Melbourne and Sydney push house prices to their fifth straight month of decline

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Although house prices were much improved in September, Melbourne and Sydney pushed the national index down by 0.1%.

That's according to data from CoreLogic, which found prices improved in every other capital in the month, but with Sydney and Melbourne accounting for 40% of housing stock by number and 55% by value, national prices fell to their fifth straight month of decline. 

Darwin posted the strongest growth in September with prices up 1.6%, followed by Adelaide (0.8%) and Brisbane (0.5%), while Sydney's rate of decline has been steadily easing since July. 

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CoreLogic head of research, Tim Lawless, said Melbourne remains the main drag on the headline results. 

“By far the weakest result across the capital cities, Melbourne housing values were down 0.9% in September," Mr Lawless said.

"Since peaking in March, Melbourne values are down 5.5%. With restrictions starting to lift and private home inspections once again permitted, we expect to see activity lift in October.”

Change in dwelling values as at September 30, 2020

	Month	Quarter	Annual	Median value
Sydney	-0.3%	-1.6%	7.7%	$859,943
Melbourne	-0.9%	-3.3%	3.1%	$666,796
Brisbane	0.5%	0.0%	3.8%	$504,902
Adelaide	0.8%	0.9%	3.6%	$449,803
Perth	0.2%	-0.3%	-1.0%	$445,717
Hobart	0.4%	0.3%	6.4%	$489,059
Darwin	1.6%	2.3%	1.9%	$398,885
Canberra	0.4%	1.5%	6.3%	$644,581
Combined capitals	-0.2%	-1.5%	4.9%	$635,196
Combined regionals	0.4%	0.5%	4.3%	$397,791
National	-0.1%	-1.1%	4.8%	$554,372

Source: CoreLogic 

Regional markets have continued to outperform their capital city counterparts, with combined regional prices only falling 0.8% since March, while the capitals have fallen 2.6% in the same time. 

Mr Lawless said regional markets had held up better as they hadn't seen the same growth as capitals prior to COVID, and were now beneficiaries of a capital city exodus combined with working from home arrangements.

"Anecdotally we are also observing a transition of demand away from the cities towards the major regional centres, particularly those that are adjacent to the larger capitals where residents can commute back to the cities if required," he said.

"Remote working arrangements are no doubt a factor in supporting demand in these markets, but lifestyle opportunities and a desire for lower density housing options are also playing a part.”

What's driving the rebound in prices? 

Mr Lawless said the housing market still faced the challenges of a weak labour market, reduced fiscal support, and less mortgage deferrals, but a number of factors were supporting market conditions. 

“The aggregate effect of low mortgage rates, and the prospect that rates could fall further, low inventory levels, government incentives and improving consumer sentiment seems to be outweighing the negative economic shock brought about by the pandemic, “ Mr Lawless said.

Additionally, low advertised stock is creating urgency in the market when demand is still recovering. 

"While the number of advertised homes is 14% lower than a year ago, our estimate of home sales through the September quarter was 2.8% higher than the same time last year.

"The imbalance between available supply and housing demand is one of the reasons why housing values have hardly fallen through the COVID period so far, and helps to explain the recent upwards trend in values across some cities.”

Mr Lawless also said there hadn't been the expected rise in distressed listings or stock piling up in the market, with new listings being absorbed faster than the rate at which they're being added. 

House rents and unit rents a stark contrast 

The rental markets has diverged substantially between house and unit rents, with national house rents up 0.4% between the end of March and September, while units rents are down 3.3% in the same period. 

Sydney and Melbourne house rents are down 1.3% and 1.0% in that time respectively, while unit rents have fallen 5.0% and 5.5% respectively.

Mr Lawless said the significant difference in rental performance is a combination of supply and demand side factors.

“Investment grade apartment markets have seen significant supply additions over the past decade, with a large portion of new apartments built in Sydney and Melbourne," he said.

"The supply side has been further impacted by short term rentals transitioning to long term rentals. While supply has surged, COVID-19 brought about a significant demand shock from international and state border closures.

"Overseas migrants comprised a material component of tenant demand across inner Melbourne and Sydney, with many of these foreign students.”

Additionally, Mr Lawless said people in hardest hit industries like hospitality and retail, and the arts, are more likely to rent, which also negatively impacted rental demand. 

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