hobart (-0.8%) and Darwin (-0.1%) recording an annual decline in values in 2023, while the ACT recorded a rise of just 0.5%.
Such diversity across the capital cities can be broadly attributed to factors relating to demand and supply.
In Perth, Adelaide and Brisbane, housing affordability challenges haven’t been as pressing relative to the larger cities, and advertised supply levels have remained persistently and substantially below average.
The cities where home value growth has been lower or negative through the year are showing higher than average levels of advertised supply alongside annual home sales which ended the year below the five year average.
Capital cities have generally recorded stronger growth conditions relative to regional areas.
Across the combined capital cities index, dwelling values were up 9.3% in 2023, more than double the 4.4% rise recorded across the combined regional index.
Stronger conditions across capital city markets is a reversal of the early COVID trend which saw regional markets experience higher demand amid strong internal migration.
Regional migration trends have mostly normalised through 2023, and the significant capital gains recorded through 2020 to 2022 has meant many regional markets have become less affordable.
Although housing values have risen across most regions in 2023, five of the eight capitals are still recording home values below record highs.
At the end of the year, Sydney values remained -2.1% below their January 2022 peak, Melbourne values were -4.1% below their March 2022 peak, ACT values are still -6.3% below record highs and Hobart values are down -11.2%.
Darwin home values are -2.8% below their cyclical high in August last year, and -7.2% below the record high set back in May 2014.
The trends from late 2023 are pointing towards a milder outcome for housing values in early 2024, with the potential for a year of two halves.
In the first half of 2024, dwelling value growth will be tested by the interaction of high interest rates and weaker economic conditions, both of which are likely to weigh on housing activity.
This was already evident toward the end of 2023, with Melbourne home values falling through November and December, and monthly growth in Sydney home values easing to 0.2%.
Even Brisbane, which has exhibited a strong capital growth trend, has seen the pace of growth ease from 1.5% in October to 1.0% in the final month of the year.
The trajectory of interest rates through 2024 will be a key factor influencing housing trends.
Although another cash rate hike can’t be completely ruled out, the trend towards lower inflation, weakening economic conditions amid low consumption and a loosening labour market, suggests another rate hike is looking increasingly unlikely.
A reduction in the cash rate target through 2024 could help to re-stoke demand later in the year.
At the end of December, financial markets were fully pricing in a 25 basis point rate cut by June 2024. If interest rates do move lower, there is a good chance we will see a lift in consumer sentiment and a more positive trend in housing activity and values through the second half of the year, although an easing in macroprudential policy settings is not a given.
In early December, APRA reiterated that the three percentage point serviceability buffer which is applied to loan serviceability assessments “remains prudent” and has been effective in improving the quality of lending.
APRA data up to the September quarter outlined riskier types of lending such as high loan -to-valuation ratio loans, high debt-to-income ratio loans or high loan-to-income ratio loans were all at historically low levels.
Stoking a housing value rebound on the back of lower interest rates is arguably an outcome that policy makers would like to avoid.
Even if interest rates do come down later this year, credit availability is likely to remain relatively tight.
Housing affordability is set to be high on the policy agenda this year.
The latest Housing Affordability Report from ANZ and CoreLogic showed a worsening across every affordability metric over the first three quarters of the year.
Based on median household income estimates and dwelling and rent values to September, the analysis shows:
- The median dwelling value to income ratio rose to 7.5,
- The portion of household income required to service a new mortgage is close to record highs at 46.2%,
- The average household would take 10 years to accumulate a 20% deposit,
- and the portion of household income dedicated to rental payments rose to 31.0%.
Policy responses to affordability challenges are likely to remain diverse, however the focus should firmly be on supply side measures in 2024.
While growth in construction costs has eased, the government’s commitment to deliver a ‘stretch target’ of 1.2 million well located new homes in the next five years remains challenging.
The first round of funding from the $10 billion Housing Australia Future Fund (HAFF) is expected to be available in the second half of the year.
While extra funding for social and community housing developments will take some time to flow through to completed new housing stock, this is clearly a positive step in the right direction for much needed affordable housing supply.
Although construction costs are now rising at a rate slightly below the long run average, the cost to build a residential dwelling is not falling.
Builder profit margins remain compressed and skilled trades along with some building materials remain in short supply.
These factors will likely continue to hinder the construction pipeline on the near term.
The burgeoning undersupply of newly built housing is likely to keep a floor under housing prices to some extent over the coming year.
Additionally, there is a clear lag between overseas migration and purchasing demand.
With overseas migration moving through record highs last year, we are likely to see the lagged demand side impact flowing through to purchasing activity over the coming years.
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Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au
Key takeaways CoreLogic’s national Home Value Index (HVI) rose 8.1% in 2023, a significant turnaround from the -4.9% drop seen in 2022, but well below the 24.5% surge recorded in 2021. December’s 0.4% increase saw 2023 finish with a relatively soft monthly rise in home values. This was the smallest gain in our national monthly…