Units outperform houses in nation’s three largest capital city markets: CoreLogic

It was another month where units outperformed houses across Sydney, Melbourne and Brisbane.

The Sydney unit market was one of the worst affected across September, according to CoreLogic, down -1.0 per cent. However the housing market has been fairing considerably worse during the downturn.

Sydney houses contracted -2.1 per cent, more than double the losses seen in units (which incorporates both apartments and townhouses). It's unsurprising for Sydney to scale back more than any other state due to the heightened cost of its real estate in comparison to other capitals.

Sydney units are now back -2.6 per cent on the quarter and -3.3 percent on the year, with houses back -7.0 per cent on the quarter and -9.2 per cent on the year.

It's a similar story in Melbourne, where units contracted -0.8 percent in September. Houses went backwards -1.2 per cent in comparison.

Melbourne's median unit value is now $603,276, down -2.6 per cent for the quarter and -3.3 per cent for the year. Houses are down -6.2 per cent down for the year.

The biggest divergence between the house and unit market was in Brisbane, where units declined -0.1 per cent and houses -2 per cent.

Brisbane's units are still up 8.7 per cent over 2022, with the median unit value still just over $501,000. Houses are up 3.7 per cent, but the rolling quarter has seen values fall back -5.1 per cent.

While the wider property market downturn in September wasn't as significant as it was in August, CoreLogic Research Director Tim Lawless said it is probably too early to suggest the housing market has moved through the worst of the downturn. 

“It’s possible we have seen the initial shock of a rapid rise in interest rates pass through the market and most borrowers and prospective home buyers have now ‘priced in’ further rate hikes. However, if interest rates continue to rise as rapidly as they have since May, we could see the rate of decline in housing values accelerate once again,” Lawless said.

While the values continue to fall across the country, it’s suggested they would need to fall at least a further 14 percent before wiping out the gains of the recent growth cycle. 

The reduction in the rate of decline came alongside an improvement in other indicators, with  the flow of fresh listings continue to slide through the first month of spring, which is uncommon for this time of the year.

There was further good news for investors, with the national rental index increasing by 0.6 percent in September. The growth in rents however has been in a slowing pattern, which has been surprising given tightening rental vacancy rates across the country in recent months.

“A gradual slowdown in rental growth in the face of such low vacancy rates could be an early sign that renters are reaching an affordability ceiling,” Lawless added.

As rents continue to rise and dwelling values generally trend lower, gross rental yields remain on a rapid upwards trajectory. Capital city gross yields (3.36 percent) are now at the highest level since January 2021 after rising 40 basis points from the February 2022 record low. This was largely led by a 55 basis point rise in unit yields, while house yields rose by 23 basis points.