Units are starting to overtake houses in the growth rate race – here’s why.
There have been a couple of big property updates from Ray White and CoreLogic this week which shows a two-speed property market and also that home unit values are starting to outpace the growth rate of houses.
According to real estate giant, Ray White, Perth, Brisbane and Adelaide continue their strong run, all exceeding 13 per cent price growth over the past 12 months. Perth remains red hot, recording an increase of 25.6 per cent over the past 12 months, with no signs of slowing at this point.
In direct contrast, Melbourne and Hobart are seeing weak conditions. Hobart is now recording house price declines over the past 12 months, while Melbourne is increasing only marginally at 1.8 per cent. A similar trend is happening in the unit market for all these cities.
There are likely a number of drivers for the Melbourne decline. Victoria is possibly in recession and additional taxes on property owners to pay back state debt has made investing in property less attractive. This has sparked an increase in properties coming to market and Days On Market (DOM) has also increased dramatically.
Melbourne’s DOM waiting to sell is now at its highest level since December 2020 while Hobart is at its highest since 2015. In comparison, Perth is currently the lowest at nine days.
The market in the middle is Sydney. While not as strong as the smaller capital cities, it is still experiencing relative strength. In all capital cities, the most expensive suburbs are still seeing strength. House prices in Rose Bay increased by $200,000 over the past 12 months, the largest increase of all suburbs. Melbourne price growth is weak overall but Brighton prices have increased in excess of $110,000 over the past year.
Brisbane unit prices are still increasing faster than houses year-on-year, likely driven by high construction costs in this state, as well as fast population growth. Brisbane units are getting expensive, and now exceed Melbourne unit prices.
According to Ray White, the outlook for the rest of the year looks set to continue. At this point, it is likely that rates will not be cut until the start of 2025 and the economy is continuing to slow.
In addition, migration levels will also be lower this year compared to last. However, in contrast, high construction costs will keep the cost of building a new home high which will continue to drive people to buy established homes.
Similar trends were also seen in property research group, CoreLogic’s monthly assessment which saw national home values rise 0.5 per cent in July – the 18th consecutive monthly increase in home values nationally. Since the beginning of last year, national home values have risen 13.5 per cent to new records.
According to CoreLogic’s figures, three capitals recorded a decline in values over the past three months – Melbourne (-0.9 per cent) Hobart (-0.8 per cent) and Darwin (-0.3 per cent). The rolling quarterly pace of growth has also slowed markedly in Sydney to 1.1 per cent, which is a fraction of the 5 per cent quarterly gain recorded at the same time last year.
But the mid-sized capitals are continuing to buck the slowing trend, with the quarterly pace of growth in Perth tracking at 6.2 per cent, Adelaide accelerated to 5 per cent while Brisbane values rose at a quarterly pace of 3.8 per cent.
Interestingly home unit values are now rising faster than houses in most capital cities.
Source: CoreLogic Home Value Index Released 1 August 2024
