Nationally dwelling values were unchanged in November 2017 according to the Core Logic home value index. The rate of value growth has slowed over recent months due to falls in Australia’s largest housing market Sydney which accounts for around one third of the total value of national housing splitting.
We’ve included the national property market video below, along with a transcript.
Welcome to Core Logic’s update on housing market conditions for December 2017.
Nationally dwelling values were unchanged in November 2017, according to the Core Logic home value index
The rate of value growth has slowed over recent months due to falls in Australia’s largest housing market Sydney, which accounts for around one third of the total value of national housing.
Splitting the monthly change out into the combined capital city and combined regional markets shows that Capital City dwelling values fell by 0.1 percent and regional values rose by 0.2 percent.
Over the past three months, Capital City dwelling values were 0.2% higher while regional values increase by 0.4 percent.
On an annual basis, the pace of capital gains has halved over the past six months, with value growth slowing to 5.2 percent nationally, with the combined capital cities recording an increase of five and a half percent and combined regional market values up 4.2 percent.
The 5.2 percent increase in national dwelling values is the slowest annual rate of growth in 12 months.
Of course, at that time the first round of macro-prudential policy changes were still working its way through lending conditions which was slowing the market.
However the 50 basis points worth of cash rate cuts eventually led to a rebound in value growth.
Sydney is well and truly the driver of the slowdown in the national housing market. Since Sydney dwelling values peaked in July of this year they’ve fallen by 1.3 percent with the declines accelerating each month. Although values have fallen in Sydney between February 2012 and July 2017 they increased by 75%, so the recent pullback has been fairly minor to date.
Outside of Sydney the rate of growth has also begun to slow in most other capital cities. Melbourne values have been showing consistent and moderate growth over recent months with the growth much more moderate than earlier in the year. Brisbane, Adelaide, Hobart and Canberra have also seen their monthly rates of value growth slowed significantly from the rates they were seeing earlier in the year. Perth is the exception with values down almost 11 percent since peaking back in 2014.
The past three months have seen a consistent but subtle rise in values. Darwin dwelling values have continued to fall, continuing the trend the city of seeing for a number of years now.
Although generally housing market conditions have slowed, the overall performance of individual capital cities and product types remains as diverse as ever. Across the individual capital cities, the quarterly change in values has varied between a 3.3 percent rise in Hobart to up 2.7 percent fall in Darwin. Over the past year, the changes have varied between an 11.5 percent increase in Hobart to a five and a half percent decline in Darwin.
The supply of new units has hit unprecedented levels over recent years and the unit market is now underperforming houses. In fact, Sydney and Perth are the only cities in which change in house values over the past year has been inferior to the change in unit values. In the non-capital city markets regional areas of New South Wales continue to see the strongest increase in values.
Much like Sydney, many of these regions are now seeing their rate of growth slowed although a few are still seeing values rise.
Many of the strongest performing markets outside of the capital cities are located close to capital cities and offer an attractive lifestyle for residents. Regional New South Wales has recorded the greatest increase in values of all regional markets, up 8.7% over the past year. The four and a half percent increase in values in both regional Victoria and Tasmania have also been significant, albeit rises a more moderate than the capital cities in each of those states.
Overall, regional markets remain diverse.
The strongest value growth is typically found in regions adjacent to the capital cities and located in either coastal or tree change locations.
In New South Wales, Newcastle and Lake Macquarie have seen the greatest value increase, while in Victoria it has been Geelong.
In Queensland the Sunshine Coast has been the strongest performing region and South Australia’s strongest region for growth was the southeast.
In Western Australia values have fallen across the state but Bunbury has recorded the most moderate decline, while in Tasmania, Launceston and the northeast has been the strongest performing regional market.
Let’s take a look around each capital city housing market.
Sydney has now seen values fall by 1.3 percent from the market peak and the rate of decline has gathered pace each of the past three months.
Over the past month values have fallen by 0.7 percent which is their largest monthly fall since February 2016, while values are 1.3 percent lower over the past three months.
Values have increased by five percent over the past year which is less than half the rate of growth recorded two months ago.
The decline in dwelling values is anticipated to continue over the coming months.
The driving factors behind the downturn remains stretched affordability, tighter credit policies for investors who have been a key driver of demand, an increasing outflow of residents from Sydney to other parts of the country, and a heightened volume of stock available for sale.
Despite these factors, ongoing low mortgage, rates strong overseas migration and a strong economy are expected to provide a floor against any substantial falls in values.
Values increased half a percent in November as they did in October and August.
Over the past three months values have increased by 1.9 percent and values are up 10.1 percent over the past 12 months.
The annual rate of growth has slowed from its most recent peak of 13.1% in July 2017.
Houses have recorded the stronger rate of growth in units over the last three months and the past year.
While Sydney has slowed Melbourne’s relative resilience can be attributed to strong overseas and interstate migration flows, a strong economy, relatively more affordable housing, fewer investors over recent years and volumes of stock for sale which remain similar to those recorded over recent years.
Brisbane’s growth in dwelling values has remained fairly slow and steady. Over the past month values have increase by 0.1 percent, to be 0.6 percent higher over the past three months and 2.4 percent higher over the past year.
While neither houses nor units are reporting significant growth, there is a divergence between the two property types, with house values 3.2 percent higher over the past year while unit values have fallen by 1.2 percent.
Brisbane has well and truly underperformed growth in Sydney and Melbourne over recent years, and dwelling values of 46 percent lower than those in Sydney and 32 percent lower than those in Melbourne.
The housing market outlook remains positive given this affordability gap ,and the recent improvement in job creation across Queensland, which may prove enough to attract an increasing number of residents out of less affordable housing markets in New South Wales in Victoria.
Adelaide’s housing market has seen values continue to increase, however the rate of growth does appear to be slowing.
Dwelling values were unchanged in November and only 1 percent higher over the past three months.
Over the last 12 months dwelling values of increase by 3.4 percent, which is the slowest annual rate of growth for a year.
Over the past year house values have increased by 3.7 percent while unit values are just 0.9 percent higher.
While value growth appears to be slowing, Adelaide remains significantly more affordable than other mainland capital cities and sales volumes have increased by 0.9 percent from a year ago, suggesting there has been a moderate lift in buyer demand.
The Perth housing market appears to have moved through its decline phase.
Values have increased over each of the past 3 months to be 0.3% higher over the quarter.
This is the strongest period of growth over a three-month period since June 2014.
It isn’t only value data which indicates improving housing market conditions in Perth.
The number of days it takes to sell a home has fallen from 68 days a year ago to 59 days. The number of properties listed for sale is approximately 13% lower than a year ago, and sales volumes are up 1.4 percent on a year ago.
Growth is expected to remain moderate but it seems as if the worst of the market conditions are now behind Perth.
Hobart dwelling values increased by 0.6 percent over the month, and the city has seen the greatest value rises of all capital cities over the quarter and year.
Dwelling values have increased by 11 and a half percent over the past year, however over recent months the annual rate of growth has slowed after peaking at 14.3 percent in September 2017.
Despite the recent moderation values have increased at a double-digit rate annually throughout 201.
Prior to 2017, the last time Hobart values increased at a double-digit annual rate was all the way back in September 2004, which highlights the relative strength over the past year but also the previous weak trend.
Although value growth has slowed, there remains little stock for sale, and this combined with affordable housing, an improving labor market and migration accelerating, these factors are likely to support further increases in values.
Darwin dwelling values have continued to decline over the month, quarter and year after values fell five and a half percent over the 12 months to November 2017.
Darwin dwelling values are now 20.8 percent lower than their peak, with no real sign the slide in values is set to slow.
The fall in values has greatly improved housing affordability which has resulted in rental yields improving.
However the vital element missing from the market is confidence.
Canberra dwelling values increased by 0.9% in November which was the greatest increase out of all capital cities.
Dwelling values have risen by 5.8 percent over the past year, with the market having slowed over recent months following a peak rate of growth of 8.8% in April of this year.
The annual data also shows a fairly substantial difference between growth for houses and units with house values 6.8% higher compared to just a 2.9 percent increase for units.
The slowing housing market
The primary driver of the slowing housing market is Sydney, and a number of macro factors appear to be driving this slowdown.
The banking regulator APRA has introduced a range of macro prudential measures, which have resulted in tighter serviceability calculations and a limited availability of investor and interest-only borrowings.
The first round of policy, changes which focused on reducing the availability of credit to investors, led to a slowdown in the housing market which was cut short by two 25-basis point cuts to the cash rate in May and August of last year.
The second round limited the availability of interest only lending, and has also led to many lenders increasing mortgage rates for both investors and interest only borrowers.
The latest September data shows that demand for interest-only mortgages in September sunk to levels well below the prescribed 30 percent cap.
It seems at this stage extremely unlikely that the Reserve Bank will cut interest rates once, let alone twice, to provide a similar relief to borrowers to that which was provided in 2016.
Overall these macro-prudential policy changes are seemingly acting as a disincentive for investment in the market and have coincided with the current housing market slowdown.
Additional factors which are also impacting on the market is stretched housing affordability, particularly in the two largest housing markets, an increase in the volume of stock available for sale and growing concerns and warnings from regulators about the record levels of household and housing debt.
While the previously mentioned factors point to several weaknesses for the housing market, there are a number of reasons to believe that any reduction in values particularly in Sydney or Melbourne is likely to be moderate.
Financial markets do not expect the cash rate to be increased until 2019, which suggests that there is unlikely to be any significant movement in mortgage rates over the short to medium term.
The labour market is continuing to improve and jobs growth is becoming more widely spread and unemployment generally is reducing.
Another factor to consider is as values fall in Sydney there remains significant demand for housing via high rates of population growth.
We would anticipate that it would only take a moderate fall in values in a market with so much demand to see many buyers returning.
The housing market remains diverse however as we are now witnessing markets don’t continue to rise or fall forever – they run in cycles.
After values have risen by more than 70 percent in Sydney over the past five and a half years they is an hour falling, while following falls in excess of 10 percent in Perth we are now seeing some stability return to that market.
Overall the slowing of Sydney’s housing market given its recent growth should not come as a surprise.
Furthermore a slowing of the nation’s largest housing market will result in weaker headline growth figures for the national housing market, a trend we expect to continue in 2018.