Sydney house prices have rebounded by 6.7 per cent since bottoming out in January, as low stock levels continue to collide with strong demand, CoreLogic’s June home value index shows.
But rapid price growth eased slightly last month, with prices rising by 1.7 per cent, which is slower than the 1.8 per cent recorded in May.
It is an early sign that the latest interest rate increase and expectations of more to come have started to weigh on confidence.
Auction clearance rates nationwide fell to a nine-week low as sentiment soured after the recent rate rise. Joe Armao
“A slowdown in the pace of capital gains could be a reflection of a change in sentiment as interest rate expectations revise higher,” CoreLogic research director Tim Lawless said.
“Higher interest rates and lower sentiment will likely weigh on the number of active home buyers, helping to rebalance the disconnect between demand and supply.
“If we do see another rate hike on Tuesday or in August, I think that would take some further heat out of the marketplace.”
Auction clearance rates also lost momentum over the weekend, falling by 7.5 percentage points to 71.2 per cent, sparked by a rise in the portion of properties passed in at auction and withdrawn from the market.
Nationwide, the clearance rate fell by 3.5 percentage points to 70.3 per cent, which was the lowest in nine weeks, while Melbourne fell slightly to 70.1 per cent.
A lack of supply along with strong population growth continues to put upward pressure on home values despite higher interest rates.
Housing values nationwide increased by 1.1 per cent in June, marking the fourth consecutive month of recovery, although it was a slight slowdown from the 1.2 per cent growth in the previous month.
Melbourne added 0.7 per cent, while Brisbane was up by 1.3 per cent. Perth rose by 0.9 per cent to a new high, having recovered from the relatively mild 0.9 per cent decline through the downturn.
Adelaide lifted by 0.9 per cent, Darwin was up by 0.5 per cent and Canberra by 0.5 per cent. But Hobart home values fell by 0.3 per cent, the only capital posting a decline.
But while the housing recovery has become entrenched over the past four months, the outlook for housing values remained uncertain as the economy weakens, and more borrowers are exposed to higher debt repayments as their fixed mortgages expire, according to Mr Lawless.
“I think we will start to see some cracks emerging as the year progresses,” he said. “I think it would be naive to think that mortgage arrears won’t rise from here.”
Independent economist Stephen Koukoulas said distressed selling could rise if the unemployment rate rose to 4.5 per cent as the RBA was expecting.
“That’s going to cause some people who are currently servicing a mortgage to lose their jobs and may find it difficult to get another one, so they are forced to sell,” Mr Koukoulas said.
“Even a half a per cent or a 1 per cent extra in distressed selling adds quite a lot to the current housing stock.
“I don’t think that’s going to cause prices to resume sharp declines like we saw during most of last year. But it’ll be enough to take some of that supply and demand imbalance out of the equation.”
HSBC chief economist Paul Bloxham: “Demand, supported by population growth and constrained supply will continue to drive the housing market.” Louie Douvis
Buyers are also expected to pull back as it becomes harder to qualify for a loan amid rising interest rates and stricter serviceability criteria.
“As we saw through the periods of tighter macro-prudential policies and higher serviceability assessments, credit availability plays an important role in housing markets, so further reductions in available credit will likely weigh on buyer demand,” Mr Lawless said.
Paul Bloxham, HSBC chief economist, said while the rate of growth could slow from here, prices were unlikely to reverse their gains.
“The combination of the strong population growth and the lack of supply, we think, will be enough to mean that house prices won’t have another substantial downturn even with interest rates rising a bit further,” he said.
“I think what we’re seeing is that the population growth story is still doing more to support the housing market than the higher interest rates are to suppress it.
“It’s hard to bring on a new supply when interest rates have risen and continue to rise. It’s hard for construction to ramp up because there are still supply constraints in the industry, but also because interest rates are higher.
“Interest rates play a role, obviously. And we do think they’re going to take some of the heat out of the current upswing we’re seeing, but I think demand, supported by population growth and constrained supply will continue to drive the housing market.”
Since bottoming out in February, housing values nationwide regained 3.4 per cent of the 9.1 per cent peak to trough decline. Melbourne clawed back 2.3 per cent of the 9.6 per cent total decline, while Brisbane regained 3.1 per cent of the 11 per cent losses during the recent downturn.
Adelaide only fell by 2.4 per cent during the recent trough and since then prices have risen by 2.1 per cent. Perth recently bottomed out with 0.9 per cent decline and have since increased by 3.3 per cent.
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