Continued Rises in Apartment Rents Eye Watering for Investors - September 2022

The spring selling season has commenced with continuing signs of a revival in housing market activity following a subdued winter. But the big upward trend in the rental market, especially for units, is what investors are most excited about.

House Prices Steady over September

House prices steadied over September supporting emerging evidence that the recent shakeout in housing market activity may be bottoming out. The latest data from My Housing Market reveals that “asking prices” for established houses listed for sale in Sydney fell by just 0.5% over September compared to the previous month, which was a similar result to the 0.6% monthly fall recorded over August.

All other capitals reported marginal increases in asking prices over September with the exception of Perth where prices increased by 0.9%. Despite some declines in values the last 4-5 months, house prices over 2022 so far have increased in Brisbane up 7.5%, Perth up 7.2% and Adelaide higher by 7.1%. Prices in Sydney and Melbourne however are lower for the year – down by 4.7% and 1.7% respectively.

Monthly Median House Asking Prices - September 2022

Asking prices for established units listed for sale also recorded encouraging results over September with Brisbane and Perth higher by 1.0% and 0.7%, Adelaide steady - with Sydney down marginally by 0.2% and Melbourne falling 1.1% over the month.

Unit prices over 2022 so far are now also lower in Sydney and Melbourne – falling by 2.2% and 0.8% respectively.  Year to date prices however remain higher by 6.0% in Perth and significantly higher in Brisbane by 13.25% and Adelaide up 12.1%.

Monthly Median Unit Asking Prices - September 2022

Average Days on Market Falling

The average days on market for all capitals fell over September compared to the previous month for both houses and units. Adelaide remains the top performer for average days on market for both houses and units with Brisbane the underperformer.

Average Days on Market September 2022

	House	Change	Unit	Change
Sydney	32.0		32.5
Melbourne	31.4		33.3
Brisbane	38.6		34.7
Adelaide	28.8		29.0

Auction Clearance Rates Higher over September

Weekend auction markets continued to revive over September with clearance rates in all capitals tracking higher compared to the previous month. Clearance rates however remained well below the results recorded over September 2021 with the exception of Adelaide that recorded similar rates.  

Weekend Clearance Rates

Rental Markets Become Eye Watering for Investors

Capital city rents have continued the general trend of recent months with units outperforming houses over September. Although house rents were steady over the month, all capitals have reported significant rises on house rents over the year ending September with Brisbane the top performer – higher now by a remarkable 20.2%.

Median Weekly Asking Rents September 2022 (HOUSES)

	Rent	Month	Year	Vacancy Rate	Change
Sydney	$650	0.0%	18.2%	1.0%
Melbourne	$490	0.0%	11.4%	1.2%
Brisbane	$550	0.0%	20.2%	0.7%
Adelaide	$510	0.0%	14.0%	0.3%
Perth	$520	0.0%	15.6%	0.4%

Sydney remains the most expensive capital for weekly asking house rents at $650 with Melbourne the most affordable at $490.

Capital city house rental vacancy rates for houses remain at low levels, with Sydney falling over the month; Melbourne, Adelaide and Perth steady; and Brisbane higher.

Unit rents however are the biggest mover as we continue to see rises across the board with Sydney, Melbourne and Brisbane higher by 4.1%, 2.3% and 1.0% over the month; Perth steady; and Adelaide lower by 1.2%. The yields now available on well selected investment properties is incredibly strong, and may get stronger in the period ahead given the housing shortage and rising immigration.

Median Weekly Asking Rents September 2022 (UNITS)

Unit rents have also increased sharply over the past year in all capitals, with Sydney the top performer higher by 20.5% followed by Melbourne up 18.9%. Vacancy rates for units also continue at incredibly low levels - except for Melbourne CBD that nonetheless is falling and now at 2.1%. Sydney has the highest weekly unit rent at $575 with Adelaide the most affordable at $400.

New Home Building Higher Over August

New home building rebounded sharply over August following an unusually steep decline recorded over the previous month, with the ABS reporting a 28.1% increase in seasonally adjusted dwelling building approvals.

The strong reversal in overall dwelling approvals was due to a 99.1% rise in volatile private sector units, with approvals for private sector houses increasing by 4.1% over the month. Dwelling approvals however remain 9.5% lower than recorded over September 2021, with houses down 14.4% and units lower by 1.2%.

The underlying quarterly trend for both house and unit building approvals is now steadying. However in the case of new house approvals, with new build sales in decline since early 2022 we should expect to see a continued softening of building approvals (at least for houses) over the next 6 months.

Melbourne remains the clear leader in dwelling approvals over the 8 months ending August and is well ahead of Sydney for both houses and units.

All capitals have reported declines in building approvals for houses over the first 8 months of this year compared to the same period in 2021. Melbourne and Adelaide however have recorded increased approvals for units over the year to date comparisons, with the other capitals reporting declines. This trend in building approvals, coupled with rising immigration in recent months and the expected escalation of further immigration moving into 2023 is likely to put enormous pressure on the supply of housing through 2023/24.

Home Loans Down Again Over August

Home lending continues to decline with the ABS reporting that the value of home loans seasonally adjusted (excluding land and alterations and additions) decreased by 2.1% over August compared to the previous month and is now 14.5% lower than reported over August 2021.

Home lending over the first eight months of 2022 has fallen by 3.1% compared to the same period last year. On slightly lower median house prices and a rising interest rate environment this trend is likely to continue for the next couple of months at least.

All states with the exception of WA recorded falls in seasonally adjusted home lending over August, with NSW and SA the underperformers, falling by 7.2%, and 5.7% respectively.

Jobless Rate Higher - But Still Low

Although the national unemployment rate ticked upwards slightly over August, the near record low 3.5% monthly result continues to reflect a booming economy with continuing strong demand for labour.

All capitals continue to record low unemployment rates and well below the results recorded over August 2021. Perth is now recording the lowest capital city rate with Brisbane the highest, but steady at a still low 4.1%.

RBA Raises Rates Again - But by Less

The RBA predictably increased official interest rates over September – the sixth consecutive rise in the current series. The increase of just 0.25% however followed three consecutive monthly increases of 0.5% with rising speculation now that rates may now peak sooner and lower than expected. The recent 0.25% rise was welcomed by home owners, providing a level of confidence to future new home buyers that further rate rises may be minimal.

Strong Retail Sales Still Rising

Retail sales continue to rise reflecting a booming economy with record low jobless and rising wages. The latest ABS data revealed that monthly retail sales seasonally adjusted increased by 0.6% over August to a new record high $34.9bn and remains significantly higher than pre-covid levels.

Comment and Outlook

Capital city housing markets are now showing clear signs of an easing in the severe decline in activity reported over winter – particularly Sydney and Melbourne that led the downward charge in market corrections earlier in 2022. House and unit asking prices have steadied over September with only Sydney and Melbourne reporting marginal falls over the month. An improved home price performance over September is supported by falling average days on market for both houses and units over the month for all capitals.

Weekend auction markets also reported increased buyer and seller activity over September with all capitals recording clearly higher clearance rates despite the distractions of significant holiday periods through the month of September. Improving clearance rates and lower average days on market are all pointing towards a switch back to a sellers’ market in the months ahead.

Rental markets continue to tighten - particularly for units as rising affordability barriers through skyrocketing house rents drive tenants into the typically more affordable unit market. Rental vacancy rates remain at record low levels in all capitals with the exception of Melbourne units where rates however continue to fall sharply. Rental yields are also increasing - particularly for units, driven by sharply higher rents and steady prices overall.        

Tight rental markets reflect a chronic shortage of housing nationally with underlying levels of new building remaining well below the peak levels of 5 years ago. Although dwelling building approvals increased sharply over August overall activity is still well below the same period in 2021.

Higher house building costs over August will act to further constrain home building activity.

A strong national economy with record low jobless and rising wages is supporting robust consumer confidence and acting as a catalyst for a revival in housing market activity.  Although the RBA has predictably continued to increase interest rates to tackle rising inflation, its latest decision to raise rates by a lower than expected 0.25% over October provides some hope that rates may peak earlier and lower than predicted - and act to further enhance consumer confidence.

The spring selling season has commenced on the front foot following a winter of discontent for housing markets generally. The signs are clearly growing that housing markets – particularly Sydney and Melbourne, may bottom-out over the remainder of 2022 with rising local demand enhanced by a wave of international migrants seeking accommodation in clearly undersupplied housing markets likely to keep rents rising – an exciting time for astute property investors.

Dr Andrew Wilson - Chief Economist - My Housing Market

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