Mat Tiller's Market Update

 Values soften as buyers gain the upper hand

Australia’s housing market has softened further. Cotality’s Home Value Index fell 0.4% in June, the largest monthly decline since December 2022, taking annual growth to 7.3%. The bigger shift is that the national index appears to have peaked in March, with values down 0.7% over the June quarter.

That national result is being driven by Sydney and Melbourne. Sydney values fell 1.2% in June and Melbourne was down 1.0%, with Canberra also lower (-0.6%). In contrast, the mid sized capitals are still rising, but the pace has clearly cooled, Brisbane was up 0.3%, Perth 0.7%, Hobart 0.6%, while Adelaide was flat.

Affordability and borrowing constraints remain the starting point. The cash rate is still 4.35%, and higher living costs continue to weigh on household budgets. On top of that, weaker sentiment and policy uncertainty, particularly around investors following the Federal Budget, are adding to caution and reducing urgency.

What we are now seeing is the market adjustment showing up beyond prices. Auction clearance rates across the combined capitals have held below 50% since late May, and slipped into the low 40% range from late June. Estimated capital city sales over the three months to June were 16.2% lower than a year ago and 14.5% below the five year average for this time of year.

Listings are also changing the balance of power. Advertised supply across the capitals is broadly in line with the five year average, but is almost 11% higher than a year ago. Importantly, this is not because new listings have surged, it is because properties are taking longer to sell, so stock is accumulating. That is why buyers are feeling like they have more choice and more negotiating power.

Outside the capitals, regional markets are still outperforming. The combined regional index rose 0.3% in June and is up 1.1% over the quarter, although the pace is easing there too. Regional WA remains the standout, up 3.7% over the June quarter.

The rental market remains tight, which is still a key support. Cotality’s national rental index rose 0.5% in June, with annual rental growth holding at 5.9% over the financial year. Vacancy remains very low at 1.6%, and yields are edging higher, although holding costs are still high, which is keeping investors selective.

For sellers, pricing right matters more now. Buyers are more cautious, they are taking longer, and they will negotiate harder when there is more competing stock. For buyers, conditions are improving, there is more choice, longer selling times, and better scope to negotiate, particularly in the higher value segments and investor heavy markets.

Overall, the market is losing momentum and becoming more uneven. Tight labour markets, low new supply and population growth should help limit the downside, but the balance of risks has shifted towards weaker conditions through the second half of the year, especially where listings have lifted and demand has cooled.