Housing prices recover after months of losses, but economists warn it’s “artificial”

The national property market has returned to growth after a five month streak of falling prices, but economists warn the recovery could be “artificial” as it’s propped up by expiring COVID-19 relief measures.

The property market posted a gain of 0.4 per cent in the month of October, according to CoreLogic’s home value index. Every capital city but one returned to growth, turning the tide against a 2.8 per cent fall since the start of April.

“It is clear that housing markets are responding to the stimulus of low mortgage rates and improved sentiment related to measures announced in the federal budget and the low number of new virus cases,” CoreLogic said in a note to investors.

In October, the median house was worth an average of $678,198 in cities or $415,457 in regional areas. Units were cheaper at $566,151 in cities and $355,320 in regions.

Housing values were either rising or stabilising across the country. Even Melbourne, having just resurfaced from one of the world’s longest lockdowns, was showing signs of stabilising by recording a 0.2 per cent drop -- its smallest since the pandemic.

Is it a one-off or is growth here to stay?

The news property values had grown for the first time in almost half-a-year was warmly received by economists, but their forecasts preached caution.

AMP chief economist Shane Oliver observed the economy is being stimulated by government subsidies, such as JobSeeker, JobKeeper and HomeBuilder, which are on schedule to wind down in the near future.

“Reading too much into property market indicators at present is dangerous because the market is still very artificial,” he said.

“(It’s) being supported by various support measures and the rebound in the sales activity partly reflects the unleashing of pent up demand and supply.

“The overall outlook into next year remains messy with a high risk that the negatives could reassert themselves, particularly in Melbourne and inner city Sydney.”

Westpac senior economist Matthew Hassan said property prices could drop if people are forced to sell when mortgage deferrals end.

“Clearly most markets have shaken off the initial impacts of COVID disruptions with rebounds in the smaller, less affected capital city markets looking well established,” he said.

“...There is also likely to be some renewed downward pressure on prices as we move into next year and some delayed effects from the COVID shock roll through.

“Momentum looks good for now but sustained strong gains may still be some way off.”

The recovery is two speed: Houses and Units

The recovery isn’t as clean cut as the national average suggests. Some property types and regions are performing better than others.

Houses are routinely outperforming units -- especially in the largest Australian cities, Tim Lawless said, head of research at CoreLogic.

“The rise in capital city housing values over the month was entirely attributable to a 0.4 per cent lift in house values, which offset the 0.2 per cent fall in unit values,” he said.

“Through the COVID period so far, unit values have actually shown a smaller decline in values than houses, but this is likely to change.”

Regional properties are also performing better than those based in capital cities. Regional dwellings were up 1.7 per cent in the seven months since the pandemic struck in March, CoreLogic said, whereas capital cities fell a combined 2.3 per cent.

“The newfound popularity of working from home is only one factor helping to support regional home prices,” Mr Lawless said.

“More affordable price points, lower densities and lifestyle factors, are also underpinning the relative strength across many regional areas of the country.”

Demand appears strong, but big city units remain a worry

October home sales were up, auction results strengthened and buyers were snapping up housing stock quickly -- all indicators that a recovery is underway.

But concerns over unit prices in the largest cities persist, as borders remain closed to migrants, tourists and international students, a demographic that typically rents.

Although houses generally outperformed units, the distinction was stark in the nation’s two largest capitals.

Melbourne and Sydney unit rents fell 6.6 per cent and 5.8 per cent respectively, compared to drops of about 1 per cent in house rents.

“Almost two thirds of Australian units are rented, and rental conditions have weakened, especially in the key inner city precincts of Melbourne and Sydney,” Mr Lawless said.

“Low levels of investment activity, relatively high supply of unit stock in inner cities and international border closures are key factors that imply units will underperform relative to houses over the medium term.”

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