Rising interest rates, inflation drag down buyer sentiment
National unit values fell for the second straight month in June as rising interest rates put further downward pressure on Sydney and Melbourne, according to new data from CoreLogic.
CoreLogic’s Home Value Index recorded a 0.4% decline in national unit values in June, taking values 0.2% lower over the quarter. Australia’s medium- and high-density unit markets have been slightly more resilient than detached houses, which posted value drops of 0.7% over the month.
Nationally, house values are still outpacing unit values both quarterly and annually, CoreLogic said. However, the 12-month performance gap between houses (12.5%) and units (6.8%) has nearly halved, dropping to 5.7 percentage points from a 10.9-percentage-point gap in September 2021.
Affordability continues to be a major driver for declines in unit values. While capital city unit values dropped 0.5% in June and 0.7% over the past three months, this drop was driven primarily by declines in capital cities’ most expensive markets, with upper-quartile unit values dropping by 2.2% over the quarter.
CoreLogic economist Kaytlin Ezzy said other price points are yet to record a quarterly value drop.
“The quarterly fall in capital city unit values is being led by declines in the most expensive markets,” Ezzy said. “Over the June quarter, values for units in the broad middle market remained flat, while the lower quartile – the most affordable 25% of the market – increased in value by 2%. This illustrates the diverse growth conditions across the unit sector, even as the pace of growth eases across these value segments.”
Sydney’s median unit value ($821,150) recorded the strongest decline, dropping 1% in June and 2.1% over the past three months, CoreLogic reported. After five straight months of value drops, Sydney units are now just 3.5% higher than they were at this time last year, and 2.9% below the peak value recorded in November.
In Melbourne, unit values dropped 0.6% in June and 0.5% over the quarter. Hobart, which has the smallest relative gap between house and unit values, saw unit values drop 0.3% over the month.
The number of listings in Sydney and Melbourne has also normalised throughout the year, helping to ease demand, CoreLogic reported.
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“At the end of June, total advertised unit listings were 15.4% above the previous five-year average in Sydney, and 20.3% higher than Melbourne’s five-year average,” Ezzy said. “More choice has helped rebalance buyers’ power at the negotiating table and has taken some of the urgency out of the market that was seen at the beginning of 2021.”
Adelaide’s unit market is the only capital city or rest-of-state house or unit market that has not yet shown signs of a slowdown in growth, recording a new peak monthly rate of 1.7%. The quarterly growth rate also hit a new peak of 4.9% in June, CoreLogic reported.
“Adelaide is the outlier in terms of unit performance at present, partially due to an extraordinary shortage in stock,” Ezzy said. “With approximately 1,100 units advertised for sale at the end of June, Adelaide’s total listing levels are 35% below the level seen this time last year and 45% below the previous five-year average.”
Ezzy said that while value changes remained positive across the remaining capital cities, the pace of growth dropped significantly between the first and second quarters of 2022.
Brisbane’s quarterly growth fell from 4.6% over the three months to April to 3.5% over the June quarter. Similar slowdowns were seen in Canberra, Perth and Darwin, which recorded quarterly increases of 2.6%, 1.1% and 1%, respectively.
Recent CoreLogic analysis found that 68.2% and 59.4% of Sydney and Melbourne house and unit markets, respectively, recorded a quarterly drop in unit values, while only 5.6% and 5% of suburbs in Brisbane and Adelaide recorded a fall over the quarter.
Regional unit values were somewhat more resilient than capital cities, rising 0.2% in June and 2% over the quarter. Despite regional units posting significantly stronger annual value growth than capital cities – 19.5% compared to 4.7% – regional units are still relatively affordable, Ezzy said. At about $520,000, the combined regional median unit value is about $125,000 cheaper than the combined capital cities’ median value.
The outlook for units, like that for houses, continues to skew toward the negative as interest rate hikes, inflation and global uncertainty drag down consumer sentiment. As the market shifts further into the downwards phase of the cycle, the value drops recorded across upper-quartile unit markets are likely to become more broad-based, CoreLogic said.
