Mid-sized capitals drive property growth as Sydney and Melbourne stall
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Photo by Mitchell Luo
In a notable shift within the Australian real estate landscape, mid-sized capital cities are emerging as the primary drivers of property growth, while the traditionally dominant markets of Sydney and Melbourne experience a slowdown. According to Cotality’s latest national Home Value Index, dwelling values across the nation rose by 1.0 per cent in November, reaching an average of $888,941. This marks three consecutive months of growth, although at a slightly reduced pace from October’s 1.1 per cent increase.
The combined capital cities reported a 1 per cent increase in November, culminating in an annual growth of 10.6 per cent and a median dwelling price of $978,077. Cotality’s research director, Tim Lawless, highlighted the significant role of mid-sized capitals in driving this upward trend. “The skew towards the mid-sized capitals is especially evident in Perth, where listings are holding more than 40% below average, buyer demand is elevated, and the 2.4% monthly rise in dwelling values has added just over $21,000 to the median in November, roughly $5,000/week,” he explained.
Perth led the monthly surge with a remarkable 2.4 per cent increase in dwelling values, reaching $914,229 and recording an annual growth of 17.9 per cent. Brisbane, Adelaide, and Darwin followed closely, each witnessing a 1.9 per cent increase in November. The dwelling values in these cities now stand at $1,015,76, $891,004, and $578,871, respectively.
In contrast, Sydney and Melbourne, typically the powerhouses of the Australian property market, have shown signs of stalling. Sydney experienced a modest 0.5 per cent increase in dwelling values, bringing the median to $1,269,659, while Melbourne saw a 0.3 per cent rise, resulting in a median value of $823,495. Lawless attributed Sydney’s slower growth to affordability constraints and a smaller supply deficit. “Sydney’s lower monthly gain of 0.5 per cent may reflect affordability constraints limiting growth, with the city’s price momentum having peaked at 0.9 per cent in August,” he noted.
Additionally, Lawless pointed out the impact of falling auction clearance rates, which have been declining since mid-September. “Slower growth was also linked to falling auction clearance rates since mid-September, which dipped below the decade average, with Sydney and Melbourne hovering around 60 per cent in late November,” he said.
Looking ahead, the growth in housing values is expected to ease as inflation rebounds and interest rates are predicted to remain steady. “With inflation once again above the RBA’s target range and rates potentially on hold for the foreseeable future, it’s likely housing sentiment will suffer,” Lawless stated. He also highlighted the challenges posed by housing unaffordability, which has reached record levels. “Housing unaffordability has reached record levels, with the median home costing 8.2 times annual income and mortgage payments taking up 45 per cent of earnings,” he added.
The recent policy by the Australian Prudential Regulation Authority (APRA), which caps high-debt-to-income loans at 20 per cent of new lending, is not expected to significantly impact the market. “This new credit policy won’t be implemented until February next year, but even then, it’s likely to only affect the margins of borrowing activity,” Lawless concluded.
As the real estate market continues to evolve, the focus on mid-sized capitals underscores a broader trend of shifting dynamics within the Australian property sector. While Sydney and Melbourne may face challenges, cities like Perth, Brisbane, Adelaide, and Darwin are poised to capitalise on their growing appeal to buyers and investors alike.