Unit values underperformed house values for the first time since May 2022, lifting by just 0.9% compared to houses, which climbed 1.2% in May, CoreLogic reported.
Quarterly trends also switched in favour of houses, up 2.4% over the three months to May, compared to a 2.2% quarterly rise for units.
While units continued to record a milder decline at -4% compared to a -7.6 fall in houses, the annual performance gap has contracted to 3.6 percentage points, down from 3.9 percentage points the prior month.
CoreLogic’s Monthly Australian Unit Market Update also showed a bias towards houses across five of the eight capitals, with only Perth and Hobart delivering stronger monthly growth in unit values, while Melbourne saw consistent results across both property types.
Kaytlin Ezzy (pictured above), CoreLogic economist, said it’s unsurprising to see units take a backseat to houses as the recovery phase progressed further.
“Historically, unit values are less volatile compared to houses as their relative affordability, making them less sensitive to market conditions,” Ezzy said.
“Although units still offer a sizable affordability advantage over houses, gentler declines through the downswing (-6.1% compared to -9.9% for houses) has seen that gap shrink from around $205,000 in April 2022 to approximately $160,000 in February.
“This narrowing, coupled with the prospect of stronger capital gains, has likely seen some demand shift back in favour of houses, leading to higher monthly increases.”
Unit values increased by more than 1% over the month in Perth (1.7%), Sydney (1.1%), and Brisbane (1.1%). Both Melbourne and Hobart saw units delivering milder rises of 0.9% and 0.6%, respectively. In Adelaide, unit values slipped -0.2% in May after reaching a new cyclical peak in April, while Canberra and Darwin unit values dipped -0.1% and -2.0%, respectively, due to relatively high supply levels.
Ezzy warned that further rate hikes could delay the housing market recovery, with the June rate hike resetting expectations for what level the interest rates would reach.
“Although values are currently being propped up by low listing levels, further increases to the cost of debt could both reduce demand and increase the occurrence of distressed listings, which could push values back into negative territory,” she said.
Capital city unit rents continued to deliver record growth rates, despite the monthly trend easing.
The monthly trend in capital city unit rents further slowed down for the second month running, with rents climbing 1.4% in May, compared to the 1.6% rise in April and a 1.9% lift in March. Despite the easing, the cumulative strength in unit rental growth saw the combined capitals achieve a new peak growth rate in both the quarterly and annual trends, with unit rents increasing 5% over the May quarter and 16.5% over the year.
An easing in demand could have driven the slight easing in rental growth, Ezzy said, with vacancy rates loosening from 0.8% in March, 0.9%, in April and 1% in May, while rental stock levels are roughly -40% below the levels typically expected this time of year.
“With capital city unit rents up $80 per week, or almost $4,200 per year, it’s likely some prospective tenants are coming up against their affordability ceiling,” she said.
“In the absence of a supply response, some renters’ only option will be to increase their household size by letting out the spare room or home office, while others may have opted to delay moving out of home.”
Across the capitals, Perth posted the stronger rise in unit rents, up 1.7% in May. It was closely followed by Melbourne and Sydney, with 1.6% and 1.5% rises, respectively. In contrast, both Canberra and Hobart saw unit rental values dip -0.4% due to an uptick in supply.
“Despite the mild easing in growth and vacancy rates, the continued shortage in rental unit listings and strong demand from international students and workers returning to the city, will likely see capital city unit rents continue to increase at well above the monthly average seen over the past decade (0.2%),” Ezzy said.
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