Property Market Update July 2023: Navigating Australia’s Dynamic Real Estate Landscape

The Australian property market continues to display its characteristic dynamism, with shifts in supply and demand, economic factors, and regulatory changes shaping the landscape. Whether you are considering buying, selling, or investing in property, understanding the latest trends and market conditions is essential for success.

However, it is important to recognize that the property market is not only influenced by market forces but also by a complex array of financial and taxation considerations. That’s why consulting with an experienced accountant or financial advisor is important. These professionals can offer personalized advice and guidance.

This Property Market Update will provide a comprehensive overview of key indicators, such as median house prices, rental yields, and market sentiment across major cities and regions in Australia. We will look into the factors driving these trends, including economic indicators, government policies, and demographic shifts. By examining both macro and micro perspectives, we aim to equip you with the knowledge needed to make well-informed decisions in this dynamic market.

So, join us as we delve into the latest developments and insights in Australia’s property market and explore the July 2023 Property Market Update together and unlock the potential that lies within Australia’s property market.

Australian housing values moved through a fourth month of recovery, with CoreLogic’s National Home Value Index rising 1.1% in June, decelerating slightly from the 1.2% gain recorded in May. Since finding a floor in February, the national measure of housing values has gained 3.4%. It remains -6% below peak levels recorded in April of 2022. That’s the equivalent of the median dwelling value being about -$46,000 below the record highs seen last year.

Every capital city except Hobart saw dwelling values rise in June, with Sydney continuing to lead the cycle up another 1.7% in June to 6.7% higher since values found the floor in January. In dollar terms, Sydney’s median dwelling value is rising by roughly $4262 a week.

A lack of available supply continues to be the main factor keeping upwards pressure on housing values. Through June, the flow of new capital city listings was nearly -10% below the previous five-year average and total inventory levels are more than 25% below average. Simultaneously, a June quarter estimate of Capital City sales is tracking 2. 1% above the previous five-year average.

Although housing values continue to record a broad-based upswing, the growth pace across most capitals eased in June, potentially reflecting a change in sentiment as interest rate expectations revise upward. Higher interest rates and lower sentiment will likely weigh on the number of active buyers, helping to rebalance the disconnect between demand and supply.

Regional housing values have also trended higher, albeit at a slower pace relative to the capitals. The combined regionals index has risen by a total of 1. 2% since the recent low in February. The softer housing trend relative to the capital aligns with a shift in demographic factors. After regional population growth boomed through the worst of the pandemic, internal migration trends have normalized over the past year, resulting in less housing demand across the regional markets. Additionally, housing demand from overseas migration is traditionally skewed towards the capital cities rather than the regions.

Despite the recent uptick, most regions continue to see housing values below their recent cyclical highs. Hobart housing values have recorded the largest cumulative decline, holding 12. 9% below the record high in May last year. Across the capital cities, Perth is the only capital where home values are at record highs, having recovered from the relatively mild 0.9% decline through the downturn. Adelaide home values are only 0.3% below record highs and are likely to reach a new record high in July.

The imbalance between supply and demand has seen selling conditions turned in favor of vendors rather than buyers. Auction clearance rates across the combined capitals were in the highest 60% range through June, in stark contrast to late last year when clearance rates were below 60%.

Outside of auction markets, vendors have become less flexible when it comes to pricing expectations, with Capital City discounting rates tightening from 4.3% late last year to 3.6% in June.

Rental conditions remain diverse across the nation, but there is growing evidence that the rate of growth in rents is easing. The National Rental Index increased to a further 0.7% in June, which is still well above the pre-COVID average of 0.2% month-on-month. However, the rate is a continued deceleration and the smallest monthly rise since January of 2023.

Similarly, the annual growth trend in capital city rents has eased from 11.7% in April to 11.5% in June, while the combined regional areas of Australia have seen a more significant reduction in annual rental growth, slowing from 4.9% from the record-high of 12.5% over the year to September 2021.

While rental vacancy rates have generally ticked a little higher over recent months, they remain well below average levels.

Higher vacancy rates are most evident across regional Australia, rising from 1.3% in February 2022 to 1.5% in June this year. However, even at 1.5%, the current rate is less than half the decade average of 3.3%. Vacancy rates across the combined capitals have risen from 1% earlier this year to 1.1%, but are holding well below the decade average of 2.8%.

Sydney Property Market:

Sydney housing values continued along a rapid recovery trajectory in June, with housing values up 1.7% in the month. Though the rate of growth was down from 1.8% in May. Sydney’s recording the fastest rate of appreciation in housing values across the capital by some margin.

Sydney KEY STATISTICS

Change in dwelling values
Three months	▲4.90%
Twelve months	▼-5.10%
Avg. annual growth past decade	▲6.0%
Median value
Median dwelling value	$1,073,924
Median house value	$1,324,396
Median unit value	$808,407

The strongest growth conditions are evident across the upper quartile of the market, where housing values rose by 5.7% through the June quarter, compared with a 3% gain across the lower quartile.

Sydney KEY STATISTICS

Rental rates and yields
Weekly rent:	Houses	$750
	Units	$700
Gross rental yield:	Houses	2.70%
	Units	4.10%
Selling time and discounting
Time on market:	Jun 23	32
	Jun 22	31
Vendor discount:	Jun 23	-3.80%
	Jun 22	-4.30%

Geographically, quarterly gains ranged from a 6.7% jump in dwelling values across Sydney’s northern beaches to a 2.5% gain across the Central Coast.

Melbourne Property Market:

Melbourne housing dollars have been trending higher over the past four months, rising by 2.3% after declining 9.6% through the recent downturn. Low levels of advertised supply are a key factor supporting Melbourne’s growth, with advertised stock levels tracking 7.3% below the previous five-year average.

Melbourne KEY STATISTICS

Change in dwelling values
Three months	▲ 1.80%
Twelve months	▼ -5.70%
Avg. annual growth past decade	▲ 4.50%
Median value
Median dwelling value	$762,537
Median house value	$918,971
Median unit value	$601,174

House and unit values are showing a similar performance through the recovery phase so far, up 2.4% and 2.3% respectively since finding a floor.

Melbourne KEY STATISTICS

Rental rates and yields
Weekly rent:	Houses	$550
	Units	$530
Gross rental yield:	Houses	3.00%
	Units	4.60%
Selling time and discounting
Time on market:	Jun 23	31
	Jun 22	28
Vendor discount:	Jun 23	-3.80%
	Jun 22	-3.70%

However, house values have further recovered after dropping 11.2% compared with a smaller 6.2% decline in unit values. Across the subregions of Melbourne, the quarterly change in values ranged from a 2.6% rise across the northeastern suburbs to a 0. 6% lift across Melbourne’s West.

Brisbane Property Market:

Home values posted the second-largest monthly rise of any capital city in June, with a 1.3% lift. Since finding a floor in February, Brisbane dwelling values are up 3.1%. However, the market has further to go before recovering the 11% drop in values recorded through the downturn.

Brisbane KEY STATISTICS

Change in dwelling values
Three months	▲ 3%
Twelve months	▼ -8.2%
Avg. annual growth past decade	▲ 4.5%
Median value
Median dwelling value	$725,397
Median house value	$806,781
Median unit value	$512,262

Most homeowners remain in a very strong equity position, with Brisbane housing values still 30.1% higher than at the onset of COVID back in March 2020.

Brisbane KEY STATISTICS

Rental rates and yields
Weekly rent:	Houses	$600
	Units	$550
Gross rental yield:	Houses	4.00%
	Units	5.40%
Selling time and discounting
Time on market:	Jun 23	27
	Jun 22	17
Vendor discount:	Jun 23	-3.60%
	Jun 22	-3.60%

With advertised stock levels holding 42% below the previous five-year average, buyers don’t have much choice, supporting a reduction in the median selling time to 27 days and then narrowing vendor discounting rates to 3.6%.

New mortgage borrowers continue to be assessed a mortgage rate 3 percentage points higher than the origination rate. Lenders have also become more cautious with further reductions in high debt-to-income ratios and loan-to-valuation ratio lending. As we saw through the periods of higher macro prudential policies and higher serviceability assessments between 2017 and 2019, credit availability plays an important role in housing markets.

Another key risk for housing conditions is the potential for a rise in advertised housing stock. Low inventory levels have arguably been the most important factor placing upwards pressure on housing prices. A change in the supply dynamic could become evident in spring when the flow of new listings would typically start to ramp up. We could also see more listings flow onto the marketplace if mortgage stress becomes more widespread.

We aren’t seeing any signs that advertised housing stock is rising, at least at a macro level. Some areas, such as Hobart, have seen listings rise to above-average levels, but from a very low base. This will be a key trend to watch moving forward.

While the downside risks to the housing sector are clear, some mitigating factors include record levels of net overseas migration, a burgeoning undersupply in housing, and an expectation that labor markets will hold reasonably tight.

Net overseas migration is expected to reach 400,000 this financial year, which is almost 27% above the previous record high recorded in 2008. While overseas migrants typically rent rather than purchase on arrival, the increase in overall housing demand will likely support housing values as demand spills over from the rental sector and long-term migrants make a purchasing decision.

At the same time, the pipeline of approved housing supply is around decade lows and trending lower, setting the housing sector up for an undersupply of newly built homes over the medium term. NIFIC is forecasting Australia’s housing sector will be undersupplied to the tune of around 175,000 dwellings by 2027. Such a significant underbuild is another factor likely to support housing prices.