Peak, peak or peak? How to read the current real estate market
As CoreLogic’s Director of Research Tim Lawless explains, at this point that peak still seems to be coming, but things are starting to slow down, leading to a lot of speculation as to whether 2022 will be the year we’ll see the onset of a market downturn.
The current state of play
In 2021, Australian home values rose by 22.1%, which Mr Lawless described as an “extraordinary rate of growth not seen since the 1980s”.
Now, he notes that the growth rate is slowing in the capital and in “rest of state” markets.
When to Call a Spike in Home Values
“To classify a market spike in a region, we generally look for a consistent pattern in negative monthly movements,” Lawless said.
“To date, the quarterly trend remains positive across major regions, with the sole exception of Darwin Homes, which is the only housing sector in the capital to register a negative quarterly change.
“Darwin’s reading may be more volatile than other cities due to the small market size, so it may be too early to call a peak in this market even though the quarterly growth rate has turned negative.”
Maximum vs Maximum Growth Rate
“While we can’t see any evidence that specific housing markets have peaked, it’s clear that most markets have reached a peak rate of growth,” Lawless said.
“What I mean by that is when the markets reached their highest monthly growth rate. We saw most capitals experiencing a peak growth rate around March of the year. last. “
- Sydney’s monthly growth rate peaked at 3.7% in March and has since fallen to 0.3%.
- Melbourne’s monthly growth rate peaked at 2.4% in March, falling to -0.1% in December (the first monthly decline since October 2020).
- Perth’s monthly growth rate peaked at 2.7% in February. After registering a single month of decline (-0.1% in October 2021), the monthly growth rate accelerated again to reach 0.4% in December.
- Hobart’s monthly growth rate peaked at 3.3% in March and fell to 1% in December.
- Darwin reached a monthly growth peak in April at 2.7% (0.6% in December).
- Canberra hit a monthly high in March at 2.8% (0.9% in December).
Market Exceptions and Future Expectations
“The only major regions that are avoiding a slowdown in the pace of house value growth are Brisbane, Adelaide and regional Queensland,” Mr Lawless said.
“These markets benefit from a healthier level of accessibility compared to larger capitals, as well as a positive demographic trend and still low advertised inventory levels.
“We could see our two biggest capital markets, Sydney and Melbourne, peak later this year, although the timing is very uncertain and dependent on a wide range of influences.”
Three main factors that determine when and if a market spike will occur
“There are a lot of moving parts that will affect the trajectory of housing outcomes,” Lawless said.
The three main factors impacting market movements are:
- Policy factors, such as interest rates and credit availability
- Market factors such as trend of advertised inventory levels and housing affordability
- Economic factors such as labor market conditions and wage growth
“It’s arguable that the surge in Covid cases associated with the Omicron variant could push back some of these policy tightening decisions, with APRA or RBA unlikely to tighten their policy parameters with so much uncertainty associated with the latest numbers. case,” Mr. Lawless said.
“There is also downside risk from a delayed economic recovery associated with lower spending and heightened uncertainty, although a slower-than-expected economic recovery implies rates would stay lower for longer.”
Key signals from CoreLogic indicate a market is approaching its peak
Mr Lawless said that normally housing growth trends will gradually slow before moving into a correction phase.
“That’s what we’re seeing right now,” he added.
“However, this is not always the case. During periods of shock such as the GFC or at the start of the pandemic, housing trends turned quite abruptly into negative territory.
Other signs to look out for include:
- Increase in advertised stock levels
- Affordability Constraints
- Weakening of auction settlement rates, and
- Easing vendor parameters, such as longer days on market and higher discount levels.