CoreLogic's national Home Value Index (HVI) rose by 0.3% in October, marking the 21st month of growth since the cycle began in February of last year.
Several factors have contributed to the cooling market, including rising interest rates, which have increased borrowing costs and reduced buyer demand. Additionally, economic uncertainty and affordability concerns have made potential buyers more cautious. These elements combined have led to a slowdown in the previously robust real estate market.
Perth, with a 1.4% increase over the month, led the mid-sized capitals in a subtle positive movement. There were declines in Darwin (-1.0%), Canberra (-0.3%), Melbourne (-0.2%) and Sydney (-0.1%), as well as regional Victoria (-0.2%).
There has been a slowdown in national home value growth as the housing market cools. Compared to the peak annual growth rate of 9.7% in February, this rate has fallen to 6.0% over the 12 months ending October.
The -0.1% decline in Sydney home values was the first since January 2023. Values dropped -12.4% between February 2022 and January 2023. Market conditions are weakest in the most expensive areas. This is due to a -0.6% decline in upper-quartile house prices over the month and a -1.1% decline over the last three months. In contrast, Sydney's lower-quartile house and unit values rose half a percent in October.
Tim Lawless, CoreLogic's research director, noted capital cities have consistently seen stronger performance at the more affordable end of the market.
“A combination of less borrowing capacity and broader affordability challenges, as well as a higher-than-average share of investors and first home buyers in the market is the most likely explanation for stronger conditions across the lower value cohorts of the market.
“The past three months has seen the lowest quartile either record a higher growth rate or smaller decline relative to the upper quartile or broad middle of the market across every capital city except Canberra.”
The mid-sized capitals still lead value growth, but they are also losing momentum. There was an increase of 1.4% in Perth's value over the month. It is still well down from the February to June period earlier this year. Average monthly gains were over 2%. Since March, Adelaide values have risen by more than 1%. October's 1.1% gain marks the lowest monthly increase since June. The 0.7% monthly gain was Brisbane's lowest since July.
Advertised stock levels have increased along with slow home value growth. From January to October 27th, advertised inventory in the combined capitals has increased by 12.7%. In Perth, listings have increased by 20.6%, although the base was extremely low.
“Total listings are now 13.2% above the previous five-year average in Sydney and 13.0% higher in Melbourne,” Lawless said. This helps to explain the weaker conditions in these markets as buyers benefit from more choice and less urgency in their decision making.
“Despite the rise in listings across the mid-sized capitals, Perth, Adelaide, and Brisbane are still seeing advertised stock levels more than -20% below the five-year average for this time of the year. These markets remain well and truly in favour of sellers, although the balance is starting to gradually improve.”
Despite an increase in advertised supply, home sales are declining. Capital city sales activity decreased -7.5% over the three months ending October. There was a -1.6% decline from last year.
Selling conditions have changed due to higher levels of advertised supply and lower purchasing activity. Throughout most of October, auction clearance rates in capital cities were below 60%. Median days on market for private treaties are rising, particularly in cities with higher advertised stock levels.
Experts predict that the cooling trend may continue into the coming months, influenced by further potential interest rate hikes and ongoing economic challenges. However, some analysts believe that once the market stabilises and affordability improves, buyer confidence may gradually return, potentially leading to a modest recovery. The overall outlook remains cautious, with regional variations expected as different areas respond uniquely to the shifting economic landscape.