Six of eight capitals record a monthly rise in unit values
CoreLogic’s national unit index increased in March, with six of eight capitals recording a monthly rise in unit values. It was the first increase in 11 months, according to CoreLogic.
Unit values across Australia lifted 0.6% over March, taking values to just -0.4% lower over the quarter, with the annual decline trend slipping to -5.3% over the year to March, from -5.6% over the 12 months to February.
Kaytlin Ezzy (pictured above), CoreLogic economist, said excess demand from the extremely tight rental market, strong overseas migration, as well as the tonal shift and subsequent pause in Reserve Bank rate hikes could have pushed up demand while total unit listing levels remained well below average.
With national house values posting a similar monthly rise of 0.6%, the uptick has many wondering if the nation has passed through the bottom of the market downturn.
“It’s looking increasingly like we have moved through a trough in unit values; however, a number of headwinds are still apparent, including further rate rises, an expectation for weaker economic activity through the year, and the potential for a lift in advertised stock levels,” Ezzy said. “However, as we move through a possible inflection point, it can be useful to compare the current unit downswing to both previous periods of value decline and to the cumulative value drops seen in the house market.”
The cumulative decline in national dwelling values posted in January overtook the 2017-2019 downswing as the largest on record, dragged down by the -9.7% fall in house values through the first nine months of the downswing. National unit values, on the other hand, dropped -6.1% between April 2022 and January 2023, which was moderate relative to both the house value falls and to previous unit peak-to-trough declines.
Unlike the house and broader dwelling market, the cumulative decline in national unit values since April 2022 was behind both the 1989-91 downswing (-8.3%) and 2017-19 drop (-7.0%), and also behind 1989-91 in terms of speed.
“If this month’s improvement in values isn’t a false start, it's likely we won't see much momentum in the recovery phase until a catalyst for a new growth phase becomes apparent,” Ezzy said. “For example, a decrease in interest rates, renewed fiscal stimulus such as first-home buyer incentives, or an easing in credit policies such as a reduction to APRA’s serviceability buffer could see an increase in housing demand.”
The shift to a more positive trend in unit values was geographically broad-based, with both the combined capitals and combined regional markets seeing a monthly rise in values, up 0.6% and 0.2%, respectively.
After a mild 0.1% lift in unit values through February, Sydney posted the strongest monthly growth in unit values across the capitals, up 1%. This was followed by Melbourne, with a 0.4% rise. Brisbane, Adelaide, and Perth unit values all saw a 0.2% rise in March, while Canberra recorded a mild 0.1% increase. Hobart (-0.4%) and Darwin (-0.6%) were the only capitals to record a monthly decline in unit values, with the pace of decline holding steady with the previous month.
“Given that upper-quartile markets typically lead both the up and down swing, it’s unsurprising that Sydney unit values are recording the strongest growth among the capitals,” Ezzy said. ‘With a median value of more than $775,000, units across Sydney are more expensive than the median house values of Brisbane ($772,020), Adelaide ($694,818), Hobart ($691,859), Perth ($593,385) and Darwin ($582,415).”
Across the rest-of-state regions, both Regional Tasmania (1.5%) and Regional NSW (0.7%) saw unit values rise in March. Regional Queensland values held flat over the month, while Regional WA, Regional Victoria and Regional SA posted declines of -0.8%, -0.1% and -0.1%, respectively.
Despite the flow of newly advertised capital city unit listings climbing 1.7% above the previous five-year average over the four weeks to April 2, the total stock of capital city unit listings remained roughly -10.7% below average.
“While it’s typical to see the flow of new listings rise ahead of Easter, the four weeks to April 2nd was the first time the capital city unit trend rose above the previous five-year average since mid-September last year. This is likely to be a seasonal peak in the new listing trend, with listing activity typically cooling through winter before ramping up again in spring,” Ezzy said.
National unit rents continued to surge at roughly twice the pace of house rents, lifting 1.6% and 0.8% over the month and 3.9% and 2%, respectively, over the first quarter. The combined capitals saw a record quarterly rise in unit rents, up 4.4% over the March quarter, equivalent to a $23 per week rise in the average rental value ($550), driven by the strong return of overseas migrants and international students.
“The mismatch between rental supply and demand has seen capital city rental growth reaccelerate, which will be unwelcome news to many tenants already struggling to find affordable rental accommodation,” Ezzy said.
Over the four weeks to April 2, the total number of advertised capital city rental listings was -38.1% below the previous five-year average. That’s equivalent to a shortfall of roughly 42,000 rental listings, approximately 65% of which were in the unit sector. Total capital city unit rental listings contracted -43.2% or 27,332 below the average level typically seen this time of year, resulting in capital city unit vacancy rates falling to a new record low of 0.8% in March. Houses recorded a similar record low vacancy rate of 1.1%.
Across the capital city unit markets, Sydney (5.3%) and Melbourne (4.3%) saw their quarterly rental growth trend reach new record peaks, with the majority of overseas migrants settling in the two largest cities. In Perth, Brisbane, Hobart, and Adelaide, unit rents increased by 4.6%, 3.5%, 3.4%, and 2.2%, respectively, over the first quarter. Canberra experienced a mild lift of 0.5%, while Darwin saw unit rents slip -0.4% over the March quarter.
“While units across each of the capitals and rest-of-state regions still offer a more affordable rental alternative compared to houses, the stronger rental growth seen in the medium to high-density sector, in part due to their relative affordability, has seen the gap narrow,” Ezzy said. “At the capital city level, the gap between the median house and unit rental value has narrowed from $85 this time last year to $65 in March.”
National gross rental yields for units rose another four basis points in March to 4.56%. Despite the increase, net yields would have likely continued to drop, with increases in the cost of debt outstripping the lift in rental income.
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