While office and shopping centre valuations are under pressure, the combined value of Australian housing has, for the first time since 2022, rebounded to $10 trillion. But can it continue rising?

CoreLogic’s head of research, Eliza Owen, attributes the increase to a combination of higher values, with the median home value in Australia reaching $732,886 at the end of August, plus an increase in housing stock to around 11 million properties.

Since beginning its recovery in March this year, national home values rose 4.9% through to the end of August, and based on CoreLogic’s data are currently -4.6% shy of the April 2022 peak.

The national recovery has wiped out around half of the preceding downturn between April 2022 and February 2023, when national home values fell -9.1% from peak to trough.

CoreLogic is expecting some heat could come out of the recent recovery trend toward the end of this year, while a more robust recovery in housing values will be limited until credit conditions loosen

Why are values rising?

In light of cost-of-living issues, low consumer sentiment levels and four increases in the cash rate so far this year – amid the fastest rate hiking cycle on record – why have housing values continued to rise?

Net overseas migration: For starters, Owen notes demand for housing is being pushed higher by returning overseas arrivals and a drop off in overseas departures.

It’s understood that 2022 saw departures from Australia fell by -25% on the pre-covid average, while overseas arrivals ticked slightly higher on levels seen in 2019.

“Combined with a persistently low average number of people per dwelling across the capital cities, this is pushing the need for housing higher, and may be contributing to more competitiveness for properties on the market, especially considering rental vacancy rates remain around record lows,” says Owen.

Use of savings, profit and equity: Owen also suspects that a likely draw-down in savings, equity or profits from previous home ownership that’s being used towards property purchases – as opposed to more borrowing – helps to explain why home values have continued to rise in the past few months.

While the great unknown is how long households can draw on savings to support these purchases, the answer could be in the latest Australian Bureau of Statistics (ABS) numbers.

ABS national accounts data shows the household saving ratio – which measures the ratio of net saving to net disposable income – has declined to 3.7% amid high inflation and debt costs, down from covid-record highs of 23.6%.

Constrained supply. While starting from a relatively low base, new listing volumes have started to increase in the lead-up to the spring selling season. In the four weeks ending September 3rd, total listings across Australia were sitting at around 136,000, -23.4% lower than the previous five-year average.

How sustainable is this recovery?

With the housing market outlook remaining highly uncertain, Owen reminds buyers there’s no guarantee housing values can continue the acceleration experienced over the past six months.

While the Reserve Bank (RBA) appears to be at or near the end of its cash rate hike cycle, Owen also reminds buyers that borrowing remains constrained by a relatively high serviceability buffer.

For example, APRA data to June showed the weighted average home loan assessment rate was just below 9%, and ABS housing lending data shows mortgage lending has fallen for three of the past four months.

“Economic performance is also set to unwind, and while this is good news for the inflation and cash rate trajectory, a rise in unemployment may create a higher degree of risk for mortgage serviceability,” notes Owen.

“CoreLogic is expecting some heat could come out of the recent recovery trend toward the end of this year, while a more robust recovery in housing values will be limited until credit conditions loosen.”