Housing market conditions ended the 2018 calendar year on a weak note, with the rate of decline consistently worsening over the year.
National dwelling values were down 2.3% over the December quarter; the largest quarter on quarter decline since the December quarter of 2008.
According to the CoreLogic December home value index results, the downturn in Australian housing conditions accelerated through 2018, driven by consistently larger quarter-on-quarter declines in the Sydney and Melbourne property markets, together with a reprisal in Perth’s rate of decline and slowing conditions across the remaining capital cities and most regional markets.
The year finished with national dwelling values down 4.8%, ranging from an 8.9% fall in Sydney values through to a 9.9% rise in values across regional Tasmania.
The broad weakening in housing market conditions in 2018 highlights that this slowdown goes well beyond the correction in Melbourne and Sydney property .
Although Australia’s two largest cities are the primary drivers for the weaker national reading, most regions around the country have reacted to tighter credit conditions by recording weaker housing market results relative to 2017.
The two exceptions were regional Tasmania, where the pace of capital gains was higher relative to 2017 resulting in a nation leading 9.9% gain in values over the 2018 calendar year, and Darwin, where the annual rate of decline improved from -8.9% in 2017 to -1.5% in 2018.”
The December CoreLogic housing market results take national dwelling values down by a cumulative 5.2% since peaking in October 2017.
Although Sydney and Melbourne recorded the weakest conditions, the peak to current declines are much less severe relative to Perth and Darwin where values have been falling since mid-2014.
The downturn has been running much longer in Perth and Darwin, resulting in cumulative falls of 15.6% and 24.5% respectively.
At the end of 2018, Sydney values were back to where they were in August 2016, while Melbourne values are back to February 2017 levels. Perth values are back to levels last seen in March 2009 and Darwin dwelling values are at October 2007 levels.
Most regions of Australia recorded a weaker housing market performance in 2018 relative to 2017.
Four of the eight capital cities recorded a decline in dwelling values over the calendar year led by Sydney (-8.9%) and Melbourne (-7.0%), while values were also lower across Perth (-4.7%) and Darwin (-1.5%).
The remaining capital cities recorded a rise in values, although conditions weren’t as strong as 2017 with every capital city recording a weakening in the pace of growth or an acceleration in the rate of decline over the year.
Housing market conditions have also shown substantial differences across the broader valuation cohorts.
The top quartile of the market, based on dwelling values, has underperformed relative to the lower quartile.
Nationally, this trend can be explained by the weaker conditions in Sydney and Melbourne, where housing values remain substantially higher than other markets.
Melbourne’s top quartile housing market has led the way with dwelling values down 11.2% over the year, while the lower quartile of the market has remained in subtle growth territory over the year (+0.5%).
In Sydney, upper quartile dwelling values are 10.0% lower over the year, compared with a 6.8% decline across the lower quartile of the market.
The stronger performance across lower value properties likely reflects both affordability challenges and lending policies focused on reducing exposure to borrowers with high debt to income ratios.
These factors, as well as incentives for first home buyers in New South Wales and Victoria, are likely channeling market activity towards the lower range of dwelling values.
Rental market conditions were generally subdued over the year.
While in general, dwelling values slipped lower and growth rates reduced over the year, rental markets have held reasonably firm.
Across the combined capital cities, weekly rents were unchanged over the year.
Rents were down by 3.0% in Sydney and 5.8% lower in Darwin, while most other capitals recorded rental growth of less than 3% over the year.
The two exceptions were Hobart and Canberra where rents were up 5.8% and 5.3% respectively over the year.
Yields are trending higher as values fall.
While rental markets remain mild, rental conditions have outperformed dwelling values across most areas, which has supported a rise in rental yields.
Across the combined capital cities, the gross rental yield rose from 3.4% last year to 3.7% in 2018, while the combined regional markets saw gross yields improve from 4.9% to 5.0%.
Only two capital cities saw a reduction in gross rental yields over the year.
Hobart dwelling values (+8.7%) rose faster than rents (+5.8%) which dragged the gross yield lower over the year.
Darwin also showed a reduction in rental yields, due to rental rates (-5.8%) falling more than dwelling values (-1.5%).
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