Momentary housing downturn over as rate cut boosts buyer sentiment and February rebound

Australia’s short-lived housing downturn is already over with the shallow three-month dip almost wiped out by a single month of growth.

Property values rose 0.3 per cent across the country in February, bringing prices back near record highs following a 0.4 per cent drop over the previous three months, CoreLogic’s monthly Home Value Index showed on Monday.

Even before homebuyers feel the effect of the Reserve Bank’s February rate cut, rising confidence was already contributing to a surge in demand, CoreLogic research director Tim Lawless said.

With interest rates still well above historical averages and price-to-income ratios near record highs, Mr Lawless was not expecting prices to pick up again so soon.

“It’s been quite an abrupt change of pace,” he told AAP.

“We’ve been seeing a pick-up in sentiment throughout the second half of last year, and the weekly sentiment indicator from ANZ has picked up post interest rate cut as well.

“So I think this is probably a signal that there’s been a boost to confidence, that buyers are probably starting to position themselves in the marketplace (ahead of future growth).”

Auction clearance rates also recovered to around long-run averages.

Buyers were looking to get ahead of the wave of demand that will follow easing interest rates and make the most of the lower prices on offer.

Markets that had experienced weaker growth in recent times, and offered a greater affordability dividend, led the rise in February, with Melbourne and Hobart both firming 0.4 per cent.

“That’s not shooting the lights out, but it’s certainly a big turnaround from a market like Melbourne, where values have been falling over the past 10 months,” Mr Lawless said.

Still, he reckons the market is unlikely to return to the same astronomical levels of growth seen in the last few years, with economists predicting interest rates to remain elevated for a while yet.

Prices at the premium end of the market outperformed, bouncing back after experiencing outsized falls during the recent slowdown.

The lower end of the market meanwhile saw the barest improvement in affordability.

A lack of new supply was keeping a floor under prices, with new listings across the capital cities tracking 4.7 per cent lower than a year ago.

Rents also jumped, but that was due to seasonal patterns, with prices traditionally rising at the start of each year as more leases are renewed and international students flow into the country.

The 0.6 per cent pick-up in rents was down from the 0.9 per cent rise the year previously, with the broader trend showing the rental market continued to ease.

Mr Lawless said affordability challenges would persist as long as supply remained constrained and neither major party’s election promises looked likely to make much of a difference.

“Regardless of any sort of initiatives aimed at getting more supply into the marketplace, it’s going to be a slow burn,” he said.

“One of the biggest challenges of getting more supply into the market comes back to availability of trades. That can’t be fixed anytime soon, especially with the competition against big infrastructure.

“Then you’ve also got the ongoing feasibility challenges of getting supply into the marketplace, especially medium-to-high density supply.”