National dwelling values remained flat during August, with capital city values edging 0.1% higher.
Looking at the past three months, it provides a clear indication of the trends, with national dwelling values rising by only half a percent over the three months to August 31 – the lowest rolling quarterly gain since June last year.
The national market moved through a peak rate of growth during the three months ended November 2016, when dwelling values were rising at the rolling quarterly pace of 3.7%.
Rental yields slipped to a new record low across Australia in August.
Nationally, the gross yield on a dwelling reduced to 3.62% in August, down from 3.87% in August last year.
Record low yields are largely a capital city phenomenon, with yields across the combined regional areas of the country tracking 165 basis points higher than the combined capital city yield.
A slowdown in home value growth is likely to be seen as a positive development by policy makers.
Slower growth conditions in Sydney, and to a lesser extent Melbourne, are likely to be a welcome evolution in housing market conditions by policy makers such as the RBA.
So far the trend has been gradual, implying that macroprudential policies are having a flow through effect on housing conditions.
The growth cycle in both cities has run for five and a half years, providing a substantial wealth boost for home owners but also creating much frustration for those who don’t own a home.
The policy settings around investment credit growth and new interest only settlement targets have seen credit policies tighten and pushed mortgage rates higher for both investor and interest only loans.
These disincentives are likely to continue to weigh down investment demand which will have a more pronounced effect in those markets where investors are most concentrated.
Overall, the outlook for Australia’s housing market depends on a broad range of factors including local economic and demographic conditions as well as supply factors and credit polices.
However, if the current trends continue, Sydney dwelling values could start to drift lower over coming months.
If the current trends continue, by the end of the year we could see dwelling values across Australia’s two largest housing markets, Sydney and Melbourne, trend lower as they move through their cyclical peaks.
Historically, a negative shift in home values has followed every growth phase, so it’s reasonable to expect a period of moderate value falls following such a sustained period of strong capital gains.
With the Spring selling season about to commence, it will be interesting to monitor the impact of higher inventory levels on the Sydney and Melbourne market.
Particularly so given evidence of slowing growth conditions accompanied by stock levels already being higher than they were a year ago across both cities.
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