Capital city dwelling values rise 0.8% over June quarter, the slowest quarterly growth rate since dwelling values fell over December 2015 quarter. Despite a seasonally strong result over the month of June, the CoreLogic Hedonic Home Value series shows that momentum of capital gains over the second quarter of 2017 is losing steam.
Highlights over the three months to June 2017
- Best performing capital city: Melbourne +1.5%
- Weakest performing capital city: Darwin -5.2%
- Highest rental yields: Hobart & Darwin houses with gross rental yield of 5.1% and Hobart Units at 5.7%
- Lowest rental yields: Melbourne houses with gross rental yield of 2.6% and Sydney units at 3.7%
- Most expensive city: Sydney with a median dwelling price of $880,000
- Most affordable city: Hobart with a median dwelling price of $355,000
The CoreLogic Home Value Index recorded a recovery from the 1.1% fall in May, with a 1.8% rise in capital city dwelling values over the month of June.
According to CoreLogic head of research Tim Lawless, “This stronger month-on-month reading can be partially explained by the seasonality in the monthly growth rates. Adjusting for this effect suggests an easing trend in housing value growth has persisted through the second quarter of 2017.”
The June quarter results showed that capital city dwelling values were 0.8% higher across the combined capitals index; the slowest quarterly rate of growth since December 2015 when the combined capitals index fell by 1.4%. Mr Lawless said this is mostly because of softer conditions in the Sydney housing market. In contrast, the quarterly trend in Melbourne has been more resilient, with growth easing from 4.2% over the March quarter to 1.5% over the three months ending June.
Weaker auction results are further evidence of slowing housing market conditions. For Sydney, Mr Lawless said the more pronounced slowdown is supported by weaker auction clearance rates which have been tracking in the high 60% range across the city over the last three weeks of June, while in Melbourne, clearance rates have moderated but remained above 70%.
Outside of Sydney and Melbourne, housing market conditions remain diverse. Brisbane now has the third highest quarterly pace of capital gains with dwelling values 0.5% higher over the June quarter. Brisbane’s growth is entirely attributable to a 0.8% rise in house values which offset a 2.4% fall in unit values over the quarter. Dwelling values slipped lower across the remaining capital cities, except Perth, which posted virtually flat growth conditions (+0.1%) over the June quarter.
While the pace of capital gains is slowing, rental growth has been rising, albeit from a low base. Capital city rents pushed 2% higher over the past twelve months, a stark turnaround from the end of 2016 when rental growth was flat. The change in rental growth conditions is most noticeable in Canberra and Hobart, where rents are respectively increasing at 8.4% and 6.2% per annum, however Sydney and Melbourne rental markets have also seen a turnaround in what was previously a sluggish rental market. Rents in both cities are 4.5% and 4.1% higher over the past twelve months. The growth in rents can be attributed to the ongoing significant rate of net migration into New South Wales and Victoria.
In Perth and Darwin, rental conditions remain subdued, falling by 8.3% and 5.4% respectively over the year, while Brisbane rents slipped 0.2% lower and Adelaide rents held reasonably firm, up 1.1%. Despite the higher pace of rental growth in some cities, dwelling values rose at a faster pace over the year, resulting in a further compression of rental yields.
Market slowing, not crashing
Mr Lawless said that although growth conditions are losing momentum, we are not seeing a material downturn. The drivers for a slowdown have been gradual and the factors include:
- Mortgage rates pushing higher despite a steady cash rate, lender credit policies tightening up and housing affordability – which remains a significant barrier for many prospective buyers.
- Higher supply levels in the unit market appear to be creating a drag on the performance of the unit sector in specific segments.”
- “macroprudential measures announced by APRA at the end of March are still flowing through to mortgage rates and credit policies. We are likely to see further tightening and repricing around investment lending and interest only lending over the coming months,” Mr Lawless said.
- Data from the RBA showed a further slowing in investor credit during May, after growth peaked in December last year. According to Mr Lawless, investor-related activity is likely to moderate as mortgage rates edge higher and credit policies tighten for this segment of the market. He said, “Considering investors comprised just over 55% of new mortgage demand across New South Wales, based on the latest housing finance data from the Australian Bureau of Statistics, a further slowdown in investment activity is likely to have a more substantial impact on housing demand in Sydney relative to other markets.”
Consumer’s attitudes remain downbeat, particularly with respect to housing. Westpac and the Melbourne Institute have reported a further reduction in their widely followed consumer sentiment index. The ‘time to buy a dwelling index’, remained close to seven year lows, indicating that consumers are viewing the housing market with a more pessimistic mindset.
Mortgage demand remains strong
Despite the range of softening indicators, mortgage demand remained strong across May and June, tracking roughly 3% lower than the same period in 2016 based on mortgage-related activity from lenders across CoreLogic valuation platforms.
Mr Lawless said, “The reasonably steady level of valuation events suggest buyers remain active, despite higher mortgage rates, and are potentially shopping around as credit conditions tighten.”
“Wages growth is tracking at record lows, and mortgage rates are likely to rise further, particularly for investment purposes. As a result, the expectation is that housing market conditions, most particularly in Sydney and Melbourne, will continue to soften through the remainder of 2017,” he said.