The two hottest housing markets in the nation have shown signs of slowing down in April.
The CoreLogic Hedonic Home Value Index recorded a rise of just 0.1% over April, the lowest month-on-month rise in capital city dwelling values since December 2015.
The moderation in growth was due largely to a slightly negative April result in Australia’s largest capital city housing market, Sydney, where dwelling values were broadly flat (rounded up from – 0.04%) over the month.
Softer results after dramatic capital gains: The softer results across Australia’s two largest capital cities comes after dramatic capital gains were recorded over the second half of 2016 and the first three months of 2017.
The April results mark the weakest monthly change in dwelling values across the Sydney property market since December 2015, when CoreLogic reported a 1.2% fall in Sydney dwelling values; the soft reading comes after dwelling values have risen by 75.1% over the past five years, an annual rate of growth of 15% over this period.
Most other capital cities also recorded softer growth conditions in April than for the first three months of 2017.
The trends generally remain positive, with quarterly growth of 2.9% across the combined capitals index.
April, in particular, coincides with seasonal factors including Easter, school holidays and ANZAC day long weekend.
The softer results should also be viewed against a backdrop of an ever evolving regulatory landscape s which is firmly aimed at slowing investment and interest-only mortgage lending.
Testament to this is mortgage rates which have been edging higher, particularly for investors and interest-only loans, as well as rental yields which have been hovering around record lows.
The higher cost of debt, as well as stricter lending and servicing criteria, has likely dented investment demand over recent months.
The latest housing finance data from the Australian Bureau of Statistics (ABS) showed that investors comprised 57% of new mortgage demand in New South Wales, excluding refinanced loans.
This is substantially higher than the national average of 48%, or Victoria, where new mortgage commitments for investors comprised 46% of the market.
Value growth eases but gross yields held reasonably firm over April: With value growth easing and weekly rents showing some subtle appreciation, gross yields held reasonably firm over the month.
Across the combined capitals, the typical gross yield on a house is equal to the record low set last month at 3.0%, while the gross yield on capital city units has edged higher, rising from 3.9% in March to 4.0% in April.
Clearance rates dip below 70%: While clearance rates finished the month on a strong footing and remain well above the long-term average, the weighted average clearance rate across the combined capital cities trended lower during April, slipping below 70% over the third week of the month.
Importantly, the preliminary auction clearance rate over the last week of April rebounded back to 76.9%, suggesting vendors are still enjoying strong selling conditions.
It’s hard to know whether the rebound in clearance rates over the final week of April could be attributed to vendors willing to accept a lower than expected price at auction.
Considering growing sentiment and market commentary that the housing market is likely at or near the peak of strong growth conditions, some vendors may be more motivated to offload their property in case conditions do soften further.
At face value, mortgage demand appears to have slipped during April, however the slowdown in lending-related activity can be attributed to seasonal factors.
Affordability constraints are very much evident across Sydney, and to a lesser extent Melbourne which would be progressively impacting on housing demand.
Additionally, investment related demand is likely to ease due to the changed regulatory environment and tighter lending and servicing policies from the banking sector.