Watch CoreLogic’s Housing Market Update for September. The housing and economic data is derived from the CoreLogic Hedonic Home Value Index for the month of August, released September 2016. Presented by Tim Lawless, Research Director at CoreLogic.
Welcome to CoreLogic’s monthly update on housing market conditions around Australia.
This month we’re focusing on how the housing market performed in August, which of course coincided with the second time interest rates were cut during 2016. The August rate cut was the 12th since November 2011. Since that time the Australian cash rate has reduced by 325 basis points to reach 1.5%, the lowest interest rate reading on record. Importantly for the housing
market mortgage rates haven’t reduced by the same amount, with the average standard variable mortgage rate down 255 basis points over the same time, taking a typical standard variable mortgage rate 25.25% and the discounted rate to 4.45%. Mortgage rates haven’t been this low since 1960 which is likely to be one of the factors driving values higher. It’s not just the low interest rates that are pushing dwelling values higher though in Australia. If it were, we’d be seeing much more uniform growth rates across the capital cities and regional areas of the country. In fact the performance of the housing markets been diverse across Australia. Most capital city housing markets are only showing subtle growth trends, while Sydney and Melbourne have stood out based on their substantially higher rates of capital gains over the past two cycles. The current growth cycle kicked off in the middle of 2012 across most cities. Since that time city dwelling values have increased by 64% and Melbourne values are up by 44%. The next highest growth rate across the same period has been in Brisbane, where dwelling values are 18% higher. The lowest growth rates of the cycle can be found in Perth and Darwin, where dwelling values have increased by 8.2% and 9.7%.
However despite the growth rates over the past cycle, housing values have been falling in these cities since 2014. Other factors apart from low mortgage rates can explain the strong growth conditions that are evident in Sydney and Melbourne. Both cities have benefited from strong jobs growth, low unemployment and high migration rates from both overseas and interstate. Additionally low advertise stock levels are likely adding to some of the buyer urgency we’re seeing in these cities.
Listing numbers in Sydney and Melbourne have started to trend higher as they do each Spring, but overall listing numbers remain well below the long-term average levels. While growth conditions remain strong in Sydney and Melbourne, the annual trend of growth has been tapering since the middle of last year. Sydney’s housing markets move through a peak of annual growth in July last year at 18.4%.
The annual pace of growth has since moderated back to 9.4% over the past 12 months. Similarly growth in Melbourne has fallen from a peak of 14.2% to reach 9.1% over the past 12 months. Not all cities are seeing a decelerating growth trend though. The housing market in Canberra and Hobart have both gathered some pace over the past 12 months. A year ago the annual trend of growth in Canberra was almost down 1% over the year. Over the past 12 months the annual rate of growth has picked up to 7.6%. Similarly in Hobart the annual rate of capital gains has shifted from just 1.5% a year ago to reach 6.5% over the past 12 months. A more subtle growth trend is evident in Brisbane and Adelaide, where dwelling values are up by 4.4% and 3.1% over the past 12 months. While values continue to fall in Perth and Darwin, where economic and demographic conditions have weekend.
Let’s take a closer look at each of the capital cities. Sydney’s housing market has seen dwelling values surge higher compared with the other capital cities. Dwelling values across Australia’s largest city were up 9.4% over the past 12 months. While this is a high rate of growth, the annual pace of capital gains is virtually halved since July last year, when dwelling values are rising by 18.4%p.a. Up until recently there has been little difference between growth and house values compared with unit values. However the most recent 3-month period has seen house values accelerating away from unit values. The over-performance in the detached housing sector may be attributable to higher supply levels associated with the unit market, as well as ongoing strong demand for detached housing, while supply levels remain relatively constrained.
Melbourne dwelling values a continuous strong run of capital gains, with values moving 1.5% higher in August and 3.4% higher over the past three months. Melbourne houses are continuing to show a substantially higher growth trend than units. Over the past 12 months Melbourne housing values are up by 9.7% while unit values have been increasing by less than half of that amount rising by 4.1%. Concerns around unit oversupply are generally confined to specific inner-city areas of Melbourne, however it does appear that the broader unit market is suffering from a spillover in negative sentiment relating to the supply concerns.
The Brisbane housing market has struggled to gather any pace with value growth in the city continuing to lag well behind Sydney and Melbourne. Similar to Melbourne, Brisbane’s unit market is tracking much softer than detached housing, with unit values falling by 0.4% over the past 12 months, compared with a 4.9% rise in house values. New housing supplies have been very much skewed towards apartments across the Brisbane region with detached housing generally remaining undersupplied. The market fundamentals in Brisbane continue to look positive despite the comparatively weak growth profile. Rental yields remain amongst the highest of any capital city and affordability is far less of an issue than it is in the larger capitals. The overall performance of the Queensland and Brisbane economy is the main factor holding back stronger value growth.
Adelaide has continued to show a steady and sustainable trend pace of capital gains, despite a weak result in August with 20 values falling by 1% over the month. The annual trend has seen dwelling values rise by 3.1% with most of the growth concentrated in the detached housing sector. Unit values have remained relatively flat over the year, recording a growth rate slightly below 1%. The average selling time across Adelaide has held reasonably firm over the past year and 55 days compared with 56 days a year ago. However discounting rates have started to slip suggesting the vendors are becoming more flexible in the pricing expectations.
The Perth housing market remains relatively soft with dwelling values down 4.2% over the past 12 months. The August data actually show the subtle rise in Perth dwelling values, however we still need to see more consistent positive month-to-month increases before suggesting the Perth housing market has bottomed out. Listing numbers remain high across Perth and the average selling time at 74 days suggest that Perth remains a buyers market. While dwelling values are slipping lower, growth rental rates are showing a more substantial downturn with dwelling rents down by 9.4% over the past year. The week rental conditions are also pushing gross rental yields lower.
Hobart’s housing market has started to show a consistent upswing with dwelling values rising 6.5% over the past 12 months. The most recent 12-month period represents the strongest capital gain conditions since 2010. The strong growth conditions are accompanied by a reasonably high rental yield as well, which may provide some incentive for investors looking for a healthy balance of capital gains and rental return. Despite the recent run of capital gains, Hobart remains the most affordable capital city housing market by quite a large margin. The total number of advertised homes for sale are substantially lower than it was a year ago and the shortage of stock for sale is likely a major factor in the strengthening value growth in the city.
The reading for Darwin dwelling values has been somewhat volatile, however peering through some of the noise suggest that housing markets remain soft. The past 12 months have seen Darwin dwelling values fall by 4.2%, however there has recently been some improvement in the number of transactions across Darwin, which means that the year-on-year dwelling sales have risen by 2.5%, perhaps providing an early indicator that the market is moving through its low point. Discounting rates and average selling times remain high so buyers still hold a great deal of leverage over sellers in this market.
Canberra’s housing market has been on an improving growth trend during 2016, with dwelling values rising 7.6% over the past 12 months. At the same time a year ago, Canberra dwelling values were down nearly 1% over the 12-month period. This recovery and growth is being completely driven by detached houses rather than units, with detached house values increasing by 8.3% of the past year compared with a 1.6% fall in unit values. Year-on-year transaction numbers have also moved higher, however the growth in transaction numbers is also in concentrated entirely within the detached housing sector, while unit transactions remain 2.2% lower compared with a year ago, and unit values are 1.6% lower over the year.
Overall the common thread across the Australia housing market is diversity. While the headline growth figures remain robust, it’s very clear that capital gain conditions vary remarkably from region to region and across the housing types. Transaction numbers are trending lower which at face value may suggest some weakening of demand. Nationally there are 15% fewer sales across the housing market over the past 12 months. Digging a bit deeper though and it’s likely that lower transaction numbers aren’t entirely attributable to less demand from buyers. While reduction and housing demand is a likely explanation in the weak markets, like Perth and Darwin, the same can’t be said for Sydney and Melbourne, where values are still racing higher at a very strong pace.
These areas continue to show a low number of homes being advertised for sale which is likely to be creating some level of urgency among spires which is supporting the upward pressure on prices. Total listing numbers in Sydney remained below 20,000 and the number of newly advertised properties added to the marketplace last month was about 21% lower than a year ago. As the spring selling season starts to ramp up, we’d expect that listing numbers will also start a typical seasonal upswing. whether this increased supply is absorbed by the marketplace will be important to monitor as the season progresses.
If listing numbers do rise, without a commensurate lift in buyer demand, we may see some further moderation in the rate of value growth, that has been evidenct in Sydney and Melbourne over the past four years.
Affordability barriers are likely to progressively add some natural resistance to housing demand if values do continue to rise. With wages growing at the lowest rate on record it’s hard to imagine this pace of dwelling value growth could continue much longer, at least in Sydney where the dwelling price to income ratio is tracking at a record high of 8.4 times. Another likely break on the marketplace will be higher supply levels from newly constructed housing. Dwelling approvals data from July show that another surge in apartment approvals at a time when the number of high-rise apartments under construction is well and truly already at historic highs. While concerns around apartment supply are confined to specific areas, particularly across the three largest capitals, it’s clear that high unit supply is weighing down the pace of capital gains in this sector of the market.
In summary Australia’s housing market continues to show a strong level of resiliency in this record low interest rate environment, despite the many moving parts and somewhat divergent underlying trends. However there are some headwinds that may prevent growth rates from re-accelerating, even if interest rates do move even lower later this year.
As always thanks for tuning in to corelogic housing market update. We’re always updating our housing market research at www.corelogic.com.au