As Australia’s housing market continues its post-pandemic rebound with monthly property price rises, new data shows that the price difference between houses and apartments has increased by a record 45 per cent over the past four years.
The figures from CoreLogic show that the gap between house and unit prices has sharply increased by almost $294,000 for three main reasons: rising underlying land values, the scarcity of freestanding homes available for purchase, and the desire for more space.
Between March 2020 and January 2024, house prices in capital cities rose by 33.9 per cent, or $239,000, while unit values in the capitals rose by just 11.2 per cent — equivalent to $65,235.
In the past 12 months alone, house values have risen by 11 per cent ($93,552) while unit values are up by 6.9 per cent ($41,789).
“It’s an underlying scarcity pushing up the value of the land, not the structure on top of it,” said CoreLogic’s research director, Tim Lawless.
“That’s probably been the key factor that’s driven up detached housing prices so much higher than units.
“If you want an affordable detached house, you need to look further and further afield from the city.”
Although house prices have traditionally been more expensive than medium and high density units and apartments even before the pandemic, every capital city has been affected by the change in the past four years — even with the resumption of interest rate hikes by the Reserve Bank.
“It’s not like this is just Sydney or Melbourne pushing the numbers around, it’s happening across every capital city to some extent,” Mr Lawless said.
“But it is clear that Sydney has seen the biggest difference. Coming into the pandemic, there was about a 33 per cent premium for houses, that’s now risen to 68 per cent.”
Mr Lawless said the widening gap between house and unit prices in Sydney’s property market appeared to be “counterintuitive”.
“As a [housing] market, it’s the most expensive and has the most affordability challenges, yet we’ve seen it also record the biggest widening between house and unit values,” he said.
“It suggests that the buyers seem to be willing to pay this premium to have some space, to have a yard in a detached home.
“Or maybe it simply reflects this underlying scarcity value of land that’s really pushing prices higher, but once again, people are still prepared to pay that.”
Mr Lawless said that the widening of the gap was proof that house prices were becoming increasingly unaffordable for more people, particularly first home buyers and households with lower incomes.
“With housing affordability remaining a key challenge across Australia, the substantially lower price points across the medium to high density sector are likely to become increasingly in demand as buyers become more willing to sacrifice space for proximity to essential amenities,” he said.
A future of cheap houses or expensive units?
With the widening gap between house and unit prices, Mr Lawless said it was a likely scenario that apartment prices would increase.
“I think that’s probably a fair enough outlook, that we will see more demand being deflected towards the medium and high density sectors, and that’s where people’s budgets will probably carry them, not really due to any preference shifts,” he said.
“It’s also probably fair to say, given how much this gap has opened up between houses and units, that units are becoming undervalued, at least in relativity to houses.
“So with that in mind, you can also see it in the rental yields, where gross rental yields for units have always been higher than houses have been, but again that gap has widened to some extent, which also probably just reflects undervaluation in relativity to detached housing for the unit sector.”
Comparatively, Peter Tulip, the chief economist at the Centre for Independent Studies, said that the prices of both houses and units would fall because of “offsetting influences” on relative prices in two areas.
Assuming more apartments were being built, Mr Tulip said it would push both apartment and house prices down — but would likely have a greater effect on apartment prices.
Mr Lawless said there is “some risk” that house prices will come down in the medium to long term.
“Simply because if we do start to get our act together in terms of getting supply in the market, if that does ultimately get delivered, then it could have some levelling out or some downwards pressure on housing prices,” he said.
“But I’ve got to say, that seems to be an outside scenario at the moment … we have this aspirational target from the federal government of delivering 1.2 million well-located homes in the next five years, and we’re not making any progress towards that, at least in the early stages.”
For that to be achieved, Mr Lawless said it would require 20,000 dwellings to be approved every month, but only 14,000 are being approved currently.
“I simply can’t see that target being achieved, and it looks like the market will continue to be under supplied over the coming years,” he said.
The end of the great Australian dream?
Mr Lawless noted that house values rising at a faster rate than units has been a “long ongoing trend” since before the pandemic, and anecdotally said it appeared Australia’s “love affair with land” was the biggest underlying driver.
“I think that really highlights that the underlying scarcity of land in our largest capital cities is the key driver here, and maybe you could add that town planning and restrictive zoning, maybe not allowing enough lower density supply into the market, or our willingness to build infrastructure connecting outer fringe suburbs where we can cut up more land and deliver more housing as well,” he said.
“But given how sharp the change has been from the pandemic through now, I think that also demonstrates the second thing, which is that Australians still seem to have a love affair with land.
“It’s still loosely described as the great Australian dream, that people want their own block of land with a house on it and a bit of space, and I think that premium for space became apparent through the pandemic, and it seems to have held on.
“We’re not really seeing any major difference in these trends. We’re still seeing house values rising at a faster pace than unit values over the most recent 12 month period.”
But Mr Lawless said it was unlikely that the great Australian dream would undergo a modern transformation.
“I wouldn’t be surprised if we do start to see more demand being deflected towards the medium and high density sector, and by that I mean townhomes all the way through to high rise units, simply because that’s where people’s budgets are going to be taking them,” he said.
“I wouldn’t necessarily say more Australians will be having a preference shift and preferring to live in a unit over a house, that’s probably more of a change out of necessity.
“If we want to see more people getting into home ownership, it probably means we will see more people opting for a higher density option, given the lower price points.”
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The rise in Brisbane property prices last month caught many people by surprise, but experts are divided on whether the surge will continue through the rest of year.
CoreLogic says values rose more than 13 per cent in 2023 and lifted a further one per cent in the first month of this year.
Regional values rose a tad under nine per cent last year and half a per cent in January.
There was a recurring theme as hopeful buyers inspected a recently listed inner-Brisbane apartment on a muggy afternoon this week.
Buyers still feeling FOMO
Phoebe told the ABC the fear of missing out is real.
“It’s the competition really that we’re struggling with. There’s not a lot on offer and places are just getting snapped up super quick,” she said.
“Prices are skyrocketing and it’s a race against the clock really to get into the market.”
Another potential buyer added: “It’s frustrating as we see things coming up, and by the time we get to the first inspection, an offer has already been made.”
Angus Kizil said he was lucky enough to purchase his first home in Indooroopilly last year.
“It’s been a journey, some really fierce competition — [at] the inspection of the property I bought, probably 100 people turned up,” he said.
He believes a lack of government investment to incentivise residential construction is to blame.
“Unfortunately, given that backdrop, I’ve personally formed the view that the market is just going to keep going,” Mr Kizil said.
“You can’t change the rules of the game, so you have to sort of look after yourself, and my partner and I are looking at getting investment property as a result.”
What’s driving the gains?
CoreLogic head of research Eliza Owen said Brisbane’s median property value of almost $800,000 remains attractive to a wide range of people.
“It’s still got a relatively affordable price point with more value for money than what we see in the major southern capital cities,” she said.
“There’s also been very intense levels of interstate migration.
“It pulled back a little to about 30,000 people over the year to June 2023, but that’s still almost double the decade average of interstate migration levels.
“That, coupled with the return of overseas migration, is really driving up demand pressures across Brisbane.”
Economist Diaswati Mardiasmo said Brisbane was becoming more of a “world city”.
“If we look at all of the buildings that are currently being built, we’re seeing more seven-star hotels, upgraded entertainment centres, really very much kind of becoming a little bit more like Sydney,” she said.
How much will prices increase?
Dr Mardiasmo said the market would cool slightly in 2024 compared to last year’s rises.
“I would say that we’ll see anywhere between a three to five per cent increase between now and the next three months, and then another five per cent in the back end of the year,” he said.
But Ms Owen said she did not expect price rises to continue at the rate seen last month.
“I think we could see a slight easing in the growth rate though for the rest of the year,” Ms Owen said.
“Even though migration trends to Queensland are expected to remain strong, there are lots of headwinds for households in terms of savings, the unemployment rate and how much people can just afford to keep paying for these dwellings.”
After an explosion in popularity following the pandemic, Dr Mardiasmo said regional values would also cool marginally.
“It’s not going to be that double-digit that we saw back in 2021 and 2022 in that post-COVID boom,” she said.
“But we are still seeing that very strong anywhere between 7 to 9 per cent growth in regional areas.”
Low stock levels also a problem for sellers
With property prices at a record high, you’d be forgiven for thinking homeowners would be eager to cash in.
But Ms Owen said property stock levels were 30 per cent lower than what the capital would historically see.
“In the construction space, we’re still seeing elevated labour and material costs, which have slowed down the rate at which new dwellings are established,” she said.
“Even prospective sellers are in a bit of a deadlock because if they put their property on the market … where are they going to go?”
Brisbane real estate agent Brett Andreassen said the interest in properties lifted last month.
“The main factor for that is the lack of stock on the market,” he said.
“But there’s a bottleneck at the moment for stock where there’s a lot of people who would want to move, but because they’ve got nowhere to move to, they’re staying put.
“And then a lot of people who would typically go and rent somewhere for the short term aren’t moving because of the rental situation.”
What about the rental market?
Ms Owen said a sharp uptick in rental prices had many Brisbane renters looking for roommates.
“We’ve seen a bit of an alarming trend in the past few months with a reacceleration in growth in rents across Brisbane, particularly in the house market,” she said.
“I think the reacceleration in house rents could actually be a result of more share housing occurring, with people looking to spend more on their rental dwelling, but less per bedroom.
“And so in a weird way, it does actually help alleviate rental costs for some.”
Three capital cities continue to power the national property market, with prices rising by 0.4 per cent in January to start off the new year.
It marked the 12th straight month of value rises.
CoreLogic’s head of residential research Eliza Owen believes there’s more in store for the housing market in 2024.
“Nationally, we’re expecting house prices to rise, but probably at a slower rate than what we saw last year,” Ms Owen said.
“I think at the higher end of the market, like Sydney, for example, … we would expect to see a slowdown in growth.”
With that in mind, here’s how Australian house and unit prices are looking in each capital city for January.
What’s the most expensive city to buy in?
Data from CoreLogic says Sydney is still the most expensive place to buy a property, with a median house value of almost $1.4 million.
But in terms of how capital city property prices changed in January, Perth topped the list.
Meanwhile, prices decreased a fraction in Melbourne, Canberra and Hobart.
Here’s a quick rundown of how prices changed in January:
- Perth: Up by 1.6 per cent
- Adelaide: Up by 1.1 per cent
- Brisbane: Up by 1 per cent
- Darwin: Up by 0.3 per cent
- Sydney: Up by 0.2 per cent
- Melbourne: Down by 0.1 per cent
- Canberra: Down by 0.2 per cent
- Hobart: Down by 0.7 per cent
Now let’s get a more detailed look at the capital cities.
We’re looking at house prices and unit prices separately, and when we use the term “dwelling” we’re talking about both of them together.
- Monthly change: 1.1 per cent increase
- Adelaide median house value: $774,969
- Median unit value: $490,313
Properties in Adelaide are still relatively affordable, with the median dwelling value sitting just over $720,000 — below the $759,437 national median.
Adelaide has seen home values rise at more than 1 per cent month-on-month over the last eight months.
- Monthly change: 1 per cent increase
- Brisbane median house value: $888,628
- Median unit value: $568,595
It was the pockets on the outer fringe of Brisbane that recorded the biggest price gains over the past 12 months, led by:
- Mt Gravatt: up 23.5 per cent to a median value of $1,127,102
- Nathan: up 23.3 per cent to a median value of $1,088,117
- Sunnybank: up 21 per cent to a median value of $1,019,314
Since the onset of COVID-19, Brisbane property values have lifted 52 per cent — the second highest growth recorded, with Adelaide taking the crown at 53.7 per cent.
- Monthly change: 0.2 per cent decrease
- Canberra median house value: $968,248
- Median unit value: $586,891
- Monthly change: 0.3 per cent increase
- Darwin median house value: $578,342
- Median unit value: $372,152
- Monthly change: 0.7 per cent decrease
- Hobart median house value: $692,619
- Median unit value: $535,603
Hobart property values have been declining month-on-month since November 2023.
They remain 12 per cent below their March 2022 peak.
Over the past 12 months, Hobart North East (3.2 per cent) and Brighton (0.4 per cent) are the only two suburbs to record positive value growth.
- Monthly change: 0.1 per cent decrease
- Melbourne median house value: $942,750
- Median unit value: $608,181
Melbourne house prices didn’t change in January while unit prices went down by 0.3 per cent.
The city has now recorded three back-to-back monthly declines in property values.
Since the onset of COVID-19, Melbourne has recorded the smallest lift in house prices out of all the capital cities at 10.9 per cent ($76,155).
- Monthly change: 1.6 per cent increase
- Perth median house value: $708,335
- Median unit value: $475,011
Perth home values rose more than $11,000 in January, continuing the capital’s trend of prices rising by more than one per cent a month.
CoreLogic research director Tim Lawless identified Perth as a stand out among the capital cities for a persistently rapid rate of capital gains.
“The western capital continues to see housing demand outweigh supply, helping to push values 16.7 per cent higher over the past 12 months,” Mr Lawless said.
“Despite that, housing prices remain relatively affordable compared with most capital cities, with the median dwelling value sitting just under $677,000.”
- Monthly change: 0.2 per cent increase
- Sydney median house value: $1,395,218
- Median unit value: $828,525
Growth in Sydney home values in January remained on par with last month, lifting 0.2 per cent.
Here are the areas that performed the strongest over January:
- Sydney’s Inner West: up 0.7 per cent
- Parramatta: up 0.5 per cent
- Blacktown: up 0.5 per cent
Dwelling values remain 2.4 per cent below their January 2022 peak.
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House prices are on track to continue rising across the country, propelled by renters and migrants wanting to buy their own homes and buyers trying to get in ahead of interest rate cuts expected later this year.
Data from CoreLogic shows that house prices rose nationally, up 0.4 per cent in the month of January (compared to 0.3 per cent in December), and 8.7 per cent across the year.
It marked the 12th straight month of value rises, with Perth (+1.6 per cent for the month), Adelaide (+1.1 per cent) and Brisbane (+1 per cent) leading the gains.
Sydney was up marginally (+0.2 per cent), while Melbourne (-0.1 per cent), Canberra (-0.2 per cent) and Hobart (-0.7 per cent) went slightly backwards.
Rents had their strongest monthly rise since April, up 0.8 per cent in January, following a 0.6 per cent rise in December.
The median price of a home is now $1.12 million in Sydney, $796,818 in Brisbane and $777,250 in Melbourne. The national median is $759,437.
But for those looking to break into the market, getting a home loan might be easier.
The Reserve Bank is expected to keep rates on hold at its next meeting thanks to the latest lower inflation read, and economists are tipping there will be rate cuts later this year.
CoreLogic’s head of residential research, Eliza Owen, says buyers are trying to get in ahead of expected rate cuts later in the year.
“The uplift that we’re seeing could be a reflection of an anticipation that interest rates have peaked,” she said.
But there was still “a mix of headwinds and tailwinds in store for the market”.
“Economic conditions are weaker, the savings rate is reduced, and consumer sentiment is low … but so far, the housing market … has continued to rise,” she noted.
“Nationally, we’re expecting house prices to rise in 2024, but probably at a slower rate than what we saw last year.
“I think at the higher end of the market, like Sydney, for example, … we would expect to see a slowdown in growth.
“We’re already seeing pretty mild growth rates and declines across markets like Canberra and Melbourne, where home values are also high.
“That comes back to limits associated with high interest rates. And the fact that even relatively high-income earners are seeing a limitation to their borrowing capacity or might just be deterred from the high interest costs associated with those home purchases.”
Ms Owen said the rental market would see continued price increases, “but possibly at a slower rate than what we saw in 2023”.
More buyers are opting for homes over units
House values have continued rising at a faster rate relative to unit values in January, with the gap between the median capital city house and unit values rising to a record high of 45.2 per cent in January.
Across the combined capitals, detached housing values rose by half a per cent during the month, adding about $4,800 to the median house value while units increased a smaller 0.1 per cent, or a $900 lift.
Despite worsening housing affordability, the volume of home sales has held slightly above average during the past three months.
CoreLogic estimates there were 115,241 dwellings sold over the three months ending January.
That’s 11.9 per cent higher than the same period last year and 0.5 per cent above the previous five-year average for this time of the year.
Ms Owen said Australians were willing to pay a higher premium for a detached home.
“If you zoom in over the month of January when housing values rose and rose at a slightly faster pace, it was definitely houses that outperformed units,” she said.
“Whenever there is a bit of an upswing or more exuberance in housing values, it’s really detached houses that lead the charge. They’re popular, especially with owner occupiers and accrue more value over time because of the attached land. So generally, they are expected to outperform unit values.
“But it’s been a pretty extraordinary month where we’ve seen the premium of the median house value over units rise to a record 45 per cent.
“That’s up from a pre COVID decade average of about 15 per cent. And means that the median house is about $300,000 more than the median unit in capital cities.”
Regional markets are now showing a stronger trend in value growth relative to the capital cities.
The combined regional index rose 1.2 per cent during the quarter compared with a 1.0 per cent rise across the combined capitals.
First time buyers to return, competing against migrants, overseas buyers
Real estate agents expect more first home buyers will return, opting for townhouses or newly renovated homes further away from city centres.
“Eventually there’ll be rate cuts, but they’re buying for the long term; they’re buying for the next 10 years,” says Peter Schenck director Ray White Blackburn in Melbourne.
“I’m expecting the market to perform pretty well. I would imagine our clearance rates … are going to be hovering around about 70 to 80 per cent.”
After some negotiation on price, Natalie (who did not want her surname used) just bought her first home in Australia’s second biggest property market.
She wanted to get in ahead of what she expects will be a mad rush later this year and chose to buy a townhouse in Melbourne’s east for $1.16 million.
“It’s definitely been difficult and stressful trying to figure out whether we will be able to afford the mortgage repayments if interest rates go up, but hopefully now that they’ve started to settle, we should be OK,” she said.
“We tried to start looking at the end of last year, just hoping that perhaps … people were scared off with all the current interest rates and thinking that it would stay around the same for the next six to 12 months. We really wanted to try and get something earlier this year.”
But at another auction in the eastern suburbs of Melbourne, first-time buyers Joseph Kang and Kelly Ke are still getting priced out of the market. They are having to compete against migrants and overseas buyers who want homes in the same area.
“We initially started off looking for like a smaller townhouse, but then even those were kind of getting up there in price,” Mr Kang said.
“So we thought might as well just kind of move further out and get a bit more space.”
Rowan Liew, associate director and auctioneer at Buxton Box Hill in Melbourne, says as the cost of building a new home goes up, more people are opting for newly-renovated homes.
“What we do find is that properties that are maintained well, new-build properties are a little bit higher in demand at the moment,” he said.
“Construction costs (have) been going up for quite some time now. After doing a feasibility report, people find themselves a little bit better off buying something that’s already ready to move into.”
Regardless of when interest rates fall, he thinks migrants and overseas buyers will still be bidding.
“We do work with a few immigration agencies that have buyers who are not really affected by the interest rates,” he said.
“Those buyers are a little bit more cashed up.”
The numbers: Home prices in the 20 biggest U.S. metros rose for the tenth month in a row and hit a record high due to a low number of listed homes.
The S&P CoreLogic Case-Shiller 20-city house price index rose 0.1% in November compared to the previous month.
Home prices in the 20 major U.S. metro markets were up 5.4% in the last 12 months ending in November.
A broader measure of home prices, the national index, rose 0.2% in November and was also up 5.1% over the past year. All numbers are seasonally adjusted.
The 20-city and the national index are at an all-time high.
Key details: Detroit posted the biggest year-over-year home-price gains in November. Prices were up 8.2%. The city was the best performing real-estate market for the third month in a row.
Portland was the only city which saw home prices fall in November.
|Change from last year
A separate report from the Federal Housing Finance Agency also showed home prices rose 0.3% in November from the last month, and were up 6.6% in the past year.
Big picture: Even though mortgage rates were elevated between October and November — which sapped home-buying demand — the persistent and severe lack of supply of homes for sale has resulted in prices rising yet again.
With an imbalance between demand from home buyers and a reluctance among homeowners to sell and give up their ultra-low rate, the dynamic is likely to persist.
Particularly since rates have fallen since November and demand has ticked up, home prices will likely continue to march upwards into the new year.
What S&P said: “November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with our National Composite rising 5.1%,” Brian D. Luke, head of commodities, real and digital assets at S&P DJI, said in a statement.
Most markets are seeing home prices grow, he added. “The days of markets in the South rising double digits with markets in the Midwest remaining flat are over,” Luke said.
And with mortgage rates falling since November, that could “support further annual gains in home prices,” he added.
Looking ahead: “With mortgage rates now lower and spring home buying demand already lurking, home prices will continue to rise,” Selma Hepp, chief economist at CoreLogic, said in a statement.
That’s “especially considering the outsized pent-up demand for homes coming from young buyers, those who have been waiting for lower rates, and huge influx of immigrants over the last couple of years,” she added.
Market reaction: Stocks
were up in early trading on Tuesday. The yield on the 10-year Treasury note
was over 4%.
US home prices climbed 5.2% year-over-year in November, according to CoreLogic.
Falling mortgage rates and a dwindling supply have helped prop up the market.
“This continued strength remains remarkable amid the nation’s affordability crunch,” economist Selma Hepp said.
US home prices have continued to climb, according to CoreLogic data, with tumbling mortgage rates helping prop up the nation’s supply-starved housing market.
The analytics firm said Tuesday that prices jumped 5.2% year-on-year nationwide in November, up from a 4.7% gain the previous month.
It expects them to rise another 2.5% over the next 12 months, despite expectations that slowing economic growth could chip away at Americans’ spending power in 2024.
The US housing market stagnated last year – but there have been signs of a thaw in recent months, with mortgage rates falling away from 23-year highs.
The average 30-year fixed-rate mortgage has dropped from 7.9% in late October to 6.6% as of January 4, per data from Freddie Mac. Lower borrowing costs tend to boost demand, driving house prices higher.
Consistently low inventory levels have further fueled the run-up in prices, with the US short anywhere between 1.5 million and 5.5 million homes, according to estimates by the Biden Administration and the National Association of Realtors.
“This continued strength remains remarkable amid the nation’s affordability crunch but speaks to the pent-up demand that is driving home prices higher,” CoreLogic’s chief economist Selma Hepp said. “Markets where the prolonged inventory shortage has been exacerbated by the lack of new homes for sale recorded notable price gains over the course of 2023.”
Home prices rose the most in the US’s northeastern region in November – with the Rhode Island, Connecticut, and New Jersey housing markets each experiencing double-digit year-over-year growth. Meanwhile, prices fell in Idaho, Utah, and Washington, D.C. over the same period.
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