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State by State Housing Market & Economic Update | Chart Pack July 2017

Now that we’re half way through the year it’s a good time to check on how our property markets are performing.

We started the year with a tug of war… On the one hand home buyers and investors were clamouring to buy real estate. graph of the housing

On the other hand, APRA and the RBA were trying to hose down the booming Sydney and Melbourne property markets.

They pulled the welcome mat out from under the feet of foreign investors as well as making it more difficult for local investors through stricter lending criteria.

At the same time the banks have delivered an out of cycle interest rate increase for real estate investors.

The combination of these factors has moved us on to the next phase of the property cycle, with the latest statistics from CoreLogic suggesting that our markets are slowing down showing minimal price growth around Australia in the June quarter.

Over the past three months, values rose in Sydney, Melbourne, Brisbane and Perth however, Perth was the only capital city in which the quarterly change was stronger than it was over the first quarter of the year.

 

June House Price results

 

Annual value growth

What the chart above doesn’t really show is who fragmented our  property markets are.

Looking back over the full year, overall Sydney house prices grew by 13% and apartments grew in value by 8.6%.

Melbourne price growth was 15% for houses and 1.5% for apartments.

Sydney & melbourne growth

The declining trend in settled house and unit sales is starting to flatten out

  • It is estimated that there were 304,757 settled sales of capital city dwellings over the 12 months to June 2017 with the number of settled sales -5.1% lower over the year.
  • Both house and unit sales have fallen over the past year.
  • Transaction volumes have fallen over the year in Sydney, Melbourne, Brisbane and Adelaide risen across the remaining capital cities.

Turnover dwelling sales

Rental Growth is now picking up:

Rental rates have continued to fall in Brisbane, Perth and Darwin, however rental growth has accelerated over the year in all other capital cities delivering an overall capital city rents increase of 1.6%.

Annual change combined capital city

 

Annual change combined capital city2

There is still strength in the market.

Don’t write off the property markets yet, because even though they are taking a breather, it’s too early to call the peak of this cycle.   

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The markets remain stubbornly strong, as evidenced by auction clearance rates which even though they have eased from their previous boom time highs,  are still strong.

Discounting levels are falling while days on the market is creeping slightly higher

  • The typical capital city dwelling which sells for less than its initial list price is being discounted by 5.4% which is the lowest level of discounting since March 2014.
  • Discounting levels are lower over the year in Sydney, Melbourne, Brisbane, Adelaide, Hobart and Canberra and are higher elsewhere.
  • The typical capital city dwelling is taking 40 days to sell which is slightly higher than recent months but lower than the 45 days it took to sell a year ago.
  • The days on market figure is higher over the year in Brisbane and Perth but lower elsewhere.

Vendor metrix

Vendor metrix 2

The number of properties advertised for sale is lower than a year ago nationally

  • The number of new properties advertised for sale is 2.3% higher than a year ago nationally and 7.1% higher across the combined capital cities.
  • Adelaide, Perth and Darwin are the only capital cities to currently have fewer new listings than they had a year ago.
  • Over the past 28 days, total advertised properties were -6.2% lower than a year ago nationally and -0.7% lower across the combined capital cities.
  • Sydney, Adelaide and Canberra were the only capital cities to have a greater number of homes advertised for sale currently than they did 12 months ago.

Nationally new stock

Nationally new stock2

APRA IS GETTING ITS WAY

APRA and governments have implemented further measures aimed at improving housing affordability and financial stability.

It seems these macro prudential controls are slowing down investor lending and making it difficult for owner occupiers to refinance.

Value of hosuing

However, as you can see from the chart below, investors still make up 45.9% of lending in NSW and a high proportion in Victoria.

Housing commitments

WHAT’S HAPPENING AROUND THE STATES?australia

Even though there was minimal overall growth over the last quarter in Sydney, property values grew 12.2% in the last 12 months.

The market is just taking a well deserved breather after its massive run up and price growth is likely to moderate over the balance of this year, but the lower end of the market will benefit from the First Home Owner’s incentives that came into effect on July 1st.

 

Annual change in dwelling Sydney

The Melbourne property market was, once again, the top performing market over the last year growing a very respectable 13.7%. melbourne

Strong population growth (around 2.2% per annum) and a strong economy creating more jobs than anywhere else in the country (72,786 new jobs last year– most of them full time) have underpinned the Melbourne property market.

While Melbourne has taken a breather the market’s will pick up in the second half of this year as the First Home Buyers Grant works its way through, creating an established home owner’s boost as the raft of new home buyers enter the market buying up established apartments.

Annual change in dwelling Melbourne

While the overall Brisbane’s property market only rose 2.0% over the last year,  queensland brisbane city water sky QLD map state capital australiaits market is very fragmented and there are still some areas that are performing respectably and have good investment prospects and are great places for young families to live cheaply.

On the other hand, there is a significant oversupply of new high rise off the plan apartments overshadowing the inner city area and nearby suburbs with owners now giving significant incentives to attract tenants.

Recently one developer who was giving 4 weeks rent free and $1,000 cash to attract tenants received significant negative publicity.

Annual change in dwelling BrisbaneThe Adelaide property market continues to languish with home values up  2.4 % over the last 12 months and less than 18% since the end of 2008.

There are few growth drivers in Adelaide with fewer than 8,000 new jobs created there last year.

Annual change in dwelling AdelaideWhile some have called the bottom for the Perth property market, our research suggests it is still in its slump with a significant oversupply of properties for sale.

As opposed to the eastern states where jobs are being created, Perth lost around 4,406 jobs last year.

At the moment there is 8.3 months of established housing stock available for sale in Perth.

Annual change in dwelling PerthThe Hobart property market had a short lived growth spurt last year causing some of the hot spotters to say “I told you so!”

Even though some commentators are suggesting it’s a good place to invest, I don’t agree and the latest figures show the property run in Hobart was short lived.

Annual change in dwelling HobartThe Darwin property market is still suffering from the effects of the end of our mining boom.

Prices are still falling and they’re likely to keep falling for much of this year.

I’ve always found investor driven markets more volatile than our big capital cities and that’s why I avoid them.

Darwin had a net increase of 153 jobs last year, showing how its economy is languishing

Annual change in dwelling Darwin

Canberra’s property market is a “quiet achiever” having performed well over the last year, but home values have fallen over the last quarter.

Annual change in dwelling Canberra

ECONOMIC DATA REMAINS MIXED  Australia Economy Concept

Economic data suggests that demand from the investor segment of the housing market may be slowing

Broader economic data also has a significant impact on housing market conditions

Interstate and overseas migration into NSW and Vic is substantially stronger than all other states and territories adding to housing demand.

Housing demand

Housing demand2

The number of dwellings approved for construction fell by -5.6% in May to be -19.7% lower over the year.

Approvals remain high on an historic basis however, they are trending lower led by the unit market.

Housing supply

We’re at the peak of the construction cycle with dwelling approvals tapering off.

Housing supply2

Consumer sentiment remains at a level which is slightly below neutral however, negative sentiment has outweighed positive over each of the past seven months.

Consumer sentiment

As you can see from the charts below, there is a strong link between consumer sentiment and the strength of our property markets.

Consumer sentiment2

Employment

Employment2

The RBA kept interest rate on hold in July however, many lenders have lifted mortgage rates independently of a shift from the RBA, particularly for interest-only and investor loans.

Mortgage rates

The value of owner occupier and investor housing finance commitments both fell in April however, investor commitments fell at a greater pace.

Housing investment is much more prevalent in NSW than in all other states and territories, in fact Vic is the only other state where investors make-up more than 35% of the total market.

The latest housing credit data shows that investor housing demand is still rising measured on annual growth however, monthly credit growth continues to decelerate while owner occupier credit demand is rising.

Mortgage rates2

THE BOTTOM LINE…

Despite our low interest rate environment, Australia’s property markets are very fragmented, driven by local factors including jobs growth, population growth, consumer confidence and supply and demand. property australia

The Melbourne and Sydney property markets are continuing to outperform the other states  as continuing demand from investors and wealthy home owners drives capital growth.

Although house price growth has lost momentum, we are yet to see any signs of a material downturn. On the other hand the rental growth turnaround will be welcomed by property investors.

I’ve now been investing for over 40 years and every property cycle I’ve experienced has come to a halt because of finance or difficulty getting it.

In general, booms are stopped when the Reserve Bank (RBA) increases interest rates to slow down the economy, and in the past it’s been quite effective at doing this.

Over recent years, the Australian Prudential Regulation Authority (APRA) has also attempted to put the brakes on investment lending in particular by putting investor limits on lenders creating a “Credit Squeeze.” reserve bank

I recognise that each peak is accompanied by a chorus of voices who deny the top is anywhere in sight, and it’s while impossible to predict with any accuracy the moment when the cycle turns,  I think it’s a little early to call yet.

Affordability is another a factor that comes to the fore near the end of the cycle.

And I’m not talking about first home buyers who always seem to have difficulty with affordability, but established home buyers who are looking to trade up (or down) but who find high prices and stamp duty too much of a disincentive.

Instead they choose to stay put  and renovate instead of trading up.

Having said that, there’s likely to be some life left in this cycle and it’s not too late to buy an investment property, but at this mature stage of the cycle careful property selection will be critical for investors as our markets are very fragmented and not all properties are will grow in value  and some will make very poor long term investment choices.

WHAT CAN YOU DO TO STAY AHEAD?  

As signs point to softer growth conditions for Australian property over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions. 

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If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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