House Prices Continue Uneven Climb Higher, Affordability Deteriorates

Australian home prices continued to rise at 0.6% m/m in April to be up 8.7% y/y but not all cities are rising at the same pace with Sydney and Melbourne lagging the other capitals, according to CoreLogic data. With the working age population rising almost 3% y/y in March and Q1 average building approvals running 10.1% below Q4, housing shortages and price pressures are likely to persist.

• CoreLogic notes that the lower end of the market is seeing strong growth in most regions, as poor affordability bites. Price growth for units has exceeded houses over the last 3 months.
• Transactions tend to be a lead indicator of prices and sales have stabilised since November’s RBA hike but they are still 5.1% higher than average. CoreLogic expects sales to remain lacklustre until the RBA eases providing some relief for affordability.
• We estimate that affordability deteriorated further in Q1 falling to 44% below trend from 43%, which would be the worst since our series begins in 1980. We assume that nominal disposable income rose 1.2% q/q, in line with the 2023 average. House prices rose a similar amount in Q1 and variable housing loan rates increased just under 0.1pp.
• Q1 rents increased 7.8% y/y up from 7.3% in Q4. House prices-to-rents, our measure of valuation, fell slightly in the quarter but housing is still just under 10% overvalued down from 11% in Q4.

Source: MNI - Market News/Refinitiv/CoreLogic