Watch CoreLogic’s Housing Market Update for October. The housing and economic data is derived from the CoreLogic Hedonic Home Value Index for the month of September, released October 2016. Presented by Tim Lawless, Research Director at CoreLogic.
Here are some of the September Highlights, plus the October Outlook, according to Tim Lawless, Head Researcher
Values in September – the headlines
- Combined capital city home values were 1.0% higher over September 2016 according to the CoreLogic Home Value Index. The total value of residential property across the country was estimated to be $6.7 trillion at the same time.
- Home values increased in all capital cities except for Perth and Darwin over the month. Over the third quarter of the year, combined capital city home values increased by 2.9% with the greater increases recorded in Melbourne (+5.0%), Canberra (+4.5%) and Sydney (+3.5%). Over the same period, home values have fallen in each of Brisbane, Perth and Darwin.
- After three-quarters of 2016, combined capital city home values have increased by 8.6% which is actually a greater increase than the 12-month change. Home values are higher over the past year in all cities except for Perth and Darwin.
- Over the 12 months to September 2016, combined capital city home values have increased by 7.1%. The annual rate of growth is relatively unchanged over the month and down from its most recent peak of 11.1% in July 2015.
State by State
- Home values are higher over the year in most capital cities however, they have fallen in Perth (-7.0%) and Darwin (-6.0%) and in both of these cities values are more than 10% lower than their respective peaks. Sydney has recorded the fastest pace of annual growth with values 10.2% higher however, the rate of growth has slowed from its peak of 18.4% in July 2015. Melbourne and Canberra have each recorded annual growth of 9.0% with Canberra’s annual growth it’s greatest since September 2010. Hobart home values are 8.7% higher over the year, the city’s highest annual rate of growth since February 2007. In Brisbane, value growth is fairly moderate at just 3.0% over the past year while in Adelaide values are 6.5% higher over the past 12 months, the city’s fastest annual rate of value growth since August 2010.
- Sydney home values increased by 3.5% over the third quarter of 2016, are 12.8% higher so far in 2016 and have risen by 10.2% over the past 12 months. The annual increase in Sydney home values is the greatest of all capital cities although it is much lower than its recent peak rate of annual growth recorded at 18.4% over the year to July 2015. Over the past year, Sydney house values have increased by 10.6% compared to an 8.3% increase in unit values. While home values are rising, gross rental yields sit at historic low levels of 2.8% for houses and 3.9% for units. In September 2015, gross rental yields were recorded at 3.1% for houses and 4.1% for units. The typical Sydney home is taking an average of 37 days to sell which is up from 26 days a year ago but has eased over recent months after taking as long as 42 days in May 2016.
- Dwelling values across Melbourne increased by 5.0% over the three months to September 2016, are 11.0% higher so far in 2016 and have risen by 9.0% over the past 12 months. Melbourne home values are still rising at a fairly strong annual rate however, growth has slowed from its peak of 14.2% a year ago. The value of houses continue to increase at a much greater annual rate than units, up by 9.4% and 5.2% respectively and we expect the relative underperformance of units to continue given record levels of new supply under construction. Melbourne’s gross rental yields are at historic lows of 2.8% for houses and 4.0% for units compared to 2.9% and 4.1% respectively a year ago. The typical Melbourne home is currently taking 37 days to sell compared to 31 days a year ago however, the typical length of time market has fallen from a recent high of 42 days in April 2016.
- Brisbane home values are -0.3% lower over the September 2016 quarter and they have increased by just 1.8% in 2016 and are 3.0% higher over the past year. Although the cost of housing is significantly lower than Sydney and Melbourne, it has continued to see only moderate levels of value growth. In fact, the annual change is now at its lowest level since January 2016. Houses have increased by 3.3% over the past year which is significantly greater than the 0.4% rise in unit values over the period. In September 2015, gross rental yields were recorded at 4.3% for houses and 5.3% for units. Yields have softened over the past year to their current levels of 4.1% for houses and 5.2% for units. The typical Brisbane home is taking 64 days to sell compared to 49 days at the same time a year ago. The average days on market is at its highest level (outside of the seasonal spike in January and February each year) since December 2012.
- Dwelling values across Adelaide were 2.6% higher over the third quarter of 2016 and they have increased by 5.9% over the first nine months of 2016 to be 6.5% higher over the past year. Although growth is accelerating at the moment, it is not expected to continue at this pace given a relatively weak local economy. Over the past 12 months, unit values have increased by 7.1% which a slightly more rapid pace of growth than the 6.5% increase in unit values. Home values have increased over the past year at their fastest annual pace since August 2010 and this has pushed gross rental yields lower. As at September 2016, gross rental yields were recorded at 3.9% for houses and 4.6% for units, down from 4.2% and 5.0% respectively a year earlier. Although values are rising, homes are typically taking longer to sell than they were a year ago at 59 days compared to 50 days a year ago.
- Perth home values continue to fall, down -3.2% over the September 2016 quarter, -6.9% lower so far during 2016 and -7.0% lower over the past 12 months. Perth home values reached an end of month peak in December 2014 and have since fallen by -10.4% taking values back to levels from early 2013. The decline in values is occurring across both houses and units with house values -7.1% lower over the year and unit values down -5.9%. Gross rental yields have also fallen over the year with rents declining at a faster pace than values. In September 2015, gross rental yields were recorded at 3.9% for houses and 4.4% for units compared to their current levels of 3.8% for houses and 4.3% for units. The weakening Perth market has also seen homes take longer to sell with the typical home sitting on the market for 75 days compared to 66 days a year ago.
- Home values in Hobart have increased by 0.4% over the past three months to be 8.9% higher over the first nine months of 2016 and 8.7% higher over the past year. The annual rate of growth in Hobart is now at its highest level since February 2007. Hobart house values have increased by 8.8% over the past year compared to a 7.6% increase in unit values. Gross rental yields for both houses and units are higher in Hobart than in all other capital cities. In September 2016, yields were recorded at 5.2% for houses and 5.5% for units and a year earlier they were recorded at 5.3% and 5.2% respectively. Residential properties are selling quicker than they were a year ago, taking 48 days currently compared to 70 days a year ago.
- Darwin dwelling values have continued to decline over the September quarter, 2016 and the past 12 months, down -4.5%, -4.7% and -6.0% respectively. Darwin home values reached their most recent end of month peak at May 2014 and home values at the end of September 2016 were -11.1% lower. Houses have recorded a much larger annual decline of -6.8% compared to units where values are -2.1% lower over the year. Although home values are falling, rents are declining quicker which has dragged yields lower over the year. Gross rental yields for houses are recorded at 5.1% down from 5.4% a year ago and unit yields have fallen from 5.8% a year ago to 4.2% currently. With a much weaker housing market relative to a year ago, homes are taking on average 84 days to sell currently compared to 74 days a year ago.
- Over the three months to September 2016, Canberra home values increased by 4.5%, they are 9.1% higher so far in 2016 and 9.0% higher year-on-year. The annual rate of growth in Canberra home values is now the highest it has been since September 2010. House values have increased by a greater 9.2% over the past year compared to the 6.5% rise in unit values. Gross rental yields have pushed slightly lower over the past year. In September 2015, gross rental yields were recorded at 4.1% for houses and 5.2% for units compared to 4.0% and 5.0% in September 2016. Although home value growth has accelerated, homes are taking, on average, 57 days to sell currently compared to 50 days a year ago.
- The overall trend across the capital cities is that the rate of growth across Sydney and Melbourne remains strong but is slower than recent peaks. Meanwhile, the rate of growth has lifted in Adelaide, Hobart and Canberra while values continue to fall in Perth and Darwin. It shows that the trends in individual capital cities can be quite different to those prevalent across the combined capital cities.
Houses vs Units
- There continues to be a divergence between growth rates of houses and units and this is a trend that we anticipate will continue. Over the past year, house values have increased by 7.3% compared to a more sedate 6.1% increase in unit values. Adelaide unit values have increased by more than house values and the decline in house values in Perth and Darwin has been larger than the decline in unit values. In every other capital city, growth in house values has outpaced that of units. The record level of units under construction and more in the pipeline based on recent dwelling approvals suggests that the underperformance of the unit market is likely to continue.
- With home values rising strongly rental yields continue to weaken. At the end of September 2016, the combined capital city gross rental yield was recorded at 3.1% for houses and 4.1% for units. Across the individual capital city markets, gross rental yields are currently lower than they were a year ago in each city. With dwelling values continuing to rise and the increasing housing supply easing pressure on rental markets, it is anticipated that yields will continue to trend lower.
Properties for Sale
- The number of properties being advertised for sale is trending higher which is commensurate with the traditional trends throughout spring. Across the combined capital cities, there were 27,337 unique new listings over the past 28 days and 103,739 unique total listings. The number of newly listed properties is -2.6% lower than a year ago while total listings are 3.4% higher. New listings are lower than a year ago in Sydney, Melbourne, Adelaide, Darwin and Canberra and higher elsewhere. The extremes are in Sydney where new listings are -16.1% lower than a year ago and Perth where they are 19.1% higher over the year. Total property listings are lower over the year in Sydney, Hobart and Canberra and higher elsewhere. Hobart (-26.9%) and Canberra (-12.8%) have much less stock available for sale than a year ago while Perth (+19.2%) has substantially more stock listed for sale. New listings are likely to trend higher over the coming weeks as spring progresses and it will be interesting to see how this impacts on total stock levels.
Days on Market
- The average number of days on market and the level of discounting by vendors has steadied over recent months. In August 2016, it took an average of 48 days to sell a capital city home which was up from 37 days at the same time in 2016. Although homes were typically selling quicker a year ago, the average days on market has been relatively unchanged over the most recent three months. Hobart is actually the only capital city in which homes are now typically selling quicker than they were a year ago. The homes which are selling for less than their initial list price are on average being discounted by 5.8% in order to sell, compared to a 5.9% discount at the same time a year ago. Discounting levels are lower over the year in Melbourne and Hobart but are higher elsewhere.
Auction clearance rates
- The combined capital city auction clearance rate has been recorded above 75% for five consecutive weeks. In fact, auction clearance rates are now at the highest levels since the June 2015 quarter. At these levels, clearance rates are indicative of ongoing increases in home values, particularly in the two largest auction markets, Sydney and Melbourne. While clearance rates are much stronger than they have been in more than a year, the number of properties being taken to auction is much lower. In Sydney, there have been -26.2% fewer auctions so far this year than over the same period last year and in Melbourne volumes are -10.1% lower.
Property Market Outlook
- The ongoing strength in the housing market is likely due to a number of factors. Although the rate of population growth has slowed, it remains high by international standards which creates more housing demand. In certain cities, the actual supply of homes for sale is quite low which creates a level of urgency for buyers in the market. Investor demand appears to be lifting over recent months which has created more competition. Finally, the cost of borrowing money is low and when you factor in both value growth and rental returns, the total returns from residential property are attractive compared to other asset classes.
- Although the previously mentioned factors remain in play, stretched affordability and less of a desire to trade-up in the current market in both Sydney and Melbourne is likely to result in slower levels of growth throughout 2017. Furthermore, housing supply, particularly of units, is likely to increase significantly which may result in softer growth conditions.
- Housing market conditions remain diverse with markets like Sydney and Melbourne continuing to benefit from strong population growth and relatively stronger economies. On the other hand, weak economies in Perth and Darwin are seeing residents leave for other parts of the country and a much higher supply of homes for sale than demand which is causing values to continue to fall. We expect this trend to continue for some time yet. Value growth is picking up noticeably in Canberra as the economy strengthens and Hobart as the affordability gap widens. Generally outside of Sydney and Melbourne the economic performance is weaker as is job creation and, as a result, much more affordable housing is just not proving enough of a lure to attract residents away from the two largest capital cities.
- Lenders have tightened their lending policies over the past 18 months. During this time we have seen many changes including limits on growth in overall credit to investors, increased serviceability limits and tighter lending policies for borrowers who earn their income offshore. This has particularly impacted on the investment segment of the market which has seen a dramatic slowdown in overall credit growth as well as new lending. Over the past few months, lending to investors has begun to lift and it will be interesting to see how much further this can run. Although gross rental yields are at historic lows, they remain higher than rates for cash deposits and are quite attractive when you factor in the growth in home values as well as the yield, especially if investors are using larger deposits.
- Tighter lending policies, less offshore investment, record low rental yields, falling rental rates, higher housing supply and stretched housing affordability in Sydney and Melbourne would suggest that a slowing in value growth is imminent. However, the low volume of housing stock available for sale and lower interest rates may continue to drive growth in the market for a while longer. Throughout next year we would expect the rate of growth in Sydney and Melbourne to slow and we are already seeing growth in values pick-up in Adelaide, Hobart and Canberra, while Brisbane may also join that list. These markets are unlikely to see growth accelerate to the levels recently seen in Sydney and Melbourne especially when you consider how much weaker these economies are relative to Sydney and Melbourne. Other cities will need to offer a compelling investment opportunity or decent and sustainable employment opportunities to result in any significant acceleration in home value growth. We are anticipating slower growth in Adelaide is likely to continue, particularly considering the car manufacturing sector closes down next year which may create headwinds for the market. The declines in the Perth and Darwin housing markets look set to continue however, we could start to see people buying for the long-term re-entering these markets over the next year as values continue to fall, and buyers look to pick up properties at significant discounts from their previous prices.