Australian property prices advanced by a stronger-than-expected 3.0% in the December quarter with gains being reported in all capital cities according to the latest data published by the ABS this morning. The emergence of the pandemic and associated restrictions on activity in the residential property market prompted a 1.8% fall in house prices in the June quarter, however; the reopening of the economy and a range of policy stimulus measures including low rates, the HomeBuilder policy, and incentives for first home buyers has more than retraced this decline. Following on from a 0.8% rise in the September quarter, the 3.0% lift in this most recent quarter has driven national house prices to 2.0% above their pre-pandemic level from the March quarter.
To the details where the strongest price gains (in %age terms) in the December quarter came through in Canberra (3.4%) and Melbourne (3.4%), with the latter rebounding after two consecutive quarterly declines due to the longer shutdown that occurred there. The next best was Hobart (3.1%) followed by Sydney (3.0%). The Brisbane, Adelaide and Perth markets recorded gains in the mid to high 2% range in the quarter.
A full summary of the price movements for each capital city in both the detached and unit segments is shown in the table below. A trend that remained intact in the December quarter was the continued outperformance in detached house prices compared to unit prices. While detached prices fell by more than unit prices in Q2 (-2.1% to -1.2%), the former recovered much more sharply over the second half of the year rising by 4.5% over the period compared to a 2.1% rise for units. Key factors driving this spread have been the effects of the pandemic, with demand for units reduced due to the closure of the international border, while the stimulus measures have been more targeted towards detached housing, particularly incentives to build new homes.
While the onset of the pandemic had a noticeable impact on house prices across the nation, the reopening and the effects of policy stimulus measures have come during a time of much lower levels of supply advertised on the market than in recent years, all of which contributing to turning prices higher again in all capital cities (see chart below). Timelier gauges of house prices have shown the gains have extended into 2021, with CoreLogic reporting national capital city price rises of 0.7% in January and 2.0% in February, the latter being the strongest month-on-month lift in the 17-year history of the series.
Certainly, the recent momentum in house prices reflects the depth of the stimulus response. From a 1.8% fall in Q2, national house prices rebounded with gains of 0.8% in Q3 and then a further 3.0% rise in Q4. This takes the national index to 2.0% above its pre-pandemic level. Most capital cities have seen a similar trend play out, but it has been the smaller markets outside of Sydney and Melbourne that have seen the strongest rebounds overall (see chart below). For the time being, and as seen by the ongoing momentum in prices since the turn of the year, the effects of the stimulus response are outweighing more medium to longer-term headwinds to prices from very low population growth and (eventually) increased supply once the houses already approved are built. Additionally, should conditions get too hot, macroprudential controls to slow the pace of lending growth could be called on by policymakers.
