CoreLogic’s latest Hedonic Home Value Index showed a 1.8 per cent increase in housing values across Australia as at 30 April 2021.

While it continues the growth run, it does ease the monthly pace of capital gains from the 32-year high recorded in March (2.8 per cent).

The report flagged that growth conditions over the past six months have become unsustainable and have led to a gradual slowdown in demand due to worsening affordability constraints, rising fresh inventory levels, higher levels of new detached housing supply and less government stimulus.

CoreLogic’s research director, Tim Lawless, is expecting the pace of capital gains to slow further in the coming months – off the back of increasing supply.

Over the four weeks ending 25 April, 40,630 new residential property listings have been added to the market nationally – which is 14 per cent above the five-year average.

Total advertised stock levels are still 25 per cent below the five-year average.

From Mr Lawless’ perspective, it signifies a continued improvement in vendor confidence.

But despite this growing confidence among sellers, the research director said the dampening of demand due to affordability constraints could still negatively affect the pace of capital gains moving forward.

“With housing prices rising faster than incomes, it’s likely price sensitive sectors of the market, such as first home buyers and lower-income households, are finding it harder to save for a deposit and transactional costs,” he flagged.

It’s already showing in the numbers, with figures from the Australian Bureau of Statistics showing a 4 per cent decline in the value of first home buyer home loans through February, the first drop since May last year.

Capital cities

Zooming in on the capital cities, Darwin recorded the highest increase in dwelling values at 2.4 per cent, followed by Sydney with 2.4 per cent, Adelaide with 2 per cent and Canberra with 1.9 per cent – making them the only capital cities to surpass the national average.

Meanwhile, Brisbane saw a 1.7 per cent increase, followed by Melbourne with 1.3 per cent, Hobart with 1 per cent and Perth with 0.8 per cent.

Darwin also saw the highest total return at 21.4 per cent, followed by Hobart with 19.2 per cent and Canberra with 18.7 per cent. The lowest return was recorded in Melbourne at 5.3 per cent.

Still, Melbourne had the second most expensive median house price at $744,679, following Sydney with $950,457. Adelaide, on the other hand, remained the most affordable capital city with a median value of $492,285.

While affordability constraints are expected to impact the market in the months to come, the upper quartile of the housing market is still currently leading the growth phase, CoreLogic did flag.

Over the past three months, the upper quartile of combined capital cities recorded an 8.8 per cent rise in dwelling values – significantly higher than the 4.1 per cent increase in values recorded across the lower quartile.

This trend has been especially prominent in Sydney, Melbourne, Brisbane and Adelaide.

“The large differential is partly explained by the stronger pace of growth in house values over unit values; however, the trend is also evident across housing types, with both upper quartile house values and upper quartile unit values driving a stronger performance,” the report highlighted.

Other capital cities, meanwhile, are recording “a more even performance” across the valuation quartiles, CoreLogic said.

Is tightened lending near?

Looking ahead, demand is expected to be supported by record-low mortgage rates and high levels of consumer confidence moving forward, anchored on improving economic conditions, CoreLogic said.

However, risks remain as the possibility of tighter credit policies loom, it added.

“The RBA and APRA have reiterated they are watchful for any signs of slipping credit standards, but have also noted there has been little evidence of a deterioration in lending standards to date.

“A rise in the proportion of riskier types of lending or higher-risk loans could be met with a new round of credit policies. We know from earlier periods of macro-prudential intervention that this would likely dampen market activity and the pace of capital gains,” CoreLogic concluded.