House price growth slows as market cycle winds down

The duration of an Australian property cycle can vary, but it generally refers to the recurring phases of growth, peak, decline, and recovery in property prices and market conditions.

Typically spanning several years, property cycles are influenced by a range of factors, including economic conditions, shifts in buyer and investor sentiment, and the changing balance of supply and demand in the housing market.

Noting that this result marks 22 consecutive months of growth for home values, the company cautioned that this increase “could be close to the last in this cycle”, with CoreLogic’s research director, Tim Lawless, adding that “the downturn is gathering momentum in Melbourne and Sydney”.

Over the last month, Melbourne recorded a 0.4 per cent decrease in housing values, marking the latest in a series of 10 monthly declines over the year, which have contributed to an annual drop of 2.3 per cent.

In Sydney, the company highlighted that August likely marked the peak of the city’s growth cycle this year, with values levelling out in September before falling by 0.2 per cent in both October and November.

Capital city growth diminishes as regions hold strong

While Lawless acknowledged that the “mid-sized capitals and most of the regional ‘rest of state’ markets continue to provide some support for growth in the national index”, he emphasised that it is “clear momentum is also leaving these markets”.

Demonstrating this market sentiment, the report noted that on a rolling quarterly basis, four of the eight capital cities reported a decline in values, with Melbourne leading with a decrease of 1 per cent, followed by Darwin (-0.7 per cent), Sydney (-0.5 per cent), and Canberra (-0.3 per cent).

Despite Perth’s pace of capital gains continuing to lead the nation, the company said the state’s 1.1 per cent monthly increase and 3 per cent rolling quarterly change marked the softest rise over a three-month period since April 2023, and represented less than half of the 6.7 per cent growth recorded in the June quarter.

Brisbane’s rate of growth over the last three months eased back to 1.8 per cent, representing the slowest pace of gains since March 2023, while Adelaide’s 2.8 per cent increase in values over the quarter marked the smallest result since June 2023.

In contrast, CoreLogic said that regional housing trends have been slightly stronger than those in the capitals, with the combined regional index increasing by 1.1 per cent over the quarter, as opposed to the 0.3 per cent rise across the combined capitals.

Performance was also observed to vary significantly across the regions, with regional Victoria weighing on the overall figures by dropping 0.9 per cent across the rolling quarter, while every other regional market continued to post modest gains, with regional Western Australia leading the way with growth of 3.3 per cent.

Supply increases as sales ease

The weakening in market conditions for housing was noted to coincide with a rebalancing in available supply as vendor activity lifted over spring, with a view of the volume of houses and units advertised for sale over the four weeks leading up to 24 November revealing that capital city listings were up 16 per cent since the end of winter.

While Perth (33 per cent) and Adelaide (25 per cent) reported the greatest boost to advertised stock levels over spring, the company noted that this increase came from an “extremely low base”, with total listings remaining “well below average” in the cities.

A surge in listings in Sydney and Melbourne resulted in levels tracking 10.4 per cent and 9.1 per cent above their previous five-year averages respectively, to register at their highest level for this time of the year since 2018.

Nevertheless, CoreLogic said that purchasing activity nationwide appears to be slowing down, with the company’s estimate of capital city homes sales over the past quarter registering 4.6 per cent lower than a year ago and 2 per cent below the previous five-year average.

The most significant decline in home sales was observed in Sydney, where sales over the rolling quarterly were estimated to be 15.4 per cent lower than the previous year, and 15.1 per cent below the five-year average.

Future outlook for value growth

CoreLogic highlighted that slowing overall value growth, rising advertising stock levels, disproportionate demand, and the diminishing likelihood of a rate cut early next year to ease economic troubles, in stating that “housing markets are likely to be arriving in 2025 on a relatively weak footing”.

While the company noted that an undersupply of newly built housing could provide some support for housing values in the next year, Lawless said lessening population growth and the challenges around residential construction could challenge this outlook.

“The residential construction sector continues to face feasibility hurdles in getting new housing stock to market, with materials and labour costs having surged over the past five years,” Lawless said.

“Significant competition from major public sector infrastructure projects is likely to keep prices for labour and materials high across the residential construction sector.”