Property markets cooler as Australians pay back an extra $51 billion

1 hour ago 2

There are tentative signs the Sydney and Melbourne housing markets are starting to cool, as sky-high prices push them out of the reach of potential buyers just as Australians make record amounts of extra payments to get ahead on their mortgages.

Figures released today by Cotality show that through November, dwelling values lifted by 1 per cent in the nation’s capital cities, a slight easing on the 1.1 per cent reported through October.

House values have lifted again but there are signs they are no longer accelerating.

Sydney’s median house value lifted by 0.4 per cent to $1.584 million, a slowdown from the 0.6 per cent increase reported for October.

In Melbourne, house values lifted by 0.3 per cent last month to a median value of $978,392. In October, values had jumped by 0.9 per cent.

The smaller capital cities, however, are all seeing strong demand collide with a limited stock of homes for sale. Brisbane’s median house value climbed another 1.8 per cent to $1.1 million; in Perth, values jumped by 2.4 per cent to $955,832; and in Canberra, they increased by 0.7 per cent to $1.035 million.

Cotality research director Tim Lawless said price growth in the smaller cities was diverging from Sydney and Melbourne.

He said that with housing values climbing by about four times the pace of wage growth, affordability would worsen, but this would also act as a brake on the pace of further increase in prices.

“What’s clear is the upside factors outweighing the downside risks, and it’s hard to see this dynamic moving into reverse any time soon,” he said.

“Time will tell whether this month’s slowdown in growth is a reflection of headwinds starting to curtail housing tailwinds.”

Through November, higher than expected inflation figures reversed expectations of further interest rate cuts, and the Australian Prudential Regulation Authority said it would tighten bank lending standards largely for investors.

Lawless said the combination of these two factors suggests that price growth through 2026 would be lower than expected.

“With housing affordability already stretched and worsening, it stands to reason that fewer borrowers will be able to access credit, as serviceability barriers become more prominent,” he said.

The fastest price growth continues to be in regional areas. Values in the north-west Victorian centre of Mildura have jumped by 18.5 per cent over the past year; Queensland’s Granite Belt has experienced a 19.7 per cent increase; and in the West Australian south-west city of Albany, they have soared by 22.6 per cent.

The Reserve Bank monetary policy committee meets next week for the last time this year. Economists and financial markets do not expect any change in interest rates.

The Reserve Bank is not expected to use its last meeting of the year to change interest rate settings.

Since February, the bank has sliced the cash rate by 0.75 percentage points. On a $600,000 mortgage, the reduction has cut required monthly repayments by almost $300.

But data from the Reserve suggests more home buyers have not reduced their repayments, being in a strong enough financial position to pay down their mortgage faster.

The interest bill on owner-occupier mortgages reached a peak of more than $20 billion in the June quarter this year, a 166 per cent jump on what was being paid in early 2022 when official interest rates were just 0.1 per cent.

But for the first time since 2022, the amount of interest charged on owner-occupiers has fallen, edging down $700 million in the September quarter to $19.3 billion.

The drop in interest payments, plus growth in wages, contributed towards a sharp lift in extra repayments being made on home loans by the nation’s borrowers.

In the September quarter, these “excess” payments jumped by almost a third to $14.1 billion. Apart from two quarters during the pandemic, when many households received government payments or accessed their superannuation, it was the largest quarter for extra payments on record.

Over the past year, home buyers have paid an extra $51.6 billion off their mortgages, an all-time high.

Those higher repayments would normally point to a slowdown in consumer spending, which will be a key part of this week’s national accounts that will be released on Wednesday.

But consumer spending is tipped to lift by 0.5 per cent through the September quarter. On top of a lift in new business investment, driven largely by data centres, and a jump in new housing construction, economists expect overall economic growth to have increased over the past three months.

Analysts tip GDP growth to climb beyond 2.1 per cent over the past year, its strongest performance since early 2023.

Start the day with a summary of the day’s most important and interesting stories, analysis and insights. Sign up for our Morning Edition newsletter.