SHARP REDUCTION IN THE RATE OF DECLINES
CoreLogic’s February Home Value Index showed a deceleration in the rate of property price falls last month, with the national index falling by just -0.14%, the smallest monthly decrease since May 2022.
The increase in Sydney dwelling values by 0.3% was the primary factor behind this trend. Darwin was the only city to record a steeper monthly fall in February, with every other city except Hobart seeing housing values fall by less than half a per cent.
Tim Lawless, CoreLogic’s research director, attributed the stabilisation in housing values to consistently low advertised supply levels and a rise in auction clearance rates. However, he also cautioned that the improving trend might be short-lived due to higher interest rates and lower sentiment.
Could prices have nearly finished falling?
The upper quartile of the combined capital city housing market drove the stabilising trend in February, with an increase of 0.1%. Although declines continued across the lower value segments of the market, they stabilised, with a -0.1% decline across the lower quartile and a -0.3% decline across the broad middle of the market.
In the past 12 months, the upper quartile has led the downturn, dropping by -13.5% in value across the combined capital cities, while the lower quartile rose by 1.7%.
Regional dwelling values fell by -0.3% in February, compared to a -0.1% decline across the combined capital cities. However, this result was mainly due to the monthly rise in Sydney housing values rather than a larger fall in the regional market values. The combined regionals index is down by -7.7% since peaking in June last year, while the combined capital cities index has dropped by -9.7% since peaking slightly earlier in April 2022.
While it’s too early to call the bottom of this market cycle, a growing number of Australians are of the belief that interest rates will have stopped rising by
spring and that rate cuts could be on the way for 2024. If that’s the case, and if a recession is avoided, prices may start rising once again.
Regional prices down, but hold on a moment…
Home prices across the regions fell -0.3% in February, which was more than the fall across all capital cities combined of -0.1%. However, this weaker result reflects the monthly rise in Sydney’s values rather than a larger fall in regional market values. Everywhere but the broader regions in NSW recorded a monthly outcome that was essentially the same or stronger, relative to city cousins.
Still ahead of pre-COVID prices
Taking everything into account, dwelling values remain higher than they were at the onset of COVID across every capital city and broad rest-of-state region, with Melbourne and Sydney having the smallest value buffer, at just +0.03% and 7.7% higher, respectively.
Regional SA and Adelaide have remained relatively resilient to value falls through the rate hiking cycle, with housing values surging through the upswing.
Inventory volumes remain low relative to previous years, however.
Monthly change in capital city home values
MONTHLY ANNUAL
Sydney p 0.3% q 13.4%
Melbourne q0.4% q 9.6%
Brisbane q 0.4% q 6.8%
Adelaide q 0.2% p 5.1%
Perth q0.1% p 2.4%
Hobart q 1.4% q 11.8%
Darwin q0.3% p 2.9%
Canberra q 0.5% q 6.7%
PRIME MINISTER ALBANESE RULES OUT TAXING FAMILY HOME
While the ALP’s announcement that it will double the tax applicable to superannuation accounts worth more than $3 million has alarmed homeowners and property investors, the Prime Minister has ruled out any change to the capital gains tax exemption on the family home.
This no doubt comes as an enormous relief to the 63% of Australians who own their home and have enjoyed the opportunity to not be taxed on any profit made when selling.
However, a lack of detail around other ideas floated by the Treasurer, such as capping the amount of superannuation Australians can hold at $3 million, has worried property market experts. Their concern is that at a time when there is a dire shortage of available and affordable rental properties, investors could be forced to sell properties in Self-Managed Super Funds – adversely impacting on the already small pool of available properties for rent.
And although the changes to super taxation only affect 80,000 Australians now, the $3 million figure has not been indexed. This means in 10 or 15 years’ time, when a great deal more Australians have inherited property from their parents, hundreds of thousands of people could be affected. Some have even gone so far as to question whether the Australian Labor Party is implementing a form of death duties by stealth.
GERRY HARVEY SAYS ‘SELL YOUR HOUSE, BOAT AND CAR’
When billionaire Gerry Harvey, the owner of retail giant Harvey Norman, recently said ‘sell your house, sell your boat, sell your car and put the lot in Harvey Norman’, he caught the attention of more than just a few Australians.
And while Harvey has been known to say this sort of thing before and you might be forgiven for considering he has an interest in strengthening his company’s share price, was there any merit in what he said and what was the thinking behind it?
Harvey Norman’s share price closed down 7.5% at $3.85 early this month, after the company revealed January sales were down 10.4%, but Harvey claims the stock is worth ‘six to eight bucks’. He further says that compared to the last normal period, pre-pandemic, profits have surged 71%.
So, what’s the rub and where does real estate come into this?
Harvey Norman’s property portfolio extends well beyond Australia’s shores. The company's property portfolio includes retail stores, commercial properties, and industrial sites located in Australia, New Zealand, Ireland, Northern Ireland, Slovenia, Croatia, Singapore, and Malaysia.
Harvey believes external valuers have underestimated the value of his portfolio, thought to be worth $3.9 billion, and his rationale is based on ‘scarcity’.
In an Australian Financial Review article, Harvey was quoted as saying he has 30 people in his property department trying to find sites, but virtually none are available in Australia.
‘If I do find one, the cost of the land has not dropped, it’s going up as I speak – there’s no sign of land prices dropping in retail and warehousing – and the cost of building is now 20 per cent dearer than two years ago.’
His property team evidently considers that if the properties were sold individually, they’d raise more than $5 billion. Their thinking is based on the premise of scarcity as well.
Throughout the pandemic and as we transition out of it, homeowners have been steadfastly holding on to their properties.
The volume of property for sale across Australia has been approximately 25% lower than normal as homeowners renovate instead of selling, while paying nearly 20% more for whitegoods and builders than pre-pandemic.
Australia’s property market functions ‘normally’ when there are around 250,000 properties for sale at any one time. At the time of writing this article, just 189,493 properties were for sale on realestate.com.au, which is 24.2% below what we would consider normal.
By any measure, that means there’s a scarcity of property available for you to buy right now. And, with real estate dynamics largely driven by confidence, supply and demand, Harvey has a point, and it may not just be his property portfolio that is undervalued at the moment.
CoreLogic agrees that limited supply is underpinning house prices and also slowing the rate at which they are falling. And when you consider that the Australian Prudential Regulation Authority (APRA) continues to insist that banks add 3% on top of the prevailing interest rate when assessing mortgage applications, despite calls for a review of pandemic-era mortgage applications, you might think that’s also holding back house prices too.
You wouldn’t find many Australians who would agree that property prices are ‘undervalued’ at the moment but arguably there are signs that we may be either at the bottom or approaching the bottom of this real estate cycle. Looking at auction clearance rates across the capital cities, which are currently close to 70% - the highest in the past 12 months - it looks like buyers may well agree.