Chart of the Month - December 2024

National property prices fell for the first time in 22 months in December and was enough to push the December quarter into the red. Capital cities (namely Sydney and Melbourne) dragged the national average down (see chart below). Is this a sign of the vice tightening on Australian consumers and a long-awaited crash? TLDR: No!

Source: Corelogic

Australians aren’t selling under pressure

While property prices have been coming under pressure in the second half of 2024 this is not because the financial pressure has been increasing on the Australian consumer.

Mortgage stress remains high but has actually been decreasing in recent months (see chart below). The household savings ratio increased by 3.2% in the September quarter.

Source: Roy Morgan

Unemployment decreased from 4.1% to 3.9% in November (seasonally adjusted) and the percentage of people with multiple jobs is down from its recent peak in the March quarter.

Further, the RBA is predicting a rise in household consumption over the first-half of 2025 as real incomes rise.

In addition to these feel-good stats, Australian consumers themselves are feeling better with consumer sentiment continuing to rise from recent lows (see chart below).

Source: RBA

Of course, with interest rates high and no immediate cut on the horizon, some Australians are feeling the pressure and are selling. But when they do, 95% are selling at a profit with the median profit continuing to increase and now sitting at AUD 295,000 (see chart below). Of the 5% selling at a loss, the median loss is only AUD 40,000.

Source: Corelogic

But the air is coming out of property demand

‘This result represents the housing market catching up with the reality of market dynamics.” Tim Lawless, Corelogic, research director.

The Australian consumer may be doing better but the demand for property appears to be waning after a strong first half of the year.

In September, the number of new loan commitments for housing fell for all categories compared to August, with the biggest drop for first-home buyers (3.2%). Similarly, auction clearance rates are down for the capital cities (see chart below).

Anecdotal evidence reinforces the story that buyers have been retreating since the Australian Spring.

Source: Corelogic

Rental market remains strong

Buyers may be stepping away from the property market but the rental market remains fierce with rental yields changing little over the last two years (see chart below). Home ownership has been falling over the last two decades while international students have returned with a rush post-pandemic.

Final thoughts

A fall in house prices in November is no harbinger of collapse. Australian property remains relatively expensive by world standards but this has been the case for decades. The current downward pressure on property prices is being driven by a fall in demand and not a sudden increase in supply from distressed mortgage holders.

The Australian consumer is still under pressure but is doing better than earlier in the year. If property prices continue to fall and interest rates are cut sometime next year, demand for properties will re-emerge.