How has the hiking cycle impacted home values?

Property data and analytics company CoreLogic has released an analysis of how Australian house prices have fared since the tightening of monetary policy.

On Tuesday (7 May), the Reserve Bank of Australia (RBA) decided to hold the cash rate at 4.35 per cent – the position at which it has been since November 2023.

With May 2024 marking exactly two years since the central bank began hiking rates, CoreLogic has analysed how house prices have fared over the 24 months.

According to CoreLogic, average house prices across Australia have risen 2.8 per cent since April 2022 (the beginning of the rate hiking cycle).

This compared to the 31.7 per cent home value increase noticed in the two years preceding the hiking cycle, when the cash rate was at a record low of 0.10 per cent.

According to Tim Lawless, research director at CoreLogic, the minimal capital gain since April 2022 was a result of the 7.5 per cent decrease in home values that occurred between May 2022 and January 2023.

Lawless said that while property values have been continuously increasing, it is important to remember the “short and very sharp downturn that occurred” following the first rate hikes.

He said that the average national value of house prices was not entirely indicative of the broader housing market across Australia. For example, Perth had the most significant increase in average house values (25.7 per cent), equating to a $154,293 increase. The average dwelling value in Perth is now $753,947.

In contrast, Hobart house prices have decreased by 11.2 per cent since April 2022 by $87,700, with an average house now costing $692,004.

Sydney house prices have only increased by 0.4 per cent over the last two years, by $6,352, and the average house price sat at $1.42 million as at May 2024.

In the two years prior to the rate hiking cycle, Sydney house prices increased by 35 per cent (or $366,824).

CoreLogic noted that Melbourne, however, had a 4.2 per cent decrease in house prices since the rate hiking cycle began, reducing the average cost of a house by $41,244 to $753,947.

Speaking on the diversity of the housing market across the states, Lawless said: “Such a discrepancy in growth rates highlights the diversity of market conditions over the past two years. This reflects the complexity within local markets.

“While some cities have exhibited resilience driven by robust economic fundamentals and housing demand, others such as Melbourne, Hobart, and Canberra, where housing is more affordable now compared to two years ago, have grappled with factors such [as] higher supply, affordability constraints, and weaker demographic trends.”

Speaking on why Melbourne home values decreased, Lawless said: “Melbourne’s under-performance relative to other capital cities is due to several factors. The city experienced softer housing market conditions through the pandemic, which coincided with a sharp drop-off in net overseas and record-low interstate migration rates.

“More recently, this has been compounded by a raft of policy changes that has dampened buyer confidence despite surging overseas migration and a slowdown in the interstate migration outflow.”

Suburb breakdown

CoreLogic also found that 43.6 per cent of suburbs across the country hit record-high house prices at the end of April 2024, demonstrating resilience to rate hikes.

The analytics provider found that Western Australia made up nine of the top 10 suburbs that had the strongest house value growth since 2022.

However, 37.9 per cent of suburbs also recorded a decrease in dwelling values, particularly in Hobart, Melbourne, and the ACT.

According to CoreLogic, 98 per cent of Hobart suburbs recorded a decrease in dwelling value, followed by Melbourne (87.8 per cent) and the ACT (87.6 per cent).

“Hobart and Canberra were buoyant with housing activity during the height of the pandemic but they’ve since faced a rise in listings, affordability constraints, and subdued demographic conditions such as negative interstate migration levels,” Lawless said.

“Even in the face of higher mortgage rates and reduced borrowing capacity buyers, including investors, have turned to Perth and Adelaide for their relative affordability, strong rental conditions and higher gross rental yields.

“The demand has outweighed supply, which has contributed to pushing values significantly higher over the past year.”

[Related: Rate hike considered but not yet appropriate: RBA board]