Australian Residential Property Market Update

The activity in the Australian residential property market has captivated investors and homeowners for the last year. Values have risen and auction clearance rates strong, all pushed along by record low interest rates. Now residential property has hit $5.4 trillion: three times the size of superannuation and more than three times the value of Australian listed stocks.  Is it a bubble? Has it peaked? Lets take a look at the facts.

Lets break it down

Combined capital city home values increased by 11.5% over the 12 months to April 2014, pushed predominately by Sydney (16.7%) and Melbourne (11.6%).

Property market May update1

The three months to April saw dwelling values shift higher across all the capital cities. Darwin (5.1%) and Sydney (4.1%) recorded the greatest value growth, with Perth and Canberra recording the lowest – no doubt reflective of changes in the mining sector and cuts to the public sector respectively.

Property market May update2

Compared to the previous peak in October 2010, dwelling values across all but three Australian capital cities were higher, with the combined capital city home value 7.5% above the previous peak. As shown below, this has largely been driven by Sydney, which experienced 16.4% growth over the period.

Property market May update3

A different story emerges over the decade, with the standout cities of Perth (7.6%) and Darwin (8.8%) well above the capital city average of 4.5%.

Property market May update4

The past five years is more reflective of the current trend of Sydney out in front and Melbourne not far behind.

Property market May update5

Unsurprisingly, the most expensive sectors of the housing market have been the best performers and the most affordable the weakest. The most affordable suburbs have recorded an annual value increase of 9.2% compared to 11.6% across the middle market and 11.8% increase across the most expensive suburbs.

Property market May update6

Compared to other international markets Australia has experienced a middling path, with house values not falling or rising to the same extent as some other countries. US values are a startling -17.5% below their peak to February 2014, while all other comparable housing markets are at or nearing their peak.

Property market May update7

Lock, Stock and Barrel

Over the three months to February 2014, there were 78,590 house sales and 29,206 unit sales nationally. House sales were 12.2% higher than they were over the same period in 2013, while unit sales were 10.0% higher over the same period in 2013.

Property market May update8

Auction clearance rates started 2014 strong, with a week-to-week average of 68.8%. During 2013 capital city auction clearance rates were recorded at a week-to-week average of 66.3%.  The standout performers over the period were undoubtedly Melbourne and Sydney with week-to-week averages of 67.8% and 76.8% respectively.

Property market May update9

On average houses are on the market for 36 days compared to 49 days in 2013 and the average vendor discount has reduced to -5.6% from -5.9% in 2013. Which means there is no time to waste if you are buying.

A small indicator of the market coming off its peak is the decline in real estate agent activity. As the graph below shows, agent activity increased exponentially from late 2013, but has been on a downward trajectory since March 2014. Despite this, agent activity remains well above recent records.

Property market May update10

How do we feel?

Consumer sentiment rose slightly in April but remains at a fairly neutral setting. The index of consumer sentiment was recorded at 99.7 points in April, up slightly from 99.5 point in March and -4.9% lower year-on-year. This indicates that pessimists slightly outweigh optimists.

This is important because, as the graph below shows, there is a correlation between the six month average consumer sentiment and the number of house and unit sales. This makes intuitive sense: if confidence is higher, people are more likely to spend on big purchases like property and vice versa.

Property market May update11

There is also a strong correlation between the annual change in six-month average consumer sentiment and the annual change in capital city home values, shown below. This also makes sense: if sales are increasing and there is an improvement in confidence you would assume this increased activity to push home values higher. With declining consumer sentiment evident it is expected that values will start to ease.

Property market May update12

Who’s driving this?

The proportion and number of first homebuyers remains at near record lows. We all know it, but the data is still surprising. The number of first homebuyer finance commitments fell by -12.8% over the month of January and they are -0.4% lower year-on-year.  As a proportion of all owner-occupier housing finance commitments, first homebuyers rose slightly over the month to 13.2% from 12.7% in January 2014.

Property market May update13

New financing commitments are trending higher but remain well below the highs of 2009. Year-on-year, total owner-occupier refinance commitments have increased by 15.8% while owner-occupier commitments excluding refinances have increased 12.9%. This shows a fairly substantial pick-up in demand for housing finance over the year. No doubt attributable to the ongoing record low mortgage rates.

Property market May update14

The value of investment housing finance commitments has continued to trend higher. Total value of investment finance commitments increased by 4.4% in February 2014 and the value of investor loans is up 32.3% year-on-year. Investment finance commitments currently account for 38.8% of the total value of all housing finance commitments compared to 36.6% a year ago.

Property market May update15

Overall, the annual growth in outstanding private sector housing credit continues to inch higher. The total value of outstanding private sector housing credit has increased by 5.9% over the 12 months to March 2014, the highest rate of annual growth since July 2011 though still miles below the peaks of 2004-05. Growth in owner-occupier housing credit (4.9%) was outpaced by growth in credit for investment housing (7.9%).

Property market May update16

Make your own

Dwelling approvals are trending towards record levels, largely driven by units rather than houses. Total dwelling approvals were 23.2% higher in February 2014 than they were in February 2013, an encouraging sign that housing construction is picking up. The annual number of approvals over the 12 months to February 2014 is 18.4% higher than the same period last year and approvals are at their highest level since February 1995.

Property market May update17

Put in perspective

The buzz in the property market for the last year has been a welcome distraction from the structural problems of an economy in transition. As the graph below shows, year-on-year growth is almost half what it was in mid 2007. The slight upward trend evidenced over 2013 should not be taken as sign we are heading out of the decline. Rather it should be taken as a sign that Australia needs more than property to lift out of setting into a slump.

Property market May update18


The residential property market is finally showing signs of easing after a frenzied year of near record auction clearance rates, bounds in value and credit expansion. Whether these signs are simply the onset of the winter blues or actually indicating the end is up for debate. What is sure is that it cannot go on forever and Australia needs more than housing to push growth into the future.

Back to Insights and News

Related articles

All insights

Australian SMEs face cash crunch

Small and medium-sized enterprise (SME) owners are struggling with dwindling cash reserves amid soaring inflation and cost-of-living pressures. According to a recent survey commissioned by Prospa, 22% of participating entrepreneurs have no cash reserves, and 18% rely on funds covering less than a month’s expenses. About one in five expects to deplete their cash reserves…
Read More

Borrowers feel the heat of high rates

With interest rates staying elevated following a year of aggressive increases, mortgage stress is on the rise among borrowers. New data from Roy Morgan reveals that the number of Australians facing mortgage stress has increased by 724,000 since May 2022, when the Reserve Bank of Australia (RBA) began raising the cash rate from a record…
Read More

Housing market soars 40% four years after pandemic

The impact of the pandemic continues to shape Australia’s property market, four years on. Dwelling prices have exploded as factors such as population growth and limited supply drive competition for homes. According to data from PropTrack, national home values surged by 39.9% from March 2020 to March this year. Prices in regional areas soared by…
Read More