Rising House Prices Not Uniform, Affordability Continues To Deteriorate

CoreLogic capital city home prices in January rose by 0.4% m/m and 10.4% y/y after 0.3% and 9.5% in December. Prices are running well above trend and are now over 10% higher than the 2023 trough. But recent rises have not been uniform across cities with three seeing house price declines at the start of 2024, including Melbourne, while three posted increases above 1%. So far the housing recovery is not boosting consumption with household spending still soft.

Australia CoreLogic capital city home prices

Source: MNI - Market News/Refinitiv

• CoreLogic notes that house prices continue to outperform units with the January gap rising to a record high of 45.2%.
• With working population growth at 3% y/y due to strong immigration there is robust demand for housing in an environment of tight supply. The December dwelling approval data showed that the situation is unlikely to improve soon and so upward pressure on home prices is likely to persist. CoreLogic reports that sales in the 3-months to January were 0.5% above the 5-year average.
• Assuming Q4 disposable income grows at the average of the previous four quarters, housing affordability deteriorated further in Q4 with the 1.8% q/q rise in prices plus the slight increase in mortgage rates resulting in our index deteriorating 2pp and it now stands over 45% below trend, the worst since the series began in 1980.
• Q4 rents rose by 7.3% y/y but rising house prices mean that the dwellings remain overvalued as measured by the ratio of house price to rents. On our measure they are currently 11% overvalued up from 10.4% in Q3.

Source: MNI - Market News/Refinitiv