Australia’s housing market rebound continued over the last month, led by strong price growth in our two big capital cities, Melbourne and Sydney.
It’s really been a year of two halves.
2019 started with significant negative sentiment including fears about the results of the Haynes Royal Commission into Banking and an upcoming federal election, as well as fears about overseas economic problems including the USA China trade war and Brexit.
In the first half of the year the Sydney and Melbourne property markets continued their slump, but since bottoming out in June earlier, the house prices have recovered strongly buoyed by three interest-rate drops some tax cuts and the banks loosening their lending criteria.
However our markets are fragmented – whereas the Sydney and Melbourne property markets are showing a clear turn around, as you can see from the chart below from Corelogic the other states are still lagging.
National dwelling values marked their fifth consecutive month of growth in November, taking dwelling values 3.8% higher over the quarter.
Combined capital city dwelling values were 4.6% higher over the November quarter while combined regional market values only rose by 1.1%.
Looking deeper into the stats it is clear that the more expensive end of the Sydney and Melbourne markets are the primary driver of rebounding capital gains.
The Sydney property market is on the move having recorded its quickest turnaround in decades.
Since bottoming out after the election in May, Sydney housing values have recovered 6.2% in the last 3 months, but the market remains 8% below the July 2017 peak.
Sydney house prices increased 3.1% over the last month (7% over the last quarter) while apartment values increased by 1.8% over the last month ( 4.2% over the last quarter.)
Despite the rise, Sydney dwelling values are still tracking around the same level as they were three years ago.
The recovery trend is most concentrated across the premium end of the housing market where values were previously falling more rapidly.
Sydney house prices in the top quartile rose by 5.9% over the past three months while the houses prices in the lower quartile are up a smaller 3.2%.
The following metrics confirm the Sydney housing market is steadily improving:
- The average selling time of a home is 31 days (44 days a year ago) and
- Vendors are discounting their properties an average of 3.6% to affect a sale (6.3% a year ago)
- 6.8% fewer properties sold in the last 12 months compared to the previous year
Currently investors are abandoning the off the plan apartment sector for many reasons including concerns about construction standards, and many of those who purchased off the plan a few years ago are now having trouble settling with valuations coming in on completion at well below contract price at a time when banks are more reluctant to lend on these properties.
In the background strong economic growth and jobs creation is leading to population growth and ongoing demand for property in Sydney.
At the same time international interest from tourists and migrants continues.
The beginning of this new cycle is a great time to look at buying an investment grade property in Sydney which is currently offering investors an opportunity to buy established apartments in the eastern suburbs, lower north shore and inner west at a discount to what they would have paid a number of years ago.
Melbourne property prices are surging with dwelling values up 2.2% higher over the month of November, taking values 8.3% higher since the market bottomed out in May this year.
House values are rising faster than unit values across Melbourne, up 8.6% since bottoming out compared with an 8.1% rise in unit values across the city.
Melbourne home values are now only 3.7% below their October 2017 peak.
At the current rate of growth, we are likely to see Melbourne home values reach a new record high over the first few months of next year.
Melbourne house prices increased 2.4% over the last month (6.9% over the quarter) while apartment values increased 1.9% over the last month (5.3% over the quarter)
Stronger capital gains are concentrated within the upper quartile of the market, where Melbourne`s most expensive 25% of properties have recorded a gain of 11% through the recovery phase to date, while values across the lower quartile are up a smaller 5.7%.
The following metrics confirm the Melbourne housing market is steadily improving:
- The average selling time of a home is 30 days (34 days a year ago) and
- Vendors are discounting their properties an average of 3.8% to affect a sale (5.3% a year ago)
- 15.9% fewer properties sold in the last 12 months compared to the previous year
At Metropole we’re finding the Melbourne property market is slowly regaining its confidence and the underlying fundamental growth drivers remain strong.
For example auction clearance rates have remained strong, despite significantly more properties listed for sale.
Overall property values will be underpinned by a robust economy, jobs growth Australia’s strongest population growth and the influx of 35% of all overseas migrants.
Remember…Melbourne rates as one of the 10 fastest growing large cities in the developed world, with its population likely to increase by around 10% in the next 4 years.
Brisbane’s property downturn has been quite shallow compared to the big two capital cities, with local values only 0.8% below their peak.
But this followed a relatively mild growth cycle where growth in housing values in Brisbane was only 7.5% over the past five years.
Brisbane house prices increased by 0.9% over the last month (2% over the last quarter) while apartments in Brisbane only increased in value by 0.3% over the last month (0.9% over the last quarter.)
But now Brisbane values have posted their second consecutive month of subtle gains.
CoreLogic report that since bottoming out in June, Brisbane’s dwelling values are up 2.2% with little difference separating houses and units where the recovery is recorded at 2.2% and 2.1% respectively since June.
The recovery trend has been slightly stronger across Brisbane’s premium market, with the top quartile recording a rise of 2.4% compared with a 1.5% lift across the
The following metrics show how sluggishly the Brisbane housing market is performing:
- The average selling time of a home is 52 days (37 days a year ago) and
- Vendors are discounting their properties an average of 4.3% to affect a sale (4.5% a year ago)
- 13.3% fewer properties sold in the last 12 months compared to the previous year
With migration rates lifting, supply under control and generally healthy levels of housing affordability, the Brisbane housing market fundamentals are looking healthier compared to most other capital cities.
At the same time the underlying strong demand from home buyers and investors from the southern States at a time when yields are attractive and housing affordability is relatively healthy and putting a floor under property prices.
Brisbane’s economy is being underpinned by major projects like Queen’s Wharf, HS Wharf, TradeCoast, Cross River Rail, the second airport runway and the Adani Coal Mine, but jobs growth from these won’t really kick off for a few more years.
Our Metropole Brisbane team has noticed a significant increase in local consumer confidence with many more homebuyers and investors showing interest in property.
At the same time we are getting more enquiries from interstate investors there we have for many, many years.
Adelaide Property Market
Adelaide’s housing market has been under-performing relative to most of the other capitals, with values 0.7% below their peak of December 2018
House prices in Adelaide rose 0.5% over the last month (+0.9% over the last quarter) and unit prices rose 0.8% (+0.4% over the last quarter.)
Dwelling values across the lower quartile are 2.0% higher over the past twelve months compared with a 2.6% drop in values across the upper quartile of the market.
Local rents are— although that is a soft result.
On the other hand, Adelaide rental growth is tracking above the capital city average with rents up 1.7% over the past twelve months.
Signs of the slower Adelaide property market include:
- The average selling time for a home is 53 days – up from 49 days a year ago
- Vendors are discounting their properties an average of 5.6% to affect a sale (5.1% a year ago)
- 3.6% fewer properties sold in the last 12 months compared to the previous year
Perth Property Market
Perth property prices had a little flurry last month, causing some optimists to call the bottom of it’s prolonged market downturn
House prices in Perth rose 0.4% over the last month (-0.9% over the last quarter) while unit prices rose 0.3% (-0.7% over the last quarter.)
However, Perth property values are 7.7% lower over the past twelve months taking values 21.3% lower than their peak in June 2014.
Perth values are now amongst the most affordable amongst the capital cities, but it’s much too early for a countercyclical investment in the west – I can’t see prices rising significantly for a number of years.
Signs of the ongoing slump in the Perth housing market include:
- The average selling time of a home is 51 days (the same as a year ago) and
- Vendors are discounting their properties an average of 5.6% to affect a sale (6.5% a year ago)
- 4.5% fewer properties sold in the last 12 months compared to the previous year.
Hobart Property Market
Hobart has been the best performing property market in the last four years, and Hobart property values have increased by 4.2% over the last year.
The Hobart market lost momentum early this year but house prices in Hobart rose 2.2% over the last month (+2.6% over the last quarter) while unit prices rose 2.6% (+3.8% over the last quarter.)
However, it’s likely the Hobart market will slow down next year.
Signs of the slowing Hobart property market include:
- The average selling time for a home is 24 days (11 days a year ago)
- Vendors are discounting their properties an average of 3.5% to affect a sale (3.3% a year ago)
- 7.1% fewer properties sold in the last 12 months compared to the previous year
Over the last few years too many investors chased the Hobart “hot spot” at a time when there was a lack of employment drivers, insufficient population growth and not enough infrastructure spending.
Remember home buyers create a property market (they make up 70% of buyers) and investors create property booms – which is what’s happened in Hobart.
And Hobart is too small a market to be a long term “investment grade” proposition.
Darwin Property Market
The Darwin property market peaked in August 2010 is still suffering from the effects of the end of our mining boom with a very soft employment market and lack of migration and infrastructure spending.
House prices in Darwin fell -1.8% over the last month (-1.7% over the last quarter) while unit prices were steady the last quarter.
Currently values are 31.5% below their historic peak and it is unlikely we’ll see these types of house prices again in the next decade.
Signs of Darwin’s languishing property market are:
- The average selling time for a home is 68 days (65 days a year ago) and
- Vendors are discounting their properties an average of 8.0% to affect a sale (7.0% a year ago)
- and a slight increase in number of sales in Darwin (4.2%) than 12 months ago
The small size of the Darwin market makes it more susceptible to local events and Darwin typically has a higher and more variable vacancy rate, a product of a large transient working population.
Darwin does not have significant growth drivers on the horizon and would be best avoided by investors.
Canberra Property Market
Canberra’s property market has been a “quiet achiever” with dwelling values having grown 3% over the last year, and have now reached a new peak.
House prices in Canberra rose 1.8% over the last month (+3.6% over the last quarter) while unit prices rose 1.0% (+1.74% over the last quarter.)
Signs of the slowing momentum of the Canberra housing market include:
- The average selling time for a home is now 30 days (34 days a year ago) and
- Vendors are discounting their properties an average of 3% to affect a sale (2.4% a year ago)
- 9.2% fewer properties sold in the last 12 months compared to the previous year.
Overall…the Australian housing markets are slowly improving
Vendor metrics have generally improved over recent months with the number of days to sell a property decreasing (a sign of the tight supply situation), vendor discounting decreasing (it’s easier for them to sell) and auction clearance rates remaining firm despite more properties being put to auction.
While sellers went on strike for a year or two realising that it wasn’t a great time to sell, vendors now seem to be slowly re-entering the market and while new listings (properties for sale) are lower than in recent years, the volume of stock for sale remains lower than it was a year ago with new stock being listed for sale 13.2% lower nationally.
One sign of increased confidence, especially in the Melbourne and Sydney property markets are the strong auction clearance rates which have persisted despite more properties coming onto the market.
Our rental markets
While property values have continued to improve rental markets are still sluggish.
Other market indicators:
Continued strong population growth will be a key driver supporting our property markets.
Net overseas migration is forecast to average a net inflow of 243,000 people per annum in the next 3 years and most of these people have jobs and are at household formation age.
At the same time, new dwelling building approvals fell by 19% in 2018/19 and the forecast number of dwelling completions are likely to fall to 163,500 by 2020/21, which is well below underlying demand.
Dwelling approvals are trending lower and expected to fall further as presales become tougher for property developers.
Official interest rates were cut by 0.75% between June and October and with mortgage are tracking at the lower level since the 1950’s properties buyers are back in the market.
While established home buyers trading up and down and first home buyers are back, property investor activity remains subdued. Many are still having trouble getting finance.
First home buyers are back in the market, borrowing more and getting a foothold in the market at a time of less competition from investors.
The value of lending to owner occupiers increased by 3.3% in September 2019.
While a lot of fuss was made about the recent housing credit figures, the rise in lending is coming off a very low base and investors are still having more difficulty getting loans due to the banks more stringent serviceability criteria – investor loans were -4.0% lower over the month of September.
Housing credit is expanding at an historically slow pace with investment credit growth falling in October.
The Melbourne and Sydney property markets have surprised most commentators with the strength of their resurgence.
But what ahead for next year?
Our forecasts for capital growth over 2020 for well located properties in Melbourne and Sydney is around 10%.
These 2 cities are still playing catch up and when values reach their previous peaks property price growth is likely to slow down.
However, some commentators are suggesting even stronger price growth.
According to SQM Research’s annual Housing Boom and Bust Report, most of Australia’s capital cities will benefit from the interest rate cuts and loosening of credit restrictions and will record strong dwelling price rises over 2020 with Sydney and Melbourne leading the charge.
SQM’s base case forecast is for dwelling prices to rise between 7% to 11%, which is a strong bounce back from the price falls recorded over 2018 and the first half of 2019.
SQM forecast Sydney property values to rise between 10% to 14% and Melbourne property prices to rise 11% to 15% next year.
Source: Christopher’s Housing Boom and Bust Report 2020
Their base case forecasts assume no changes in interest rates and, importantly, no intervention by the Australian Prudential Regulation Authority (APRA).
What can you do to stay ahead?
If you’re looking at buying your next home or investment property here’s 4 ways we can help you:
Why not get the independent team of property strategists and buyers’ agents at Metropole to help level the playing field for you? We help our clients grow, protect and pass on their wealth through a range of services including:
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Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
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Source of graphs and data: CoreLogic.
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