Property prices are still heading up but a slowdown in lending to buy homes and a weak pipeline of new construction reveal a housing market in flux.

The national home value index from analysts CoreLogic rose 0.7 per cent in July – the fifth consecutive monthly increase – but the monthly lift was down from 1.1 per cent growth in June and 1.2 per cent in May.

Markets are still trending up in most regions and cities but at a slower pace, including Sydney nearly halving its pace of growth since May.

CoreLogic research director Tim Lawless said the Sydney market, which was leading the upswing, had experienced an injection of listings.

“An increased flow of new listings provides more choice and may be working to reduce some of the urgency felt among prospective buyers,” he said.

While listings have been trending higher, overall capital city levels are still low and well below five-year averages.

Mr Lawless said there were a couple of reasons why sellers might be more active than usual.

Sellers might have jumped on what they expected would be a slower winter period to list before spring, when stock levels tend to pick up and create more competition between vendors.

“Another possibility is that we are seeing the first signs of motivated selling as the rapid rate-hiking cycle catches up with household balance sheets,” Mr Lawless said.

He expects mortgage arrears to lift through the second half of the year, but a relatively strong labour market should support most households in meeting their repayments.

Mr Lawless said the Reserve Bank’s decision to keep interest rates on hold for the second month in a row in August was positive news for the housing market because it would kickstart consumer confidence.

“Consumer confidence and housing activity go hand in hand,” he said.

Lending to buy homes has been picking up in line with recovering home prices but fell one per cent in June, according to Australian Bureau of Statistics figures.

The fall in total new loan commitment for housing followed a 5.4 per cent lift in May.

Owner-occupier lending fell 2.8 per cent over the month, countering the 2.6 per cent lift in investor activity.

Building approvals data released on the same day revealed a sharp drop in the volatile apartment series.

Apartment approvals dropped 21 per cent following a 60.4 per cent jump in May.

The more reliable indicator of home-building demand, detached home approvals, fell 1.3 per cent in June after a weak 0.8 per cent rise in May.

CommSec economists Craig James and Ryan Felsman said the housing market was experiencing a strong mismatch between supply and demand, forcing rents and home prices up.

In a note, the economists said migrants were returning in big numbers since borders reopened, driving demand.

At the same time, supply has been constrained as builders work through a large backlog of construction projects.

“So while prices are rising now, later this year with higher interest rates constraining demand and more new homes completed, some stabilisation of home prices is likely,” they wrote.

Poppy Johnston
(Australian Associated Press)