#32: Reduced Internal Migration, National Price Growth, Rising Homebuilding Approvals, Slow Economic Growth & Increased Property Listings

Reduced Internal Migration Slowing Regional Markets: Population Trends Impact

Regional property markets outperformed capital city markets earlier in the year, but now the situation has flipped, partly due to shifting population trends.

The combined regions experienced a median price increase of 1.3% in the July quarter, compared to 1.8% in the combined capitals, according to CoreLogic.

By comparison, in the April quarter, prices rose 2.2% in the regions and 2.0% in the capitals.

“Affordability constraints, normalising listing levels and elevated interest rates have seen the pace of growth ease from a recent peak across both markets. Additionally, demand for regional housing has eased as internal migration to the regions has slowed back to more normal levels,” CoreLogic said.

Of the 50 largest regional markets, 20 experienced price declines during the July quarter—all of which were located in New South Wales and Victoria. The strongest regional market right now is Queensland, followed by Western Australia.

National Median Rises Another 0.5%: Growth Slows Amid Affordability Constraints

Australia’s median property price increased for the 19th consecutive month in August, but the rate of growth is slowing, according to CoreLogic.

CoreLogic said “affordability constraints are a key factor behind the broader slowdown.” Another factor is the interplay between supply and demand: “At a high level, there is still more demand for housing than available supply, but the flow of advertised supply and demand are becoming increasingly balanced.”

Nevertheless, CoreLogic forecast the national median price would continue rising over the remaining months of 2024, albeit at a modest pace.

“While there is a clear slowdown in growth, housing values are underpinned by a longer-term lack of new supply, which has been exacerbated recently by ongoing constraints in the residential construction sector,” according to CoreLogic.

“Buyer numbers have slowed amid high cost of living pressures, but vendors in most markets will likely be empowered to delay their home sale if buyers do not meet their price expectations.”

Homebuilding Approvals Rising, But Remain Below Average: Supply Still Constrained

While the supply of new housing continues to remain quite low, homebuilding approvals numbers have now increased for the fifth time in six months.

As a result, approvals have risen from a recent low of 12,877 in January to 14,797 in July, according to the most recent data from the Australian Bureau of Statistics. That's an increase of 14.9%.

Breaking down the figures into property type, approvals increased 20.2% for houses and 5.5% for other dwellings (such as apartments, townhouses, and semi-detached homes) during that time.

However, two notes of caution need to be sounded:

1. Despite the upwards trend in approvals, they're still below the 10-year average.
2. Approvals don't automatically translate into completions, because a percentage of owners and developers always decide not to proceed with their project after securing permission.

GDP Rose Just 1.5% Last Financial Year: Slow Economic Growth Ahead of Rate Cuts

The first interest rate cut seems closer after new data showed the economy is growing at its slowest annual rate since the 1991-92 financial year, excluding the pandemic. Gross domestic product (GDP) increased by 0.2% in the June quarter and 1.5% during the 2023-24 financial year, according to the Australian Bureau of Statistics.

However, the population grew at a faster rate than the economy, which is why GDP per person fell 1.0% during the last financial year. In other words, while the pie got 1.5% larger, everyone’s slice got 1.0% smaller.

The reason the Reserve Bank of Australia (RBA) significantly increased the cash rate in 2022 and 2023 was to slow the economy, and thereby reduce inflation. The latest data confirms the economy is weakening, even as inflation is falling and unemployment is rising.

So the RBA may feel it’s almost crushed inflation. Once that goal is achieved, the RBA may decide to reduce the cash rate, which would cause mortgage rates to fall.

Property Listings Rise 7.9%: Spring Surge Brings Market Shifts

Large numbers of new listings have come onto the market, which will have implications for both buyers and sellers during spring. Across Australia, a total of 249,523 properties were listed for sale in August, according to SQM Research. That was 7.9% higher than the month before and 11.1% higher than the year before.

This means buyers will have more choice and less competition, which will give them more time to conduct due diligence and provide them with more negotiating power.

Conversely, vendors will have to work harder to attract buyers to open homes, which will incentivise them to invest more in marketing and move towards buyers on price.

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