Housing market enters new year on strong footing

by Mark Rosanes05 Jan 2021

Australia’s housing market finished 2020 on a growth track, indicating a robust start to 2021, according to recent data from CoreLogic.

CoreLogic’s national home value index increased a further 1% in December, the third consecutive month-on-month rise, following a 2.1% decline between April and September.

Dwelling values finished the year 3% higher with regional housing values climbing 6.9%, a capital gain rate that was more than three times higher than the combined capitals, where home values jumped 2% over the year.

Tim Lawless, research director at CoreLogic, said that while the year was characterised by a slight drop in values due to COVID-19, there was “unprecedented volatility in the transaction space.”

“The number of residential property sales plummeted by -40% through March and April but finished the year with almost 8% more sales relative to a year ago as buyer numbers surged through the second half of the year,” he said. “Despite the volatility, housing values showed remarkable resilience, falling by only -2.1% before rebounding with strength throughout the final quarter of 2020.”

Lawless added that the housing market’s strong performance was not surprising given the “rapid and substantial monetary and fiscal response” from the federal and state governments, and policy makers.

“Record low interest rates played a key role in supporting housing market activity, along with a spectacular rise in consumer confidence as COVID-related restrictions were lifted and forecasts for economic conditions turned out to be overly pessimistic,” he said.

Lawless said that the government’s containment measures to curb virus transmission has been crucial to the country’s economic and housing market resilience.

Lifestyle properties rise in popularity

CoreLogic’s data showed an increase in demand for lifestyle properties and lower density housing options, especially in regional areas, as remote working became more prevalent. 

“Regional housing markets had generally underperformed relative to the capital city regions over the past decade, but 2020 saw regional housing values surge as demand outweighed supply,” Lawless said.

Data also revealed an underperforming higher density housing market throughout 2020, with capital city unit values holding firm at 0.2%, while house values went up 2.6%. Every capital city recorded a higher rate of capital gain for houses relative to units last year, except for Melbourne.

“Unit markets have historically been more popular amongst investor buyers; demand from investors has been weighed down by weak rental conditions across the unit sector along with high supply levels in some precincts. A transition of demand towards lower density housing options has helped to buoy house values,” Lawless said.

Although housing markets are gathering pace, CoreLogic’s figures showed that half of the eight capitals were still recording dwelling values lower relative to their previous peaks.

Melbourne home values were still down 4.1% from their March 2020 peak while Sydney dwelling values were 3.9% below the previous July 2017 peak. Perth and Darwin values also remained 19.9% and 25.7% below their 2014 peaks.

Low number of listings

According to CoreLogic, one of the most prominent features of Australia’s housing market last year was low inventory levels. Although there was a significant rise in the number of new listings through spring and early summer, data showed that total number of residential dwellings advertised for sale has remained “persistently low” throughout 2020.

Total listings peaked at the end of November with about 165,000 properties available for sale. The figure was 18% lower compared to the same period in 2019 and 22% below the five-year average for that time of the year. There were also 21% fewer properties available for sale at the end of last year than the year prior.

Lawless said low advertised stock levels reflected a “rapid rate of absorption”, meaning there were more active buyers than new listings being added to the market.

“Despite new listing numbers being consistently lower relative to their 2019 levels, the estimated number of home sales were almost 8% higher through 2020 compared with the 2019 calendar year,” he said.

“This imbalance between effective supply and demand is another factor that has supported a rise in housing prices as a sense of urgency returned to the market. With home buyers outnumbering sellers, most areas around the country represent a seller’s market.”

Lawless said that strong selling conditions were also reflected in auction clearance rates, which remained stable at the 70% mark since the first week of November.

“Auction conditions have shown extreme volatility through 2020, with a large portion of auctions withdrawn from sale during periods of lockdown when onsite auctions and home inspections were banned,” he said.

Lawless added that as housing market conditions stabilize, homes were also selling faster and vendors were giving less discounts.

CoreLogic’s numbers revealed that the median number of days on market dropped from a recent high of 43 days over the three months ending in July to 33 days throughout the last quarter of 2020. Vendors were also lowering their asking prices by a smaller amount, with median vendor discount down from 3.6% to 2.8%.

Rising home values in capital cities

The most affordable quartile of the housing market has shown the strongest rise in values, but the performance gap relative to more expensive properties was narrowing, according to CoreLogic’s data.

Across all capital cities, lower quartile home values rose 1% in December, while middle market and upper quartile dwelling values went up 0.9% and 0.8%, respectively.

In Melbourne, where the upper quartile lost the most value because of the pandemic, home values are rebounding the fastest. Melbourne’s upper quartile index increased in value by 0.98% in December, compared with a 0.97% uptick across the lower quartile.

Sydney’s upper quartile is also bouncing back strongly, recording a 0.7% jump in values over the month, compared with a 0.63% rise across the lower quartile.

Brisbane is also showing strength across the upper quartile of the market, with dwelling values up 1.25% in December, compared with a 0.94% hike across the lower quartile.

The report said this trend, where the more expensive properties have shown stronger gains through the period of upswing and larger declines through the down phase, has been evident even in previous cycles. According to CoreLogic, as the housing market builds momentum, it is likely that the top end of the market will start to outperform the middle and lower sectors.