INDUSTRY NEWSNationalReal Estate News

Capital gains ease and month-on-month growth conditions slow: CoreLogic

Highlights over the three months to April 2017

  • Best performing capital city: Hobart +5.1 per cent
  • Weakest performing capital city: Perth -2.4 per cent
  • Highest rental yields: Hobart and Darwin houses with gross rental yield of 4.9 per cent and Hobart units at 5.4 per cent
  • Lowest rental yields: Sydney and Melbourne houses with gross rental yield of 2.7 per cent and Darwin units at 3.7 per cent
  • Most expensive city: Sydney, with a median dwelling price of $860,000
  • Most affordable city: Hobart, with a median dwelling price of $363,200

According to the CoreLogic results, dwelling values increased by 0.1% across the combined capital cities in April, with housing market conditions slowing in both Sydney and Melbourne.

Head of CoreLogic Research Tim Lawless said, “The two hottest housing markets in the nation have shown signs of slowing down in April, with the CoreLogic Hedonic Home Value Index recording a rise of just 0.1% over April, the lowest month-on-month rise in capital city dwelling values since December 2015.”

“The moderation in growth was due largely to a slightly negative April result in Australia’s largest capital city housing market, Sydney, where dwelling values were broadly flat (rounded up from -0.04%) over the month. The result for Melbourne was also lower than previous months of 2017, with dwelling values up 0.5% over the month.”

Softer results after dramatic capital gains: The softer results across Australia’s two largest capital cities comes after dramatic capital gains were recorded over the second half of 2016 and the first three months of 2017. Between July 2016 and the end of March 2017, Sydney dwelling values surged 11.3%, whilst Melbourne values increased slightly more at 12.6% in the same period.

The April results mark the weakest monthly change in dwelling values across the Sydney market since December 2015, when CoreLogic reported a 1.2% fall in Sydney dwelling values; the soft reading comes after dwelling values have risen by 75.1% over the past five years, an annual rate of growth of 15% over this period.

Most other capital cities also recorded softer growth conditions in April than for the first three months of 2017. However, Mr Lawless said, “The trends generally remain positive, with quarterly growth of 2.9% across the combined capitals index.”

Tim Lawless

Hobart Strongest Performer: Based on the rolling quarterly change in dwelling values, the strongest housing market is currently in Hobart, where home values have risen 5.1% over the past three months. Hobart’s housing market has staged a solid improvement over the past two years and is now the third best-performing capital city on an annual basis, with dwelling values moving almost 14% higher over the past twelve months alone.

The latest housing finance data from the Australian Bureau of Statistics (ABS) showed that investors comprised 57% of new mortgage demand in New South Wales, excluding refinanced loans. This is substantially higher than the national average of 48%, or Victoria, where new mortgage commitments for investors comprised 46% of the market.

Value growth eases but gross yields held reasonably firm over April: With value growth easing and weekly rents showing some subtle appreciation, gross yields held reasonably firm over the month. Across the combined capitals, the typical gross yield on a house is equal to the record low set last month at 3.0%, while the gross yield on capital city units has edged higher, rising from 3.9% in March to 4.0% in April.

The largest capital cities continued to show the lowest rental yields; Sydney and Melbourne both recorded a gross yield of 2.7% for detached houses in April. Across the unit sector, the Darwin market is showing the lowest gross yield profile at 3.7%, followed closely by Sydney and 3.8% and Melbourne at 4.1%.

Hobart continues to enjoy a solid rental return, at least relative to the other capital cities. However, with Hobart dwelling values consistently rising at a faster rate than rents, the yield profile has been trending noticeably lower since October last year.

Mr Lawless said, “If the softer capital gains result seen in April develops into a trend of weaker growth, the likelihood is that yields will stabilise at their current low levels and gradually start to rise if rental growth begins to outpace value growth.”

“Other factors pointing towards a subtle weakening of the market during April have been a trend towards lower clearance rates and higher listing numbers. These indicators have edged higher relative to a year ago in some cities, including Sydney.”

Clearance rates dip below 70%: While clearance rates finished the month on a strong footing and remain well above the long-term average, the weighted average clearance rate across the combined capital cities trended lower during April, slipping below 70% over the third week of the month. This was the first time the clearance rate fell below 70% in three months.

Importantly, the preliminary auction clearance rate over the last week of April rebounded back to 76.9%, suggesting vendors are still enjoying strong selling conditions. Mr Lawless said, “It’s hard to know whether the rebound in clearance rates over the final week of April could be attributed to vendors willing to accept a lower than expected price at auction. Considering growing sentiment and market commentary that the housing market is likely at or near the peak of strong growth conditions, some vendors may be more motivated to offload their property in case conditions do soften further.”

Number of listings edged higher compared to April 2016: The number of property listings relative to a year ago has also edged higher in several cities including Sydney. The last time Sydney listing numbers increased year-on-year was early September 2016. Mr Lawless believes that higher stock levels have the potential to take some urgency out of the decision making process for buyers, which may be another factor alleviating some of the upwards pressure on dwelling prices. He said, “If stock levels continue to rise, the benefit to buyers is more choice and vendors may find their selling position is not as strong as what it was over the past year or so.”

Valuation activity eases in April: Activity across the CoreLogic mortgage valuation platforms eased during April, with the CoreLogic Mortgage Index down from a historically high reading in March. Mr Lawless said, “At face value, mortgage demand appears to have slipped during April, however, the slowdown in lending-related activity can be attributed to seasonal factors.”

He said, “Monitoring the trend in mortgage-related valuation events through May and June should give a clearer indication about whether lending activity has been dampened by the recent regulatory changes, as well as the impact of higher mortgage rates announced by financial institutions throughout March and April.”

“Overall, the softer housing market results for April are but one month of data. Monitoring of the data flows over the coming months will provide firm evidence as whether this latest housing market reading develops into a softening trend.”

“With mortgage rates remaining well below the long-term average, we should see a continuation of support for the housing market and investment demand. On the flipside, this current growth phase has been running for almost five years across Sydney and Melbourne; it is rare for an upswing in the cycle to be sustained for this long and at such high growth rates.”

“Affordability constraints are very much evident across Sydney, and to a lesser extent Melbourne which would be progressively impacting on housing demand. Additionally, investment-related demand is likely to ease due to the changed regulatory environment and tighter lending and servicing policies from the banking sector.”

At the same time, housing affordability is likely to be one of the key themes of the Federal Budget to be announced on May 9 and the NSW Government Budget to be announced in late June, either or both of which could reasonably be expected to have some impact on the housing market in the months ahead.


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