Multi-speed markets: which cities face a cool-off

Property price growth across Brisbane, Perth and Adelaide could be on the verge of slowing down on the back of weakening economic conditions, affordability constraints and ongoing high interest rates.

According to CoreLogic Head of Research, Eliza Owen, the trio of cities have recently led Australia’s multi-speed market, while capital cities like Melbourne and Hobart had remained “in the doldrums”.

In a special report, Unpacking Multi-Speed Conditions in Australia’s Housing Markets, Ms Owen said Australia’s home values had soared 35.6 per cent since March 2020.

“The highest-performing markets have generally come off a low base, with housing conditions and demographic trends relatively weak over the years preceding the pandemic,” she said.

“Differences in capital growth trends are marked by the varied supply / demand balances of each city, and in turn migration, affordability factors and dwelling completions influence that supply and demand dynamic.”

At the moment, Ms Owen said the range of annual capital growth across our capital cities was wide.

In the year to May, growth ranged from a 22.05 per cent rise for Perth dwellings, down to a 0.12 per cent fall for homes in Hobart.

She said in the past 15 years the biggest range of growth stretched 23.7 percentage points in the year to September 2022.

At this time, the combined capital city market was moving into an annual decline off the back of a rate rise.

“At this time, Adelaide home values were still surging, up 17.1 per cent, compared with a 6.6 per cent decline in Sydney home values,” Ms Owen said.

“It could be that when shifts in the market happen, such as a negative demand shock from rate rises, that some cities are more responsive than others, creating a more dramatic range in capital growth outcomes in the short term.

“In the case of interest rate rises, it is understandable that an expensive, highly indebted market like Sydney would see a quicker response in value changes.”

Ms Owen said annual growth had recently started to slow across the combined capital cities due to high interest rate settings, weakening economic conditions and affordability constraints.

“This could mean a slowdown in growth across Brisbane, Perth and Adelaide is on the horizon, and could see the range of growth eventually narrow across the capital cities,” she said. 

She said affordability could become a drawcard in the cities where price growth has been more subdued in recent years, which would see the value gap between cities close.

“This would help to stabilise capital growth trends in the likes of Melbourne, Hobart and Canberra, and possibly draw down the capital growth rate across Perth, Adelaide and Brisbane,” she said. 

Ms Owen said other factors affecting different market speeds included the sales to new listings ratio or old-fashioned ‘supply and demand’.

The sales to new listings ratio is calculated by dividing the number of sales by the number of new listings over the same time period.

“When the ratio is one, it implies buyer demand and advertised supply is balanced: for every property listed for sale, there is one purchase,” Ms Owen said. 

“A sales to new listings ratio greater than one suggests strong selling conditions, as there is more than one transaction taking place for every new unit of supply.”

In the year to May, Adelaide, Brisbane, Perth and Sydney all had a ratio greater than one, while Melbourne and Hobart, had a ratio of less than one. 

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“The ratio is weakest in Melbourne, where there were 98,223 properties added to the market for sale in the past 12 months (the highest of any capital city), compared to 84,452 sales,” Ms Owen said.

Interstate migration can also impact multi-speed markets. 

“Part of the reason housing purchase demand may be softer across markets like Sydney and Melbourne, relative to Brisbane, Perth and Adelaide, could be because net interstate migration plunged to deep losses through 2021 and 2022 in NSW and Victoria,” Ms Owen said. 

“Queensland, in particular, attracted a lot of the outflow from the southern states, with additions to the Queensland population from net interstate migration totalling a record 51,517 in the year to March 2022. 

In Queensland, WA and SA, net interstate migration eased from pandemic highs in 2023 (and has turned negative in SA), but is still well above historic averages.”

Starting price point can also influence multi-speed markets.

Ms Owen said Perth home values had soared 62.6 per cent since the start of the pandemic but it was still playing “catch up” after a six year downturn from 2014. 

“Cities like Perth and Adelaide have grown rapidly, but they started at a low price point,” she said.

“The median dwelling value in Perth is currently sitting at around $740,000, which is still only sixth highest among the eight capital cities by median dwelling value, and relative to local incomes it is one of the more affordable cities.”

Ms Owen said investor interest in particular cities and states could also feed through to varying rates of capital growth in each market.

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