CoreLogic’s June housing market review reveals an overall negative index. It should be noted that May has historically been a seasonally weak month of the year. However, the housing market remains as diverse as ever.
These are very brief conclusions based on one month’s worth of data, so it’s important to scrutinise the flow of data over the coming months to get a better understanding of the trends.
We’ve included the National property market video below, along with the transcript.
Welcome to Core Logic’s National property market update for June 2017
CoreLogic May results provided further support that the pace of capital gains is losing some momentum, particularly in Sydney and Melbourne where housing market conditions have been the hottest.
According to CoreLogic’s home value index, Capital City dwelling values put 1.1 percent lower in May, which was the largest month on month decline in 18 months.
It’s important to note though that may have historically been a seasonally weak month of the year.
Adjusting for this seasonality suggests capital City dwelling values were flat rather than falling in May.
However, there has been a noticed releasing in the trend rate of growth, as well as other indicators, such as auction clearance rates, transaction volumes, housing finance and consumer sentiment.
The trend data confirms slower market conditions.
The past three months have seen capital cities running values rise by a modest 0.4 percent with 48 capital cities recording a fall.
City dwelling values were unchanged over the rolling quarter while in Melbourne values rose by 0.7 percent.
The trend in growth rates across the smaller capital cities was mixed with dwelling values across Brisbane and Adelaide continuing the inch higher, while values in Perth and Darwin showed a further easing over the most recent rolling quarter.
A steep drop in the Hobart index has reversed gains recorded over the previous quarter and the Canberra index was also one of a half percent lower over the past three months.
Auction clearance rates, which provide one of the timeless indicators on the fit between buyer and seller expectations, have been moderating since mid April reaching 72 percent in Sydney over the first week of June and 73 percent in Melbourne.
Both results were the lowest clearance rate of 2017 to date and preliminary results show the second week of June showed some further slippage.
While these figures still indicate an overwhelming majority of auctions are successful, the clearance rate is on a clear downwards trend.
Settled sales trended lower
The number of settled sales has also trended lower, which is likely attributable to a range of factors including tighter credit policies, affordability constraints in some markets, low advertised stock levels and weaker sentiments.
CoreLogic estimates that national settled sales numbers are 4.6 percent lower year on year with more substantial falls recorded across Melbourne, Brisbane and Sydney.
On the other hand, some markets which have been weaker, have seen transaction numbers holding firm or even rising. Year-On-Year settled sales moved off a low base in down and rising 2.6 percent and Perth sales edged 0.3 percent higher.
APRA announcement influence
Adding to the complexity in reading the current market, is the recent Australian Prudential Regulation Authority announcement at the end of March for a new round of macroprudential measures aimed at slowing the pace of interest journey lending.
Based on the new rules from APRA Australian lenders will need to reduce lending on interest only terms to less than 30% of new originations.
Considering interest, only loans currently comprise about 36% of new mortgage lending, is likely to be a further reduction in loans originated on interest only repayment terms.
Overall the negative May index results from CoreLogic comes at a time of seasonal weakness which May imply the calling a peak in the housing market is premature. But it is becoming increasingly clear that some heat is left the Sydney housing marketplace and to a lesser extent that of Melbournes.
One of the key factors affecting housing market conditions is likely to be the fact that mortgage rates are pushing higher since August last year discounted variable rates have risen by 10 basis points for owner-occupiers and by 35 basis points for investors.
Mortgage rates could rise further, like the recently announced macro-prudential measures from APRA progressively impact on credit policies, as well as the federal government banking levy comes into effect on July 1st.
Small rises and mortgage rates are likely to have some impact on housing demand, considering household debt is tracking at record highs for investors.
The higher cost of servicing the debt comes at a time when rental yields are close to record lows in Sydney and Melbourne, which are also the two cities with the largest concentration of investors.
Landlords are likely to be trying to push their rents higher, but this may be difficult considering the weak wages growth environment and a higher level of rental supply in some regions.
If investors are concerned about the right of capital growth in that largest city coming to an end, more student investors may start to change their focus towards the rental return, given the possibility of lower capital growth potential.
Yields are much healthier in cities like Hobart, Brisbane and Canberra and the growth cycle is nowhere near as mature as what it is in Sydney and Melbourne’s.
In summary, the jury’s still out on whether the housing market has peaked. However, if it hasn’t, a peak could be just around the corner, the housing market remains as diverse as ever and the flow of data over the coming months will be a critical factor to get a better understanding of the trends.
Of course, you can stay in tune with regular housing market updates by the core logic website at www.corelogic.com.au