Property Prices Rise Again, but Cooldown on Way

Australian capital cities have marked their seventh consecutive quarter of house price growth, with Sydney’s median house price reaching $1.65 million.

But the Domain House Price Report for the September Quarter, 2024 revealed a significant transformation in market dynamics, with growth rates decelerating across most capitals despite reaching record highs.

The shift comes as new supply levels reached their highest point since March, 2022 across combined capitals.

While Sydney recorded a modest 0.1 per cent quarterly increase, Melbourne experienced its steepest quarterly decline in two years at 1.5 per cent. Perth had a 2.1 per cent quarterly rise, which was less than half the growth rate of the previous quarter.

“The market appears to be shifting towards a buyers’ market, creating more favourable conditions for purchasing a home,” Domain chief of research and economics Dr Nicola Powell said.

But not in all capital cities, according to CoreLogic executive director of research Tim Lawless.

“Housing conditions are becoming more favourable for buyers around the country, but we wouldn’t classify this as a buyer’s market in cities like Perth, Adelaide or Brisbane where listings remain more than 20 per cent below the previous five-year average,” Lawless told The Urban Developer.

“With advertised stock levels now well above average in Melbourne, Sydney and Hobart, these capitals are better described as buyer’s markets.”

Powell agreed that there’s a “multi-speed market across different cities, with Perth, Adelaide, and Brisbane still strong, but the pendulum is swinging, and listing numbers are increasing”.

“Buyers have more choice, and more negotiation power in some markets,” Powell told The Urban Developer.

Sydney and Melbourne unit markets have gained momentum, with prices rising faster than the previous quarter.

Sydney unit prices have fully recovered to reach a record high for the first time since December 2021, now standing at $815,258.

Powell said the trend towards units and more affordable housing indicates an affordability issue.

“Developers could focus on producing a diverse array of housing types to meet the changing demographic needs, including more density, infill, and the ‘missing middle’ of terraced homes and townhouses,” she said.

The market is experiencing a notable shift in conditions, with properties on the market longer, and increased price negotiations becoming commonplace.

Softening clearance rates have also reached their lowest levels this year.

Lawless said buyers in some cities now have “less urgency in their decision making and they can negotiate harder on price”. 

“The swing towards buyers can be seen in the median days on market which has extended out to 51 days in Hobart (32 days a year earlier), 41 days in Melbourne (27 days a year earlier) and 32 days in Sydney (28 days a year earlier),” Lawless said.

“At the opposite end of the spectrum, homes in Perth are selling in just 11 days with advertised stock levels holding 35 per cent below the previous five-year average.”

▲ CoreLogic executive director of research Tim Lawless.

Lawless also said a “flow of new listings coming onto the market will probably accelerate into the end of spring and early summer, testing the depth of demand and providing buyers with a broader selection of homes to choose from”.

The report indicates regional areas are experiencing significant growth, driven by remote work adoption, lifestyle changes, and infrastructure investment.

Market conditions vary significantly by territory. Brisbane’s market remains robust, supported by population growth and infrastructure investment.

Adelaide is emerging as an alternative luxury market, while Perth’s resilience is underpinned by mining sector strength.

Canberra has experienced its first house price decline this year, while its unit market recorded its steepest annual price decline since December 1994.

Potential buyers may be awaiting cash rate cuts to enhance their borrowing power, said Powell, which is contributing to current market dynamics.

Powell says buyers are sitting on the sidelines, and “that’s one of the elements that’s helping stock to build up in some markets”.

“They’re waiting for clarity from the RBA that they’re going to reduce the cash rate. When we see that cash rate being reduced, it is going to spark demand in our housing market. It’s going to improve borrowing capacity. And I think it’s going to bring people to market, and that will create momentum.

“And what we’re likely to see is a spark, perhaps, for another price cycle to occur.”

▲ Domain chief of research and economics Dr Nicola Powell.

Consumer preferences are evolving, with increasing emphasis on sustainability and flexibility in housing options, states the report. Growing demand for co-living spaces, affordable housing, and senior living options, signal potential new development opportunities in these sectors.

But Powell believes developers are challenged by “stack-up of costs for new developments, which is far greater than buying established properties, leading buyers to the established market”.

Lawless agrees.

“For developers it means the established market is likely to provide more competition, with greater availability of existing stock to choose from,” he said.

“And, as value growth slows or tracks backwards in some cities, its likely to become even more challenging for developers to demonstrate a feasibility or value proposition on newly built housing compared with the established market.”

Powell said developers face “affordability headwinds” but that there are opportunities to “ensure there are more stepping stones on the property ladder, that we have a diverse array of housing to meet the demographic changes that are coming at us over the next decade”.

But governments need to do more to help, said Powell, to build “the foundations that make development attractive”.

“The housing sector is one of the most taxed sectors of our economy. Estimates suggest that tax red tape adds 30 per cent to the cost of a new home,” she said.

“If we really wanted to do something about housing affordability, why won’t we reduce the tax burden on this sector to bring that supply to market?

“Since about 2005 we’ve had an undersupply of housing and yet there are still headwinds impacting the developer, the development sector, the supply sector.

“As a nation, we need to be visionary with our housing policies and building the Australia of the future and not the Australia of today.

“We need to make some big decisions around urban density, about infill, around upsizing parcels of land in our middle and inner suburbs. And apartments and units form a large part of that solution, but we need more of the missing middle, which is terraced homes and town homes.”