There is no doubt it! The Australian housing markets are on the up, now delivering positive growth for 4 months in a row.
Three interest rate cuts, tax cuts, reduced uncertainty around housing, more positive media and easing in the overly tight bank lending guidelines have combined to generate a significant improvement.
Buyers are back borrowing money and looking for a new home or investment and sellers are tentatively returning to the market.
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 posted a 1.7% lift over the three months ending September, the highest quarterly rate of capital gain since Jun-17.
- Combined capital city dwelling values were 2.2% higher over the September quarter and combined regional market values were -0.1% lower.
- The annual rate of decline in housing values has moved through a trough as housing market conditions improve.
- Over the past year, combined capital city dwelling values were -4.3% lower over the year and combined regional market values were -2.5% lower.
- Over the past year, values have fallen in all capital cities except for Hobart and Canberra.
- Corlegic estimates of settled sales is down -14.1% year on year nationally, with sales volumes lower year on year across all capital cities and rest of state regions.
- The median selling time has peaked across the combined capitals as market conditions improve, but was still trending higher across the regional markets over the September quarter. Vendor discounting rates are starting to ease as buyers lose some leverage.
- The volume of stock for sale remains lower than it was a year ago with new stock being listed for sale almost 20% lower nationally.
- Clearance rates have seen a vast improvement over the second half of 2019, however the number of auctions being held remains low relative to recent years.
- High migration rates are continuing to push the national population higher, with growth of 1.6% over the 12 months ending March 2019.
- Approved housing supply has been trending lower since late 2017, roughly in line with the peak in housing values.
- Housing credit is expanding at an historically slow pace with investment credit growth falling in July and August.
- The value of lending to both investors and owner occupiers saw a significant increase in July, with the value of owner occupier loans up 5.3% and investor loans up 4.7%, however investors still comprise a lower than average share of mortgage demand.
- Official interest rates were cut by 75 basis point between June and October, mortgage rates are tracking at the lower level since the 1950’s.
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.
Since bottoming out after the election in May, Sydney housing values have recovered 3.5% in the last 3 months, but the market remains 12% below the July 2017 peak.
Not surprisingly with all the concerns about structural issues in many of the new high rise towers, the Sydney apartment market is showing a weaker performance relative to houses, with unit values up 1.1% over the month (3.3% over the quarter) compared with a 1.9% rise in house values (3.6% over the quarter).
The recovery trend is most concentrated across the premium end of the housing market where values were previously falling more rapidly.
However the following metrics confirm the Sydney housing market is still performing sluggishly:
- The average selling time of a home is 56 days (an improvement on 44 days a year ago) and
- Vendors are discounting their properties an average of 5.9% to affect a sale (6.2% a year ago)
- 12.1% 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, but 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.
This is a great countercyclical 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 housing values posted their fourth month-on-month rise, ticking 1.7% higher in the month of September.
After falling by 11.1% between November 2017 and mid 2019, the market has recovered with the trend more noticeable at the expensive end of Melbourne’s housing market.
The local housing market is still showing a stronger trend relative to apartments, with values up 1.9% in the last month (+3.4% over the past three months) compared with a 1.4% lift in unit values (+3.3% over the past three months).
However the following metrics confirm the Melbourne housing market is still performing sluggishly:
- The average selling time of a home is 40 days (34 days a year ago) and
- Vendors are discounting their properties an average of 5.4% to affect a sale (4.8% a year ago)
- 22.4% fewer properties sold in the last 12 months compared to the previous year
But the Melbourne property market is very fragmented, with values in the inner and middle ring suburbs picking up while the cheaper outer suburbs are still languishing.
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 are rising, albeit on low volumes, but vendors are slowly reentering the market.
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 2.1% below their peak.
But this followed a relatively mild growth cycle where growth in housing values in Brisbane averaged only 0.8% per annum over the past five years.
But now Brisbane values have posted their third consecutive month of subtle gains.
Corelogic report that the Brisbane housing market is still showing a stronger trend relative to apartments, where house values rose 0.2% in the last month (+0.5% over the past three months) compared with a -0.2% fall in unit values. (+1% over the past three months)
The following metrics show how sluggishly the Brisbane housing market is performing:
- The average selling time of a home is 64 days (39days a year ago) and
- Vendors are discounting their properties an average of 5.0% to affect a sale (4.4% 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 housing values have been trended lower for much of this year, but held their ground recording 0.0% growth in September.
Adelaide is the most affordable capital city but its property values peaked in December 2018 and since then dwelling values have fallen a modest 1.7%.
The downward trend is evident across both houses and units, although houses have recorded a slightly larger decline relative to units over the past three months, down -0.6% for houses compared with a -0.4% fall in unit values.
On an annual basis, Adelaide unit values have recorded a mild gain, rising 0.3% while house values are 1.4% lower.
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 5.7% to affect a sale (5.3% a year ago)
- 5.1% fewer properties sold in the last 12 months compared to the previous year
While things look reasonable for Adelaide property in the short term, with sales activity starting to trend higher, based on improving buyer demand, over the next few decades the bulk of Australia’s long-term jobs growth, economic growth and population growth will occur in our 4 big capital cities meaning there are better locations for long term wealth creation that Adelaide.
Perth Property Market
Perth has recorded a further reduction in dwelling values, down 0.8% over the last month and 9% lower over the past twelve months taking values 21.3% lower since peaking in June 2014.
The ongoing weakness in the Western Australian housing market can be attributed to mix of weak economic and demographic conditions overlaid with a tight credit environment.
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 69 days (61 days a year ago) and
- Vendors are discounting their properties an average of 6.8% to affect a sale (6.8% a year ago)
- 4.7% 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 three years, but its boom is now over.
CoreLogic figures show prices are stabilising and now 0.7% below their peak in March this year.
It’s likely the Hobart market will continue to lose its momentum over the year.
Signs of the slowing Hobart property market include:
- The average selling time for a home is 28 days (11 days a year ago)
- Vendors are discounting their properties an average of 3.7% to affect a sale (3.5% a year ago)
- 11.2% 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.
Currently values are 30.8% below their historic peak and it is unlikely we’ll see these types of house prices again in the next decade.
However there are signs that Darwin’s slump is easing a little:
- The average selling time for a home is 80 days (75 days a year ago) and
- Vendors are discounting their properties an average of 8.8% to affect a sale (7.3% a year ago)
- and a slight increase in number of sales in Darwin (5.7%) 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 1.3% over the last year and after a fall earlier in the year, property values have risen 1.4% over the quarter.
The Canberra housing market is still showing a stronger trend relative to apartments, with values up 1% in the last month (+1.9% over the past three months) compared with a 0.6% lift in unit values. (-0.3% over the past three months)
The following vendor metrics show how the Canberra is performing:
- The average selling time for a home is now 48 days (36days a year ago) and
- Vendors are discounting their properties an average of 3.1% to affect a sale (2.6% a year ago)
- 16.5% 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) while auction clearance rates are now higher than they were a year ago although volumes also much lower.
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 they are lifting more rapidly than over recent years pointing to renewed vendor confidence.
One sign of increased confidence, especially in the Melbourne and Sydney property markets arising auction clearance rates.
If these continue to remain in the 70% range this could lead to rising property values.
Our rental markets
National rental rates fell for the third consecutive month in September however, the annual rate of rental growth is trending higher.
The combined regional areas saw rental rates increase by 2.3% over the 12 months to September, while the combined capital cities are up 0.1%.
Rental yields are once again trending lower, with dwelling values now trending higher and rents generally soft.
Other market indicators:
Continued strong population growth will be another 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 and supply overhangs remain.
Housing finance data and credit aggregates highlight the slowdown in investment lending.
Official interest rates fell once again at the beginning of October 2019 and mortgage rates are now at levels last seen in the late 1950s.
First home buyers are back in the market, borrowing more and getting a foothold in the market at a time of less competition form investors.
While a lot of fuss was made about the July 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.
We’re at an interesting stage of our property cycle with signs with clear evidence that the Melbourne and Sydney markets have bottomed.
Remember…it’s normal to have mixed signals at the turning points of cycles – not all the news will be good and not all segments of the market will rise at the same time.
While there may be a little more downside in some segments of our two big two capital city markets, this looks like the best time to buy counter cyclically in Sydney and Melbourne for over a decade and to ride the Brisbane property cycle.
Canberra property should continue to perform well and Adelaide should hold its own, but it’s likely Hobart will now slowly move to the slump phase of its own property cycle and there is still more downside for Perth and Darwin
Of course, property will remain a sound asset for long term wealth creation, but now more than ever correct asset selection will be critical, so only buy in areas where there are multiple long-term growth drivers such as employment growth, population growth or major infrastructure changes.
Similarly, suburbs undergoing gentrification are likely to outperform
What can you do to stay ahead?
As signs point to softer growth conditions for Australian property over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.
If you’re looking at buying your next home or investment property here’s 3 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:
- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! Click here to learn more
- Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property. Click here to learn how we can help you.
- Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 METROPOLE.
Source of graphs and data: CoreLogic
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.