AFR Article_ 09.02.2022

House prices bounced 1.1 per cent in January, boosted by small gains in Sydney and Melbourne, but the longer-term trend shows a weakening in growth across the capitals, the latest CoreLogic data shows.

All capital cities posted a rise in the median dwelling values during the month, including Melbourne, which rebounded from December’s 0.1 per cent decline.

Brisbane and Adelaide led the charge. Brisbane’s dwelling values rose 2.3 per cent, and in Adelaide they climbed 2.2 per cent, while Hobart and Canberra each gained more than 1 per cent each.

Sydney and Perth rose by 0.6 per cent each, Darwin was up by 0.5 per cent and Melbourne by 0.2 per cent.

‘‘January is a bit harder to read because volumes are much thinner, so I wouldn’t read too much into it, including trends,’’ said Tim Lawless, CoreLogic’s research director.

‘‘Looking at the longer-term trend, though, it’s quite clear that most of the capital cities are slowing in the rate of growth, even Brisbane and Adelaide.’’

In the three months ended January 31, Sydney’s median values rose 1.8 per cent and Melbourne’s increased 0.8 per cent. The gains were markedly lower than the jump recorded in October-December when Sydney’s median values climbed 2.7 per cent and Melbourne’s by 1.5 per cent.

AMP Capital chief economist Shane Oliver said the prospects for interest rate increases would hit every market, but Melbourne would bear the brunt.

‘‘Melbourne is the most exposed because of the large supply overhang, and it has a more fragile economy given the damage done by multiple long lockdowns,’’ he said. ‘‘Sydney is also exposed given the strong price gains in the past year, which created a big affordability problem, forcing people to relocate elsewhere.’’

Brisbane rose 8.3 per cent in the past three months, a 0.2 percentage point drop from October to December.

Hobart posted a 3.4 per cent growth over three months and Canberra 3.7 per cent, also both lower than the October to December quarter.

While home values are still on track to slow sharply in the next 12 months, price growth could re-accelerate in the near term following a steep drop in listings in January, said Louis Christopher, SQM Research managing director.

The number of listings of less than 30 days have plummeted by 27.6 per cent nationwide over the month, with only 49,215 new properties added on to the market, the SQM data shows.

‘‘Vendors appear to be holding off, so there was no sense of panic selling,’’ said Mr Christopher.

‘‘I think the risks have moved to the upside that prices will rise by more than expected during the March quarter.’’

The Reserve Bank of Australia yesterday kept the cash rate at a record low 0.1 per cent, but the central bank upgraded its inflation forecast to 3.25 per cent this year.

Dr Oliver said the RBA could start raising interest rates as early as June, following the higher-than-expected inflation reading last month.

Dr Oliver has lowered his forecast for growth in Sydney and Melbourne to zero and 2 per cent this year, down from his previous forecast of 5 per cent.

Nationally, he now expects prices to rise 3 per cent, down from 5 per cent.

Mr Lawless said the high level of household debt in Sydney and Melbourne also made them more vulnerable to interest rate increases.

‘‘Sydney and Melbourne have much higher median house prices, now both over a million dollars, so arguably household debt levels would be higher as well,’’ he said.

‘‘Sydney is around 10 times debt to income ratio, while Melbourne is approaching nine times, so arguably households would have stretched their budgets a bit more thinly.

‘‘They could be the markets that are a little bit more at risk.’’