The 0.1% decline in national dwelling values in February 2018 was more moderate than the 0.3% declines recorded over each of the previous two months.
However, it marked the first time national values had fallen for five consecutive months since March 2016,
There continues to be a divergence between capital city and regional markets, with the combined capital city index falling by -0.3% over the month, compared to a 0.4% increase in combined regional values.
Sydney, Melbourne and Perth all recorded more moderate falls in values throughout February than they did in January.
The overall softening in the market becomes more evident when looking at the change in values over the past three months.
Over the three months to February 2018, Adelaide (0.1%) and Hobart (3.2%) were the only capital cities in which values rose.
Sydney, which has been the strongest market for value growth over recent years, saw the largest fall in values over the three month period, down -2.4%. Sydney was followed by Darwin, which has been persistently weak over recent years, and saw values fall by a further -2.0% over the quarter.
Looking at the trends in housing markets on an annual basis, over the 12 months to February 2018, national dwelling values increased by 2.2%, which is their slowest annual rate of growth since August 2016.
The gap between annual growth rates across the combined capital cities (2.0%) and the combined regional markets (2.8%) has continued to widen over the past month as regional areas outperform the capitals.
Looking at the individual capital cities, the most noteworthy development was for Sydney, where dwelling values moved into negative annual growth for the first time since 2012, down -0.5% over the past twelve months.
The only other capital cities where values were lower over the previous twelve month period were Perth (-2.7%) and Darwin (-7.4%) both of which have been in a sustained downturn since 2014.
Although dwelling values have been falling over the past three months, rental rates have been increasing over the same period.
In fact, rental rates are higher over the year in all capital cities other than Perth and Darwin and within all regional markets except for regional Western Australia.
The markets experiencing the greatest increases in rents over the past year have been Hobart (10.2%) which has recorded double-digit annual rental growth for the first time since August 2009 and regional Tasmania (7.6%) which is experiencing the strongest rental growth since the end of 2008.
Nationally, values are – 0.8% below their September 2017 peak, with combined capital city values -1.3% lower while combined regional market values reached a new historic high last month.
In summary, nationally, dwelling values have been either flat or declining since peaking in September last year.
After dwelling values fell by -0.3% in both December and January, the -0.1% fall in February represents a slowing of the falls.
The slowing of these declines is particularly evident in Sydney where values were -0.6% lower in February following falls of -0.9% in both December and January.
Daily index data indicates that most capital cities saw a deceleration of declines in the second half of February.
To date, the pullback in values has been quite moderate, especially in light of how strong value growth has been over recent years.
Overall the housing market has continued to see soft conditions resulting in some slippage in housing values.
However, the rates of decline have flattened out over the second half of February.
The next couple of months should provide a much clearer picture as to whether the falls are set to continue, or if the market is in fact stabilising.
Considering the tighter credit environment, the eventual prospect of higher interest rates and ongoing housing affordability constraints, we expect housing market conditions will remain sedate relative to previous years.
The reversal in capital gains has been mild to date, a clear sign that macroprudential measures have removed the heat from the market in a very controlled manner.
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