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CoreLogic Property Pulse: Affordability deteriorating at affordable end of housing market

Research by CoreLogic using the stratified hedonic index shows that the most affordable 25% of properties, the middle 50% and the most expensive 25% recorded the greatest value growth over the past year.

Over the 12 months to August 2017, the most affordable 25% of residential properties nationally recorded value growth of 2.9% compared to growth of 8.0% across the middle 50% of suburbs, and 11.4% growth across the 25% of most expensive suburbs.

According to analyst Cameron Kusher, across all market segments the national annual rate of value change has started to slow over recent months according to research analyst Cameron Kusher.

He said, “During housing market downturns, it has typically been the most expensive properties that have been hardest hit, while more affordable dwellings have been more resilient.”

Over the past 30 years (August 1987 to August 2017) dwelling values across the most affordable 25% of properties rose by 1,517% compared to increases of 580% across the middle 50% of suburbs and 432% across the most expensive 25% of suburbs.

“This highlights how affordability has deteriorated substantially at the more affordable end of the housing market,” says Mr Kusher.

Value changes across the three broad segments throughout the combined capital cities shows that over the 12 months to August 2017, the most affordable 25% of properties have recorded growth of 4.6% compared to 9.3% growth across the middle 50% of properties and a 12.2% change across the most expensive 25% of the market.

Similar to the national figures, Mr Kusher noted that in the event of a housing market downturn it has been the more expensive housing which has tended to see the greater value falls. Across Australia’s regional housing markets for growth performance, the change in values has been much more moderate over recent years than that across the capital cities.

Over the past year, the 25% of most affordable properties in regional Australia have recorded value increases of 2.5% compared to a 4.6% change across the middle 50% and an 8.4% increase in the most expensive 25% of properties.

Mr Kusher said, “Growth in the affordable segment in regional Australia over recent years has been the strongest performed suggesting that demand has been for more affordable housing. However, as the regional markets have picked-up over the past couple of years. It has been the top 25% of suburbs that have outperformed. This is likely to indicate demand for luxury housing outside of the capital cities has risen,”

Looking at the annual change in dwelling values across the three market segments throughout the capital cities, Melbourne and Darwin were the only capital cities to record the greatest change in values over the year across the most affordable suburbs and the slowest growth across the most expensive suburbs. For all remaining capital cities, either the middle 50% of suburbs or the top 25% of suburbs have recorded the fastest rate of value growth over the year.

Mr Kusher said, “The result for Melbourne is likely due to the fact that Sydney and Melbourne are the strongest economies in the country and are jockeying to attract talent.

“Melbourne has a significant competitive advantage over Sydney in terms of being able to offer more affordable housing and the data seems to suggest that lower priced housing is a big driver which has led to a surge in values across the lower and also middle segments of the market.”

“The stratified hedonic index offers another interesting look into the performance of the national housing market looking at how different segments are performing. If the current housing market slowdown continues and turns into declines, watch for whether the most affordable sector of the market is relatively stronger performed than the more expensive segment. With record high levels of household debt and significant first home buyer incentives over recent years the trends in a future downturn could be different to what has been seen in the past,” Mr Kusher said.

CoreLogic Auction Market Preview

Upcoming auctions

Auction activity across the combined capital cities is expected to see a slight increase this week, with 2,270 properties scheduled to go to auction, rising from last week’s final results which saw 2,258 auctions take place across the capitals and also higher than volumes over the equivalent week last year (2,149). In Melbourne and Sydney, volumes are set to rise in Melbourne with 1,137 homes scheduled to go to auction this week, up slightly from last week’s 1,111, while in Sydney the number of auctions scheduled this week is unchanged from last week’s final result, which saw 826 auctions held across the city. Across the smaller auction markets, Adelaide is the only capital city to see a higher volume of auctions week-on-week, with Brisbane, Canberra, Perth and Tasmania all expected to see volumes fall.

Reservoir in Victoria is the busiest suburb for auctions for another week, with 27 properties scheduled to go under the hammer this week, followed by Kew also in Victoria with 19 auctions, while Buderim in Queensland makes the top 3 busiest suburbs list this week, with 18 homes scheduled to go to auction.

Summary of last week’s results

The combined capital city final auction clearance rate recorded 66.9 per cent of auctions successful last week across a higher volume of auctions (2,258), increasing from the week prior when the final auction clearance rate fell to its lowest level since June 2016, recording a 66.4 per cent rate of clearance across a lower 2,074 auctions. Last week’s results were significantly lower than the 75.4 per cent one year ago, across fewer auctions (2,062). Across Melbourne, the final auction clearance rate rose to 71.8 per cent across a higher volume of auctions (1,111), up from the previous week when 71.3 per cent of the 976 auctions cleared. In Sydney, a 65.8 per cent final auction clearance rate was recorded across 826 auctions, increasing from the week prior when fewer auctions were held (779) and a lower rate of clearance was recorded (65.5 per cent). Performance across the remaining auction markets was varied, with clearance rates improving in Adelaide and Canberra, while Brisbane Perth and Tasmania all saw clearance rates fall over the week. Geelong recorded the highest clearance rate of all the non-capital city regions, with 80.8 per cent of the 32 auctions clearing, while the Gold Coast held the highest number of auctions (60), however only 29.8 per cent cleared.

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