The CoreLogic Home Value Index recorded a recovery from the 1.1% fall in May, with a 1.8% rise in capital city dwelling values over the month of June.
This stronger month-on-month reading can be partially explained by the seasonality in the monthly growth rates.
Adjusting for this effect suggests an easing trend in housing value growth has persisted through the second quarter of 2017.
The June quarter results showed that capital city dwelling values were 0.8% higher across the combined capitals index; the slowest quarterly rate of growth since December 2015 when the combined capitals index fell by 1.4%.
Slower housing market conditions also reflected in the annual pace of capital gains.
Across the combined capitals, the annual pace of capital gains has eased from 12.9% three months ago to 9.6% at the end of June 2017.
Sydney’s annual growth rate has slowed to 12.2% over the twelve months ending June 2017, down from a recent high of 18.9% three months ago.
The growth in rents can be attributed to the ongoing significant rate of net migration into New South Wales and Victoria.
While the rental growth turnaround will be welcomed by landlords looking to recover higher mortgage costs, the consequence is that renters are now facing renewed pressure as rents rise.
Although growth conditions have lost momentum across the largest housing markets, we are yet to see any signs of a material downturn.
The key drivers for a slowdown have been gradual.
They include: mortgage rates pushing higher despite a steady cash rate, lender credit policies tightening up and housing affordability – which remains a significant barrier for many prospective buyers.
The impact of macro-prudential measures announced by APRA at the end of March are still flowing through to mortgage rates and credit policies.
We are likely to see further tightening and repricing around investment lending and interest only lending over the coming months.
The latest credit aggregates data from the RBA showed a further slowing in investor credit during May, after growth peaked in December last year.
Investor-related activity is likely to moderate as mortgage rates edge higher and credit policies tighten for this segment of the market.
Considering investors comprised just over 55% of new mortgage demand across New South Wales, based on the latest housing finance data from the Australian Bureau of Statistics, a further slowdown in investment activity is likely to have a more substantial impact on housing demand in Sydney relative to other markets.
Mortgage demand remains strong.
Despite the range of softening indicators, mortgage demand remained strong across May and June, tracking roughly 3% lower than the same period in 2016 based on mortgage related activity from lenders across CoreLogic valuation platforms.
The reasonably steady level of valuation events suggest buyers remain active, despite higher mortgage rates, and are potentially shopping around as credit conditions tighten.
Wages growth is tracking at record lows, and mortgage rates are likely to rise further, particularly for investment purposes.
As a result, the expectation is that housing market conditions, most particularly in Sydney and Melbourne, will continue to soften through the remainder of 2017.