INDUSTRY NEWSNationalReal Estate News

The wealth effect of housing: Core Logic Property Pulse

CoreLogic head of research Tim Lawless provides his observations on the amount of wealth created via housing by analyzing the proportion of dwellings now worth double their purchase price. He also looks at what proportion of residential properties now hold a value that is at least 10% lower compared with their purchase price.

Mr Lawless said, “The strong capital gains evident across the Sydney and Melbourne housing markets have created a significant boost in wealth for home owners who were fortunate enough to own a property through the latest growth cycles.

However, the rate of capital gain has been remarkably lower across other markets with home owners outside of Sydney and Melbourne now seeing far less accrued equity from their housing assets.”

“On the flipside, there are also those housing markets where dwelling values have fallen, particularly in areas associated with the mining sector where a larger proportion of properties in these regions are now worth less than their original purchase price.”

The wealth effect analysis measures two aspects of wealth accumulation via the housing sector: what proportion of dwellings are now worth double their purchase price and what proportion are worth at least 10% less than their purchase price.

Nationally, the proportion of dwellings where the value of the property is at least double the purchase price has slipped over the past decade falling from 45.4% of dwellings in 2007 to 39.1% in 2017. The slippage is evident across regions outside of Sydney and Melbourne where capital gain conditions have been much softer over the past decade.

The proportion is highest in Sydney, where 48.1% of dwellings are now worth at least double what their owners paid for them; ten years ago the proportion was much lower at 37.2% Melbourne follows close behind with 47.3% of dwellings worth at least twice what their owners paid (up from 38.1% ten years ago)

The remaining capital cities show a much lower proportion of dwellings that are worth at least double their purchase price, ranging from 25.9% of dwellings in Darwin to 37.4% in Hobart. Across the broad ‘rest of state’ markets outside of the capitals, regional Victoria stands out as showing the highest proportion of properties worth at least double the purchase price at 40.8%, followed by regional Western Australia at 34.8%.

The high proportion of properties worth at least double their purchase price across regional WA may come as a surprise, given the weak performance of the housing market across this region over the past five years, however a decade ago the proportion was substantially higher at 60.8%.

Over the past decade, the proportion of properties valued at less than 10% of their purchase price has risen slightly from 3.2% to 3.4% between 2007 and 2017.

The national figures hide a significant difference between the major regions of the country. The highest proportion of dwellings worth at least 10% less than their purchase price can be found in regional Western Australia, at 17.8%. Darwin (15.1%), Perth (11.1%) and regional Queensland (11.0%) have also recorded a significant proportion of dwellings where values have slipped more than 10% below the purchase price.

Ten years ago only, while the mining boom was in its early stages, regional Western Australia and Perth were recording the lowest proportion of dwellings where the value was more than 10% lower than the purchase price. In 2007 only 1.1% of Perth properties and 2.3% of regional Western Australian properties fit this profile. The lowest proportion of dwellings with a valuation more than 10% lower than the purchase price can be found in Sydney (0.7%) and Melbourne (2.1%).

Ten years ago, 7.1% of Sydney dwellings recorded a valuation that was more than 10% less than the purchase price, highlighting the effect of strong capital gains post GFC. Drilling down to the suburb level, it is clear how hard mining towns have been hit. The Bowen Basin town of Dysart tops the list with 65.7% of dwellings showing a valuation that is at least 10% lower than the purchase price. Queensland’s Gladstone Central is close behind at 64.2% followed by South Hedland in the Pilbara region of Western Australia at 64.0%.

Mr Lawless said, “The good news for many mining regions is that housing market conditions seem to be moving through the bottom of their cycle. Transaction numbers are generally rising and advertised stock levels are reducing which should help to promote some value recovery in these regions.”

“As growth eases across Sydney and, to a lesser extent Melbourne, we may start to see a slow reversal of these trends.”

He said, “It will be harder to double the value of a property in Sydney and Melbourne after such a sustained period of high capital gains, however markets such as Hobart and Canberra, which have gathered some momentum, are likely to see home owners benefit from improved capital gains that is likely to boost their overall wealth profile. Similarly, the worst appears to have past across the mining sector, although it is likely to take many years before property values recover to their previous highs in many of these regions.”

Auction preview

With such low activity in Victoria this week, it is no surprise that the busiest suburbs for auctions are in NSW and Qld, with Port Macquarie in NSW topping this list with 8 scheduled auctions, followed closely by Manly (NSW), Wahroonga (NSW), Paddington (Qld) and Surfers Paradise (Qld) all with 7 auctions each.

Auction activity across the combined capital cities is set to be quite subdued this week, with half the nation host to an upcoming public holiday; combined with both the NRL and AFL grand finals being held over the weekend, it looks to be a quiet week for the auction markets.

There are 805 auctions currently being tracked by CoreLogic, down from the 2,759 held last week and only slightly lower than final results recorded over the equivalent week last year (872). The most notable decrease in activity will be in Melbourne, where only 86 auctions are scheduled this week, while Sydney is set to host the highest volume of auctions this week, with 515 homes scheduled to go under the hammer, albeit volumes are well down on last week. Brisbane is expected to be the second busiest capital city this week, with volumes remaining relatively steady week-on-week, while the remaining capital cities are all expected to see a lower volume of auctions.

Summary of last week’s results

Results last week saw the final auction clearance rate across the combined capital cities dip even lower, with 66.2 per cent of auctions clearing, recording the lowest clearance rate since March 2016. However volumes reached their highest levels since May of this year, with a total of 2,782 held, increasing from the week prior when 2,510 auctions were held and a clearance rate of 66.7 per cent was recorded. Over the same week last year, the clearance rate was a higher 75.4 per cent, across a lower 2,480 auctions.

  • Melbourne’s final auction clearance rate fell to 70.6 per cent last week, while volumes increased over the week, with 1,361 held across the city, up from the 1,265 over the week prior when a higher clearance rate were recorded (71.4 per cent).In Sydney, both clearance rate and volumes increased last week, with 65.9
  • In Sydney, both clearance rate and volumes increased last week, with 65.9 per cent of the 1,033 auctions clearing, rising from the 64.2 per cent across 916 auctions the previous week, which was the lowest recorded clearance rate for the city since early 2015.
  • Across the remaining capital cities, clearance rates fell in Adelaide, Canberra and Perth, while Brisbane’s final clearance rate rose.
  • Geelong recorded the highest clearance rate of the non-capital city regions, with 70.6 per cent of auctions clearing, however the Hunter region had the highest volume of auctions, with 63 held. CoreLogic, on average, collects 90% of auction results each week.

Clearance rates are calculated across properties that have been taken to auction over the past week.

Show More

Azal Khan

Azal Khan was a in-house features writer for Elite Agent Magazine.