The housing market has been on a rollercoaster ride since the World Health Organisation declared a global pandemic three years ago. Are market indicators shifting back to a pre-pandemic normal?
CoreLogic head of research Eliza Owen said major housing market metrics evolved over the years — while some are returning to normal, others are manifesting lasting changes brought about by the pandemic.
“Unprecedented expansionary fiscal and monetary policy, and subsequent tightening; heavy border closures, and reopening; and the normalisation of remote work amid lockdowns were pandemic biproducts that influenced housing markets,” she said.
“Housing market performance in the past three years shows extraordinary, record-breaking figures.”
Here are five significant changes the housing markets have seen over the past three years:
1. National housing values break several records.
The pandemic initially caused a decline in its onset — the lockdowns and the sharp decline in economic activity slowed down residential sales and listing volumes, which caused a 1.9% decline in prices between April and September 2020.
This, however, was followed by the sharpest upswing on record that was driven by the three-pronged monetary policy expansion that saw the cash rate to 0.1% and the stimulus payments of around $120bn.
The turnaround in economic activity from a sharp decline led to a more confident group of homebuyers, resulting to a surge in sales volume that hit a peak of 619,915 over the calendar year.
Then as the RBA started to increase the cash rate again, kickstarting the fastest consecutive uplift on record in May 2022, national home values started spiralling down.
The median dwelling price across the country has declined 9.1% to the end of February, which marks the largest downswing on record. Meanwhile, annual sales volumes were down 21.5% from the peak in December.
Yet despite all the slowdown, home values remained 14.8% higher than they were in March 2020.
“In recent weeks, there has been yet another surprising turn in housing market performance: the market has shown signs of stabilising,” Ms Owen said.
In fact, February saw a monthly decline of just 0.1%, the smallest drop in the index since May 2022.
“It may be too early to call the ‘bottom’ of the downswing due to further rate increases, and a looser labour market, expected in the coming months. However, as the rate hiking cycle slows to a pause later this year, it is possible the housing market will revert to slower, steadier growth patterns,” Ms Owen said.
2. Housing markets are not all moving in the same speed, at the same direction.
While the overall housing market has broken several records over the past three years, it is crucial to note that it remains a “very mixed bag”.
Take South Australia and Victoria for instance — over the three years to the end of February, home values in regional South Australia increased 47.6% while those of Melbourne returned to pre-pandemic levels chose to where they were at the peak of the previous cycle in 2017.
Overall, Adelaide rose as the biggest gainer, realising a growth equivalent to $211,097 in dollar terms. This was higher than the $119,830 gain in Sydney and the decline of $1,009 in Melbourne.
Perth was another standout amid the downturn, with values down just 0.9% from its recent peak in July 2022.
However, given the substantial price fluctuations in resource-based market such as Perth, its values are still only 6.5% higher than they were 15 years ago.
Ms Owen said the mixed results of individual housing markets were due to the fact that the more expensive ones are more sensitive to rate hikes.
“There are other factors at play, such as migration trends, and the relative rental return of different markets. Western Australia, where gross rent yields were relatively high at 5.0% in February, has seen outperformance in the volume of investment purchases relative to the rest of the country,” she said.
3. Migration is reverting to pre-pandemic trends, signalling an easing in the shift to the regions.
Net internal migration to regional Australia reached a peak of 44,674 in the year to March 2021. This was driven by two things: the increase in movers from capital cities and the drop-off in the number of people leaving the regions.
Over the past two years, however, net migration from capitals to regions has been trending down as many have already adopted to the “new normal”.
“Another factor may be the erosion of affordability in regions creating less incentive for locals to stay. The difference between the median capital city dwelling value compared to the median regional dwelling value has contracted from 63.4% in March 2020, to 32.3% in February 2023,” Ms Owen said.
Still, this is not to say that regional markets are losing the lustre. In fact, regional dwelling values remained 30.7% higher than at the onset of the pandemic.
“The normalisation of remote work among certain professionals, which is reinforced by current tight labour market conditions, may be contributing to this lasting value,” Ms Owen said.
4. Units are regaining the attention of buyers.
During the height of the lockdowns, buyers snubbed units for houses that offer more space.
The share of detached houses in overall residential sales peaked at 75.2% in October 2020. This was helped by the introduction of the HomeBuilder scheme in June 2020.
However, when the scheme ended in 2021, the trend started going back to pre-COVID norm.
In 2022, there was also a peak in the premium on national house values relative to units — the median house in Australia reached a record 32.9% above the median unit value. This has also since trended lower, with the median house value sitting 28.3% higher in February 2023,” Ms Owen said.
By 2023, units started regaining demand in both sales and rental markets.
5. Rental markets sustained the most lasting changes from the pandemic.
The rental markets seemed to have sustained the most significant changes during the pandemic.
Rent values initially declined 0.8% to August 2020, as an impact of international border closures. The declines were the steepest in Sydney and Melbourne.
The pandemic also triggered a sizeable decline in share housing, as tenants changed priorities, while investor activity also declined.
“The re-opening of international borders in 2022 has since led to a severe mismatch in supply and demand for rentals,” Ms Owen said.
“With net inflows expected to return to pre-pandemic levels this year, and a rental vacancy rate of just 1.0% in February, there is no indication of rents going backwards nationally.”
Rent values since the onset of the pandemic have ballooned by 23.1%, in sharp contrast to the decade average of 2.1%.
“The current rental market conditions have not only produced extraordinary growth in rents but are forming a precedent for what could be lasting political and structural change in housing,” Ms Owen said.
“Accommodations for built-to-rent housing, the banning of no grounds evictions and bans on rental bidding are just some of the recent reforms and proposals introduced in the past three years to shift the dial on rental conditions — whether or not these reforms will be effective for alleviating pressure in the rental market may be seen in the data over the next few years.”
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