Analysing the components of our property markets

As Australia’s $1.4 trillion mortgage market continues to grow and evolve, underpinning Australia’s $5.7 trillion dollar residential property market, regulators, policymakers, analysts and investors are becoming increasingly sophisticated in analysing and understanding the component parts of each respective market.

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In the old days, the market would essentially only find out, typically on a half yearly basis, how much home values had increased across the combined capital cities and how much new lending had taken place over the prior period.

Now, the market receives extremely granular information about changes in home values across each capital city, on a daily basis, and new lending statistics via the Australian Bureau of Statistics (ABS) on a monthly basis.

The following graphs seek to highlight what elements of our housing market, and economy more broadly, potentially remain in and out of balance when compared to ten year averages.

This is informative as, if and to the extent that any element of our housing market becomes overheated (or out of balance) or macroeconomic forces become unbalanced, then it can be argued that policymakers and regulators ought to increase their level of vigilance and take a proactive approach in their respective activities.

Graph 1 highlights that Australia’s residential property market is comprised of many sub markets.

This graph shows the ten-year average annual rate of capital growth for the combined capital cities (grey line) and compares it to the rate of capital growth for the past 12 months across each capital city (red line).

Property Value Growth

The graph demonstrates that the Sydney market has experienced strong capital growth over the past 12 months (and indeed 24 months) when compared with the ten year average.

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This partly explains the attention and focus from policy makers and regulators, notwithstanding the fact that deeper analysis would suggest that the fundamentals of the Sydney market remain sound.

Apart from Sydney, only Melbourne, Brisbane and Hobart have experienced stronger growth over the past decade than they have over the past 12 months, and even then only by modest amounts.

Perth, Darwin and Canberra have all experienced much softer housing conditions over the past 12 months in comparison to the last decade.

So the broad conclusions:

  • Certainly the Sydney market warrants close attention given its rate of growth over the past 24 months,
  • However the rate of growth across the remainder of the combined capital cities is largely unremarkable when compared to ten year averages.

Macroeconomic forces

Graph 2 looks at broader macroeconomic forces which impact on the level of home price appreciation, lending activity and potential risks associated with that activity. It looks at six key elements:

  • aggregate capital growth across the combined capital cities;
  •  unemployment rate;
  •  population growth;
  • dwelling approvals;
  • interest rates (in particular the average standard variable interest rate); and
  • rental growth.


Macroeconomic property factors

The following high level observations can be drawn from graph 2, which again compares current readings to ten year averages:

  1. Mortgage interest rates are in fact at forty year lows, which is particularly relevant given roughly 80 per cent of mortgages in Australia are variable or adjustable rate.
  2. Unemployment at 6.4 per cent is marginally higher than ten year averages, compounded by not immaterial levels of underemployment.questionmark house
  3. Population growth remains about par, although it has softened in recent years with lower immigration levels.
  4. Domestic construction of new dwellings has noticeably picked up over the past 12 to 24 months, a deliberate objective of the Reserve Bank in their monetary policy settings.
    CoreLogic RP Data tracks dwelling approvals at a very granular geographic level in order to monitor potential issues associated with oversupply.
  5. Capital growth over the past twelve months is nearly one and a half times the ten year average, although, as evidenced in Graph 1, this is primarily driven by Sydney and to a lesser degree Melbourne and Brisbane
  6. Finally, rental growth remains well below ten-year averages, with gross rental yields in Sydney and Melbourne now between 3 per cent and 4 per cent in broad terms.
    This explains part of the concern of policy makers: strong investor activity in the market appears driven by future (and perhaps unrealistic) capital growth expectations rather than current rental returns.

In summary:

Australia’s housing and mortgage markets are each at an interesting point in their respective cycles, driven by an extremely low interest rate environment.

Given this, the RBA and regulators will be monitoring each component part of the market to ensure unintended adverse consequences do not follow from any imbalances that may arise.

Source: Corelogic Property capital markets report 2015

Want more of this type of information?

Tim Lawless


Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit

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