The combined capital city index recorded another rise in July. Overall growth and residential property values remains healthy, but at a combined capital city level it’s not quite as strong as what it was a year ago.
It’s anticipated the market will continue to see values rise it’s expected that the rate of growth will continue to slow throughout the remainder of 2017.
We’ve included the national property market video below, along with a transcript.
Welcome to the CoreLogic Housing Market Update for August 2017
CoreLogic’s combined capital city index recorded another rise in July, taking dwelling values one and a half percent higher over the month to be 10.5% higher over the past 12 months.
The strong rise in month on month results was largely attributable to a 3.1% increase across Melbourne, which is now recording the highest annual rate of growth with values trending 15.9% higher over the year.
Canberra also showed a substantial gain in values over the month with the index up 2.4%.
In fact, Canberra is now showing the second highest annual rate of capital gains after Melbourne, pushing Sydney to the third place on the capital gains leagues tables with an annual growth rate of 12.4%.
While growth rates remain high in these cities, there has been some moderation in the trend rate of growth since the first quarter of 2017, especially in the Sydney housing market.
Sydney’s quarterly rate of growth is eased from 5% over the March quarter, to 2.2% at the end of July
Melbourne and Canberra conditions have been more resilient to a slowdown though, with the rolling quarterly growth rate holding reasonably firm around the 5% mark in Canberra and 4% in Melbourne.
Other capital cities aren’t showing the same level of exuberance though. Dwelling values continue to slip lower in Perth and Darwin, and were also down slightly in Brisbane during July.
While capital gain conditions remain diverse, so too does housing turnover.
Broadly the number of transactions across the combined capitals has reduced by 4.3% over the past 12 months and the annual transaction numbers are 16% lower compared with a cyclical peak which was back in mid 2014.
The largest year-on-year fall and settled sales has been in Brisbane and Melbourne, with sales down 9.7% and 7.6% respectively.
At the other end of the spectrum, Hobart and Darwin have both seen a lift in turnover of about 11% over the past year.
Housing turnover is being affected by a range of factors including inventory shortages, tighter credit policies, higher mortgage rates and lower consumer sentiment, however many of these factors vary substantially from region to region.
Another facet of the housing market is that houses are substantially outperforming units.
The combined capital cities index shows that over the year house values have risen by 10.9% while unit values have increased by 7.3%.
The performance differential is most significant in Melbourne and Brisbane, which are also the two markets where concerns around an oversupply of unit construction are most pronounced.
According to the CoreLogic indices, house values in Melbourne are 17.2% higher compared with a 4.6% rise in unit values, while in Brisbane house values are 2.6% higher, while unit values have actually reduced by 1.4% over the past twelve months.
The weaker performance can probably be attributed to both higher supply levels around the inner-city regions, which has led to tighter credit policies from lenders, and also heightened caution from investors in these areas.
Slower growth conditions, at least at a macro level, are being brought about by several factors.
Firstly, it’s clear that investment in the housing market is now tapering. Growth and investment related credit peaked in November last year and since that time the pace of lending for investment purposes has been moderating.
Considering investment activity is heavily skewed towards the Sydney housing market less activity across this segment is likely to have more impact compared with the other capital cities.
Investor appetite is also being dampened by higher mortgage rates, as well as tighter credit policies and low rental yields.
Since bottoming out in November last year, discounted variable mortgage rates for investment purposes have risen by 35 basis points and they’re now 60 basis points higher than the same product for owner-occupiers.
Mortgage rates for interest only terms have also moved higher in response to the March announcements from APRA that Australian lenders should limit interest on the lending to 30% of new settlements.
These two factors that have created a substantial disincentive for real estate investors.
Add to this the fact that rental yields have slipped to new record lows in Sydney and Melbourne during July and it becomes clear why investment credit growth is starting to trend lower.
While these factors are working to slow the housing market there are other factors that are stoking housing demand.
Population growth has rebounded higher, creating more demand for housing.
Based on data to the end of 2016, the number of net overseas migrants into Australia was up by 1.5%, with 76% of these overseas migrants arriving in New South Wales and Victoria.
Interstate migration flows are also changing which is impacting on housing demand.
The net outflow of residents from New South Wales is now gathering some pace, while net migration into Queensland is the highest in ten years.
The rise in interstate migration is likely to be a key driver of housing demand particularly across the southeast corner of Queensland, while the outflow from New South Wales is probably another reason the housing market is starting to slow down.
Labour market conditions have also tightened during 2017. The past five years saw 75% of Australian jobs created in Victoria and New South Wales, which has supported the high rate of population growth in these regions.
More recently jobs growth has become more broadly spread, picking up across most states and territories.
New first home buyer stamp duty concessions
Another factor to consider in New South Wales and Victoria is the effect of new first homebuyer stamp duty concessions.
As of July 1st, first home buyers in New South Wales were exempt from stamp duty when purchasing a home under $650,000, and stamp duty is discounted up to $800,000.
In Victoria, stamp duty exemptions became available for properties purchased with a price tag of less than $600,000, with concessions on stamp duties up to $750,000.
While it’s still too early to gauge the extent of first home buyer reactions, historically first-time buyers have been very responsive to these types of incentives.
Overall growth and residential property values remain healthy, but at a combined capital city level it’s not quite as strong as what it was a year ago.
Although it’s anticipated the market will continue to see values rise it’s expected that the rate of growth will continue to slow throughout the remainder of 2017.
Of course, the latest research and updates of the housing market could always be found at a CoreLogic website located at www.corelogic.com.au