Property prices start to recover in Sydney and Melbourne

There are some positive signs for property prices on the East Coast as both Sydney and Melbourne have posted monthly gains for the month of June.

Values in Australia’s two major housing markets were up 0.2 per cent in Melbourne and 0.1 per cent in Sydney for the month, according to the latest figures from CoreLogic’s Hedonic Home Value Index.

The positive news for the east coast comes after the RBA cut the cash rate to 1.25 per cent, with the market forecasting in a further cut at its meeting on July 2. We’ve also seen APRA begin to loosen its macroprudential measures by dropping the 7 per cent buffer rate it requires banks to use to assess potential lenders.

Head of research at CoreLogic, Tim Lawless was positive on what the data is suggesting about property prices.

“This is really a turning point for Sydney and Melbourne,” Mr Lawless said.

“The subtle rate of decline was heavily influenced by trends across Sydney and Melbourne where the pace of falling home values has been consistently reducing over the year to date.

“Importantly, the improving conditions through to mid-May were largely ‘organic’, pre-dating the positive boost in sentiment following the federal election and interest rate cuts in early June,” he said.

Mr Lawless also believes the June results provide further evidence that the downturn is running out of steam.

“The improvement in housing market conditions over the first five months of the year has largely been organic, however since mid-May, there has been a raft of announcements that should provide a further positive flow through to housing demand.

“Stability within the federal government, along with the removal of uncertainty surrounding changes to negative gearing and capital gains tax discounts, has brought about increased certainty and boosted confidence in the housing market.”

Across the country, the story wasn’t quite as good as national dwelling values fell 0.2 per cent in June. On a national level, the fall was the smallest monthly decline since March 2018 and comes as there are renewed hopes of a market turnaround.

Results over the three months to June 2019 were:

– Best performing capital city: Adelaide -0.4 per cent
– Weakest performing capital city: Darwin -3.6 per cent
– Highest rental yield: Darwin 6.0 per cent
– Lowest rental yields: Sydney 3.5 per cent

On a quarterly basis, every capital city housing market has recorded a drop in value, highlighting the broad geographic scope of this housing market downturn.

The largest falls over the past three months were recorded in Darwin (-3.6 per cent) and Perth (-2.1 per cent) where the weaker trend has persisted since mid-2014. Adelaide recorded the smallest decline amongst the capitals over the quarter, with values down 0.4 per cent.


On an annual basis, only five of the forty-six capital city sub-regions have recorded a rise in dwelling values over the 2018/19 financial year, with the best performing areas, generally confined to areas of Hobart, Canberra, Brisbane and Adelaide and the weakest markets confined to areas of Sydney, Melbourne and Perth.

On a quarterly basis, six of the capital city sub-regions have recorded a rise in dwelling values. Melbourne’s prestigious Inner East led the quarterly rise with values up 2.7 per cent, followed by Sydney’s City and Inner South with a 1.3 per cent gain in dwelling values.

In fact, the quarterly change shows that 34 of the 46 capital city sub-regions have recorded a stronger performance over the June quarter relative to the March quarter.

Regional Markets

Across the regional markets, values were 0.4 per cent lower over the month to be down 3.1 per cent for the financial year. Dwelling values recorded a rise over the June quarter in Regional South Australia (+0.6 per cent) and Regional Tasmania (+1.3 per cent).

Although these areas have recorded modest gains over the quarter, the trend across the regional areas of Australia is generally one that is losing momentum.

The only other regions to record a rise in housing values over the month were Hobart (+0.2 per cent), as well as the regional areas of South Australia (+0.1 per cent) and Northern Territory (+0.2 per cent)

The best performing regional markets over the past 12 months have been in Tasmania, however, despite the strong annual performance, the momentum is slowing across both Hobart and the regional areas of the state.

Regional Victoria remains a solid housing market performer, with four of the top 10 highest capital gains located in this region.

At the weakest end of the property market spectrum, the broader outback regions of Queensland, Western Australia and South Australia have recorded some of the worst housing market conditions due largely to the extreme weather conditions such as the recent droughts and floods.

Areas surrounding Sydney have also shown a significant drop in housing values over the past year, with conditions in markets such as Newcastle, Illawarra and the Southern Highlands and Shoalhaven all showing a similar trajectory to Sydney’s housing market.

Improving conditions in Sydney and Melbourne

Auction clearance rates have been holding above 60 per cent in Sydney and Melbourne through June; a substantial improvement relative to late 2018 when clearance rates were consistently in the low 40 per cent range.

Additionally, settled sales activity has shown signs of levelling out and mortgage-related valuation events monitored by CoreLogic have posted a subtle rise.

Anecdotally, Mr Lawless said CoreLogic was hearing positive news from real estate groups that numbers for open homes and inspections are up, and lenders are taking more inquiries from interested borrowers.

“Overall, it looks like the tide may have turned for the housing market; however we aren’t expecting a rapid recovery phase.”

To date, most of the improved performance observed by CoreLogic has been centered in Sydney and Melbourne where economic conditions are generally stronger than other parts of the country and where unemployment is much lower and jobs growth has been higher.

“Weaker economic conditions across the rest of Australia is likely to keep price growth at bay in these areas,” Mr Lawless explained.

Credit Conditions

Thanks to APRA beginning to soften its approach to lending, we are starting to see some improving conditions across the country.

“Although housing credit growth appears to be stabilising after a steep decline, tight credit conditions are the new normal and will continue to dampen market activity. Lenders are progressively becoming less reliant on average household expense benchmarks and prospective borrowers should expect some scrutiny of their balance sheets during the loan application process.”

“Additionally, with borrower debt profiles becoming more transparent via comprehensive credit reporting, lenders will have greater visibility of total debt levels relative to borrower incomes, including credit card limits, mortgages with other lenders, personal debt and auto financing.

“Borrowers applying for debt that is greater than six times their income may find it increasingly difficult to secure a loan. Overall lenders are going to have a lot more information than they have in the past in order to decide whether a borrower is credit worthy or not.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.