It’s time for our monthly whip around the country to see how our property markets are performing and to look at the factors affecting their future.
CoreLogic recently released their chart pack for June which gives us a good overview of what’s happening as well as some of the economic factors impacting our markets.
Home values increased by 1.6% in May 2016 with values 3.6% higher over the three months to May 2016
Combined capital city home values increased by 1.6% in May with values increasing in all capital cities except for Perth
Home values were 3.6% higher over the three months to May 2016 and Perth and Hobart are the only two capital cities in which home values have fallen
Over the first five months of 2016, capital city home values have increased by 5.0% and Perth is the only city in which values have fallen
Over the past 12 months, combined capital city home values have increased by 10.0% which represents an increase from the 7.3% annual increase in April, but remains lower than the recent peak of 11.1% annual growth in July 2015
Across the individual capital cities, the annual change in home values have been recorded at 13.1% in Sydney, 13.9% in Melbourne, 7.1% in Brisbane, 3.9% in Adelaide, -4.2% in Perth, 6.1% in Hobart, -3.5% in Darwin and 5.7% in Canberra
The Markets Have Slowed Down:
Clearly our markets have entered the next stage of the property cycle, with capital growth slowing to a much lower rate than in the last few years, but there has been a rebound in the strength of our markets over the last month.
This graph gives an overview of the whole Australian market and we’ll look at how the individual State markets perform in a moment:
What the chart above doesn’t really show is who fragmented our property markets are – Melbourne has been the strongest growing property market, not only over the last 12 months, but over the last decade with Sydney coming in a close second:
Home sales have trended lower over recent months
After a number of strong years, overall our property markets have moved from fifth gear into second gear (not in reverse as some would have us believe) with fewer properties changing hands as home owner confidence wanes and more potential investors sit on the sidelines as the banks make it harder for them to get loans.
Over the 12 months to May 2016 it is estimated that there were 338,785 houses and 131,339 units sold nationally with house sales -4.1% lower and unit sales -10.3% lower over the year
Across the combined capital cities there were an estimated 207,565 houses and 95,583 units sold over the 12 months to May 2016.
House sales are -6.4% lower over the year while unit sales are down -12.5%
Most capital cities are seeing the number of sales trending lower however, there are signs in Perth and Hobart, where home values are falling, that sales volumes are stabilising and potentially increasing a little
It is important to note, the large volume of off-the-plan sales currently means there is a high likelihood unit sales volumes will be revised higher over the coming years
Overall weakness in rental market
Combined capital city house rents are currently recorded at $489/week while unit rents sit at $469/week
House rental rates have fallen by -0.7% over the past year (largest fall on record) while unit rents have increased by 1.6%
In both Perth and Darwin, rental rates have fallen over the year for both houses and units
Aside from Hobart, where rental rates are up 3.7% over the year, no other capital city is recording rental growth in excess of 3.0%
The current movement in rental rates, coupled with value growth have resulted in rental yields trending lower over the year
Gross rental yields for houses are currently recorded at 3.3% and unit yields are 4.2%, both of which are record lows
12 months ago gross rental yields were recorded at 3.6% for houses and 4.6% for units
However currently there are signs, particularly in Canberra, Melbourne and Sydney (where vacancy rates are low), that the tide is turning and rents are slowly rising again.
Selling time of homes has increased slightly, while discounting levels are falling for units
Another sign of our slowing property markets is an increase in the number of days on market (how long it takes homes to sell.)
The typical capital city house is currently selling at 44 days compared to 42 days a year ago while the typical capital city unit takes 42 days to sell, the same as one year ago
The average level of discount is recorded at 6.0% for houses and 5.3% for units compared to 5.9% for houses and 5.8% for units 12 months ago
Auction clearance rates have rebounded in 2016 and were in the high 60% range last week, averaging 68.4% so far this year
Both new and total listings are higher than they were a year ago
Yet at the same time there are more properties for sale, particularly in Sydney where there are 25% more properties for sale now than there were 12 months ago.
Over the past 28 days there were 42,843 new homes listed for sale nationally and 26,093 of these were listed across the capital cities
New listings are 1.9% higher than they were a year ago nationally and 1.3% higher across the combined capital cities
There were 240,927 total listings nationally over the past four weeks and 107,467 total capital city listings
Nationally, total listings are 1.8% higher than a year ago while they are 10.4% higher across the combined capital cities
INVESTOR PARTICIPATION HAS FALLEN
APRA seems to have achieved what it wanted.
Investors, who were dominating our property markets last year, are now finding it difficult to get finance resulting in investor participation levels today being back around the average level for the last decade:
The following graphs show lending growth to investors falling.
This is a leading indicator – a sign of what’s ahead (as investors generally obtain their finance pre approval is prior to purchasing) – suggesting quieter times ahead for our property markets.
What’s Happening Around the States?
The Sydney property boom is over, but its fundamentals are still strong and after a slight retracement at the beginning of the year, Sydney’s price growth has resumed at a much more sustainable level:
The Melbourne market was the strongest performing property market over the last 12 months, but this year capital growth has slowed to a more sustainable level.
Strong population growth (around 2% per annum) and a relatively strong economy creating more jobs have underpinned the Melbourne property market.
Brisbane’s property market grew a respectable 7.1% over the past year:
Adelaide property values increased 2.6% over the last three months, but house prices have only increased 6.7% over the last five years, so the market is really just playing catch up.
The Perth property market is still in its slump phase with a significant oversupply of properties for sale and values still falling.
Similarly the oversupply of rental properties in Perth is causing rents to fall.
I believe there is still some downside to the Perth market as it works its way through the excesses of the mining boom:
Similarly there are few growth drivers for Hobart property prices, and even though some commentators are suggesting it’s a good place to invest “because it has to catch up”, with minimal population growth and slow economic growth there seems little reason for property values in Hobart to grow substantially.
It’s growth spurt seems to have slowed down and Hobart has underperformed over the last decade with proeprty prices only increasing 14% over the last 10 years.
Darwin property values are 3.5% lower than they were 12 months ago, and like Perth, I believe there is more down side yet to come.
The Canberra property market is likely to remain in limbo for the next few months until the outcome of the Federal Election is clear.
Economic data remain mixed
- New lending to both investors and owner occupiers has fallen from recent peaks with investor lending recording a much greater decline
- Total housing credit is rising however, investment credit growth continues to slow and is now well below APRAs 10% threshold for annual growth
- The rate of population growth at a national level has continued to slow over the September 2015 quarter
- Dwelling approvals increased in April and although they remain very high they remain below their peak
- After falling to the lowest level in seven months in April, consumer sentiment rose in May, to the highest levels seen since January 2014
- The unemployment rate was recorded at 5.7%, unchanged from March and remaining at its lowest level since September 2013
- The Consumer Price Index was released for March 2016 over the past month and it fell by 0.2% over the quarter to be just 1.3% higher over the year with underlying inflation at 1.5% over the year, both of which were well below the RBA’s target range of 2% to 3%
An important factor affecting our property markets is consumer sentiment.
When we feel confident we tend to go out and spend, but when we fell less secure about our jobs or our future we tend to put off major purchase decisions like buying a new home or investment property.
It’s likely consumer confidence will be subdued in the lead up to the Federal Election, creating a window of opportunity for those with a long term view.
As you can see from the graphs below, there is a strong correlation between consumer sentiment and dwelling sales and property value
A positive sign for our property market is is jobs growth and low unemployment levels at a time when the participation rate (the percentage of the population working) has increased:
Lower mortgage rates (and the hint of more rate cuts to come) are also positive for property:
Source of graphs: Corelogic
The Bottom Line:
The trend for capital growth has dropped from the peaks of 2015, but dwelling values continue to track higher across each of the capital cities over the first five months of this year, however the markets remain very fragmented.
I suspect that after the election our property markets will rebound.
If Labor gets in, there will be a rush by investors to buy established properties before the new negative gearing rules come into force in July 2017.
But be warned…this will be followed by an almighty slump!
If the Liberals retain power, consumer confidence should return and this will also be good for our property markets.
If you’re looking for independent property investment advice, no one can help you quite like the independent property investment strategists at Metropole.
What are you going to do?
There are still great property opportunities out there, but there are also more traps than ever.
Why not have a chat with the team at Metropole about your options.
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Also published on Medium.