Property is back in the news and making headlines again.
But in a very different way to this time last year.
Rather than being worried about property Armagedon, now the commentaotrs are asking how strong will the markets be with a recent forecast by SQM Research suggesting dwelling prices could rise by more than 15% in Melbourne and Sydney next year.
After struggling for two years, 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.
This month Corelogic reported the largest month-on-month gain in their national home value index since May 2015.
Buyers are back borrowing money and looking for a new home or investment and sellers are tentatively returning to the market.
Nationally, property values recorded the fourth consecutive month of growth in October taking growing value 2.9% higher of the quarter.
However our markets are fragmented – whereas the Sydney and Melbourne property markets are showing a clear turn around (both with over 5% gain in values the last quarter), as you can see from the chart below from Corelogic the other states are still lagging.
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 in May, Sydney home values have recovered 5.3% of the 14.9% correction over the last few years.
House prices in Sydney rose 1.8% over the last month (+5.0% over the last quarter) while unit prices rose 1.2% (+4.2% over the last quarter.)
The recovery trend is most concentrated across the premium end of the housing market where values were previously falling more rapidly.
Over the past three months properties in Sydney’s top quartile increased in value by 5.9% while properties in the lower quartile only increasing by 3.2%.
Although housing values are rising, rents are continuing to fall, down 0.1% in October to be 1.8% lower over the year.
However the following metrics confirm the Sydney housing market is steadily improving:
- The average selling time of a home is now 38 days (an improvement on 44 days a year ago) and
- Vendors are discounting their properties an average of 4.4% to affect a sale (6.2% 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, 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.
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’s house prices have regained more than half their losses of the recent property downturn exhibiting their quickest turnaround on record.
Values were up 2.3% in October, which was the largest month on month change since late 2009, taking the market 6% higher since finding a floor in May.
House prices in Melbourne rose 2.4% over the last month (+5.7% over the last quarter) while unit prices rose 2.0% (+5% over the last quarter.)
Melbourne’s premium value properties are leading the recovery trend, with values across the top quartile rising 7.1% over the three months ending October, compared with a 3.8% rise across the lower quartile.
The following metrics confirm the Melbourne housing market is progressively improving:
- The average selling time of a home is 32 days (33 days a year ago) and
- Vendors are discounting their properties an average of 4.4% to affect a sale (4.9% a year ago)
- 15.9% 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 and 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 1.6% below their peak in April 2018.
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.
Now Brisbane values have posted their fourth consecutive month of subtle gains.
House prices in Brisbane rose 0.9% over the last month (+1.0% over the last quarter) while unit prices rose 0.8% (+1.7% over the last quarter.)
The following metrics show the Brisbane housing market is a little sluggish:
- The average selling time of a home is 59 days (38 days a year ago) and
- Vendors are discounting their properties an average of 4.6% 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 housing values have been trended lower for much of this year, but recorded a 0.4% rise in October.
Adelaide’s housing downturn has been mild relative to most of the other capitals.
Property roperty values peaked in Adelaide in December 2018 and since then dwelling values have fallen a modest 1.2% .
House prices in Adelaide rose 0.5% over the last month (+0.1% over the last quarter) while unit prices fell -0.4% (0% over the last quarter.)
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
While things look reasonable for Adelaide property in the short term, 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 0.4% over the last month and 8.7% lower over the past year, taking values 21.6% lower since peaking in June 2014.
House prices in Perth fell 0.4% over the last month (-1.8% over the last quarter) while unit prices fell -0.8% (-1.1% over the last quarter.)
The ongoing weakness in the Western Australian housing market can be attributed to mix of weak economic and demographic conditions overlaid with a lack of consumer confidence.
Perth is now the most affordable capital city, 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.
However Perth’s rental markets have been tightening as housing demand increases, lifting Perth rents 2.4% higher over the past year.
Signs of the ongoing slump in the Perth housing market include:
- The average selling time of a home is 60 days (57 days a year ago) and
- Vendors are discounting their properties an average of 6.3% to affect a sale (6.7% a year ago)
- 4.5% fewer properties sold in the last 12 months compared to the previous year.
Hobart Property Market
While Hobart has been the best performing property market in the last three years, its boom is now over.
CoreLogic figures show prices are stabilising.
House prices in Hobart rose 0.9% over the last month (+1.2% over the last quarter) while unit prices rose 1.0% (+0.2% over the last quarter.)
It’s likely the Hobart market will continue to lose its momentum moving forward.
Signs of the slowing Hobart property market include:
- The average selling time for a home is 26 days (11 days a year ago)
- Vendors are discounting their properties an average of 3.4% to affect a sale (3.2% 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 rose 0.7% over the last month (-1.5% over the last quarter) while unit prices fell -0.4% (-0.5% over the last quarter.)
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 78 days (68 days a year ago) and
- Vendors are discounting their properties an average of 9.3% to affect a sale (7% 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 2% over the last year and have now reached a new peak.
House prices in Canberra rose 0.8% over the last month (+2.9% over the last quarter) while unit prices rose 0.1% (+0.4% over the last quarter.)
The following vendor metrics show the Canberra is performing a little more sluggishly than a year ago, but its steady growth should continue into 2020:
- The average selling time for a home is now 35 days (33 days a year ago) and
- Vendors are discounting their properties an average of 3.3% to affect a sale (2.3% a year ago)
- 9.2% fewer properties sold in the last 12 months compared to the previous year.
Overall the Australian housing markets are 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 proeprties 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 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.
Our rental markets
National rental rates were flat over the month to October, however the annual rate of rental growth is still trending slightly higher
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 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.
The Melbourne and Sydney property markets have surprised most commentators with the strength of their resurgence.
But what ahead for next year?
Well…even stronger price growth according to SQM Research’s annual Housing Boom and Bust Report which suggests that most of Australia’s capital cities will benefit from the interest rate cuts and loosening of credit restrictions to record 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
Other cities are also expected to record price rises.
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?
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 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:
- 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.
- Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.
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
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