WEAK CONSUMER SENTIMENT and growing economic uncertainty are weighing on Australia’s property markets, as evidenced by a markedly slower growth and, in many cases, even falling values. However, there’s an upside to the market downturn. Nila Sweeney, Managing Editor of Property Market Insider, explains.
NO MATTER HOW SOME people might try to spin it, there’s no denying the fact that, broadly speaking, Australia’s property markets are now well and truly in a downturn. The slowdown that started in January has continued and, if the recent data is an indication, further weakening is on the cards for the rest of the year.
According to the March quarter data from Domain, house prices in all capital cities except Melbourne and Hobart suffered a significant drop in prices during the March quarter amid shaky consumer confidence. Units across the board have fallen in value, no thanks to the record number of new apartments built in most capital cities over the recent years.
“Weakening economic activity and growing uncertainty is impacting fragile consumer and investment sentiment, leading to falling house and unit prices in many capital cities,” explains Andrew Wilson, chief economist with Domain. “The national median has now fallen over consecutive quarters for the first time since June 2011 as the general housing market correction consolidates.”
Wilson points out that the outlook for house prices remains subdued, with capital city growth likely to continue to track at best just above the inflation rate for the remainder of 2016.
Domain’s result is a stark contrast with the CoreLogic RP Data results, which showed a broad-based gain in values, albeit at a much slower pace than previously. Tim Lawless, Regional Head of Research for CoreLogic RP Data, explains that the bullish result is fuelled by strong buyer demand, supported by mortgage rates that are at historic lows, as well as high levels of investment demand.
“Even though investor demand has eased since May last year, investors still comprise approximately 46 per cent of all new mortgage commitments,” says Lawless.
“With the likelihood of interest rate increases in the foreseeable future almost non-existent due to the negative March quarter inflation reading, buyer demand is likely to remain high for housing. Similarly, as long as taxation policy continues to support investment in the housing market, we are likely to see investors remain as a substantial component of housing demand due to the lack lustre returns evident in other asset classes, such as cash, bonds and equities.”
FIRST HOME BUYERS SET TO RETURN
While slower growth may not sit well for property owners hoping to capitalise on stronger equity growth, the prospect of lower house prices is welcome news for prospective first-home buyers still struggling to get into the market.
With interest rates remaining at record lows, experts expect a solid revival for this segment of the market, especially at a time when investor lending continues to tighten. Firsthome buyers are now facing less competition from investors and could well be the next growth engine for the real estate market.
STATE BY STATE ANALYSIS
Sydney – After suffering a record decline during the December quarter, Sydney’s median house price fell again over the March quarter, recording a 1.5 per cent drop to $995,804, according to Domain. Sydney’s unit prices also fell for the second consecutive quarter, down by 0.7 per cent to $656,166.
On a year-on-year basis, Sydney house prices rose by 6.9 per cent, while unit prices rose by 5.8 per cent.
While the rate of decline slowed after the dramatic drop recorded in the previous quarter, Wilson points out that this is the first time Sydney house prices have fallen for consecutive quarters since December 2011. It also brings Sydney’s median house price down below the million-dollar mark.
“We can expect subdued conditions to continue over the rest of 2016, with any price growth unlikely before spring,” says Wilson.
Melbourne – Defying the downturn that’s gripping the country’s property markets, Melbourne’s house prices climbed by 1.2 per cent over the March quarter to a $726,962 median price, according to Domain. Over the past 12 months, house prices have jumped by 11.8 per cent.
In contrast to the solid house performance, units continued to lose ground. The median price dropped by 1.7 per cent during the March quarter to $444,370. Over the year, the median unit price grew by just 3.8 per cent.
“Melbourne has now overtaken Sydney as the fastest-growing capital city housing market in Australia. Melbourne has recorded 14 consecutive quarters of house price growth, the longest sequence since June 2008,” says Wilson.
Brisbane – Despite finishing strongly in 2015, Brisbane’s median house price fell to $512,809 during the March quarter, the first price drop since September 2014, according to Domain. Over the year, house prices rose by 4.1 per cent.
While this is a disappointing result for property owners, the more worrying issue is the continuing decline in Brisbane unit prices. Domain’s data shows Brisbane has now recorded seven consecutive quarters of falling unit prices, with the recent apartment building boom pushing supply ahead of demand.
Adelaide – Adelaide’s housing market also failed to capitalise on its strong performance over 2015 and saw house prices drop during the March quarter. The median house price fell by 0.5 per cent to $491,422, the sharpest decline since September 2012, according to Wilson. On the bright side, Adelaide’s unit prices were steady during the same period, making it the only capital city not to record a drop in unit value.
“Just like the other capitals, Adelaide has experienced a flattening of price growth, with future growth likely at a slower rate than the recent years,” says Wilson.
Perth – It turned out the rebound in Perth’s house prices during the December quarter was just a blip. During the March quarter, the median house price resumed its downward trajectory and fell by 1.3 per cent, according to Domain. Over the year, Perth house prices fell by 4.7 per cent, the sharpest decline of all the capitals.
Just like houses, Perth unit prices also fell over the March quarter following the rise in value over the previous quarter. Unit prices plunged by 3.7 per cent to $379,975. On an annual basis, unit values have dropped by 5.1 per cent – the steepest fall since December 2011.
The outlook for Perth doesn’t look too flash either, according to Wilson. “It will be a slow journey back to price growth,” he says.
Hobart – Hobart, together with Melbourne, was the only bright spot in what turned out to be a weak quarter for the property market.
Median house prices surged by 4.3 per cent over the March quarter to $360,212. This strong showing follows the 3.5 per cent jump during the previous quarter. Annually, house prices jumped by 7.6 per cent, the secondbest performance of all the capital cities.
In contrast, Hobart unit prices lost 6.2 per cent over the March quarter, to $251,633. Over the year, unit prices fell by 3.3 per cent.
“After a lengthy period of subdued growth, Hobart continues to play catch-up, recording the strongest price increase of all capitals across the March quarter. Despite further likely rises, Hobart remains the most affordable Australian capital city,” says Wilson.
Canberra – Just like all good things, Canberra’s strong run over the last five quarters came to an abrupt end during the March quarter. According to Domain, the median house price fell by 1.4 per cent to $638,69. However, it still managed to rack up a 4.8 per cent growth over the past 12 months.
Also, just like most capital cities, Canberra unit prices reversed the rise of the previous quarter, falling by 2.8 per cent to $400,637, an annual decrease of 4.7 per cent.
“An oversupply of new apartments is affecting unit prices in Canberra. A rebound in Canberra house prices will be dependent on the performance of the local economy,” says Wilson.
Darwin – Darwin house prices fell sharply over the March quarter, losing 4.9 per cent to $610,305; the third consecutive quarter of falling house prices, according to Domain. Unit prices also recorded a steep drop during the same period, losing 4.1 per cent to $448,416.
“The Darwin market continues to adjust to the downturn of the mining sector and reduced demand from fly-in-fly-outs. Lower prices, however, are good news for home buyers. The Darwin unit market remains vulnerable to further price falls as a result of recent significant developments of new apartment complexes,” says Wilson.