State by state housing market update | Chart Pack October 2018

It’s time for our monthly whip around the Australian property markets, and yes prices have fallen a little further. Melbourne, Australia

As you can see from the figures below, combined city capital prices dwelling values fell slipped a mere 2.7% over the last 12 months according to CoreLogic,

This is hardly a “crash” and the rate of decline is slower than in the previous property market downturn that occurred between 2010 and 2012.

Yet the extent of this fall is continuously exaggerated by some media outlets – no it is not Armageddon and no the sky isn’t falling.

Index Results

While there’s no doubt where in the slum phase of the property cycle,  the correction has largely occurred in the Melbourne and Sydney real estate markets.

Property values have dropped 6.1% in Sydney, but this is after a number of years of double-digit growth and after the value of many Sydney dwellings doubled over the last decade.

And is always… there are markets within markets.

The value of some properties in Sydney fell more than others, with some locations and certain types of property (A grade homes and “investment grade” properties) still holding their values well or increasing.

And there are many locations around Australia where property values have increased over the last 12 months –  just look at the figures above for Brisbane, Adelaide, Hobart and Canberra.

A little bit of history…

As a result of the mining construction boom coming to an end in 2013, the Reserve Bank cut interest rates to encourage general economic growth.

This led to a property construction boom and many of the displaced mining construction workers moved to our capital cities to help construct all those new high-rise apartment buildings that now stand tall, proud and somewhat empty. Reserve Bank Of Australia

In other words, the RBA created a property boom by lowering the cost of funds and encouraging investor activity.

At the same time many foreign investors hopped onto the bandwagon competing for all those new and off the plan properties that were being built.

Sure dwelling prices rose more than they should have in some locations, but this came to an end with APRA’s macro prudential controls making it harder for investors to borrow money.

Of course the Federal and State governments didn’t help when they pulled the welcome mat out from under foreign investors with a raft of taxes and levies that scared many of them away.

Fortunately this time round we’re experiencing a soft landing as APRA has orchestrated a sensibly designed credit squeeze which has slowed our markets in a low interest rate environment, meaning fewer investors and home owners will experience mortgage stress.

The flip side is… 
investor-enquiry-form

If property values keep falling to a worrying level, the RBA can easily intervene like it has done in the past.

Call me naive, but I can’t see a government of either persuasion or the RBA wanting property prices to fall too steeply, so the good news is many of the measures brought about to slow down our markets can easily be reversed.

Lowering interest rates or stimulating first home buyers through grants or incentives is what’s reversed the last two property slumps – back in 2012 and 2009.

However this may not be necessary this time round as many researchers believe we’re already half way through this downturn.

As you can see from the charts below the NAB believe house prices will fall a little further in 2019 and then pick up, while unit prices will fall a little more than house prices in that time.

 

NAB House price forecast

NAB Unit price forecast

Source: National Australia Bank

 

So let’s take a look at what’s happening around the Australian property markets as we unpack the latest Corelogic charts and stats:

Firstly let’s put things into perspective.

Look how big the residential property market is…

Australian Housing

Remember…close to 70% of these homes belonging to owner occupiers and around 50% of home owners do not have a mortgage.

And many of those who do have a mortgage against their home are ahead in their payments, having kept up the same payments as interest rates dropped.

This is one of the many factors that will underpin our property markets

 

Quarterly Data Highlights

 

The more expensive end of the market is struggling the most

As always happens at this stage of the property cycle, the more discretionary premium end of the market is showing the greatest value declines.

Dwelling Values2

SYDNEY HOUSING MARKET

The Sydney property market peaked in mid 2017 and Sydney real estate values have been falling consistently since then. Sydney suburbs

Interestingly there has been a larger decline in the value of houses in Sydney (- 7.6%) than there has been in Sydney apartments (- 2.6%).

This is in the context of median dwelling prices having increased by 51.0% in Sydney over the last 5 years.

As the market slows, buyer activity has reduced by 18.5% over the past twelve months.

With advertised stock levels 22% higher than a year ago and fewer buyers, the average selling time across Sydney has risen to 52 days compared with 37 days a year ago and auction clearance rates are consistently tracking around the high 40% to low 50% range. A2

Strong economic growth and jobs creation is leading to population growth and ongoing demand for property in Sydney with underlying demand well ahead of supply and the rental market is tightening.

At the same time international interest from tourists, migrants and investors continues.

However now more than ever, critical property selection will be more important to find an investment grade property that will outperform the property markets

Sydney is currently offering investors an opportunity to buy established apartments in the eastern suburbs, lower north shore and inner west in a “buyer’s market” with little further downside and the prospect of the market moving forward again in late 2019.

If you’d like to know a bit more about how to find these investment gems give the Metropole Sydney team a call on 1300 METROPOLE or click here and leave your details.

Dwelling Syd

MELBOURNE HOUSING MARKET

The Melbourne property market peaked in November 2017 and is experiencing a soft landing after 5 years of strong price growth.

Property values are now 4.4 % below their peak. Propertyupdate Victorian Property Melbourne

Corelogic reports that the weak conditions have been mostly confined to high value properties, with the top quartile of the market down 6.7% over the past twelve months, while property values across the lower quartile of the market are actually up 4.1% over the year.

More recently values have started to trend lower across all of the broad valuation bands as Melbourne’s downturn becomes more broadly based.

However, over the past five years, median property prices in Melbourne have increased by 41.5% and over the past decade they are 77.3% higher.

It is now taking a little longer to sell a home in Melbourne with the average time on market being 41 days compared to 30 days a year ago.

Similarly vendors are discounting their asking prices a little more (-5.9%) than 12 months ago (-4.6%)

But overall Melbourne is experiencing a soft landing, with no crash in sight.

While Melbourne’s property prices are likely to fall by a little further, they will be underpinned by a robust economy, jobs growth Australia’s strongest population growth and the influx of 35% of all overseas migrants.

Melbourne rates as one of the 10 fastest growing large cities in the developed world, with its population likely to increase by around 10% in the next 4 years.

If you’d like to know a bit more about how to find investment grade properties in Melbourne please give the Metropole Melbourne team a call on 1300 METROPOLE or click here and leave your details.

Dwelling Melb

melbourne property statistics

BRISBANE HOUSING MARKET

Property price growth in Brisbane has been slow over the past few years, however dwelling values have reached a new record high in September.

And all indicators suggest the Brisbane property market has the potential for significant growth over the next 3 years, with Queensland leading the nation in net interstate migration over the past year. Brisbane City CBD, Queensland, Australia

One of the positive signs emerging is Queensland’s strong job creation, in part due to all the infrastructure development that is occurring.

Another good sign is that Brisbane’s longstanding oversupply of new apartments is slowly being soaked up.

These positive signs have been reflected in shorter selling times than 12 months ago with properties generally selling within 37 days  compared to 52 days this time last year.

Similarly vendors are having to discount their asking price less; – 5.4% (- 6.9% in September 2017)

Our Metropole Brisbane team has noticed a significant increase in local consumer confidence with many more homebuyers and investors showing interest in property. At the same time we are getting more enquiries from interstate investors there we have for many, many years.

If you’d like to know a bit more about how to find investment grade properties in Brisbane please give the Metropole Brisbane team a call on 1300 METROPOLE or click here and leave your details.

Brisbane property statistics

Dwelling Bris

ADELAIDE HOUSING MARKET

The annual rate of property price growth continues to slow in Adelaide, with property prices up only 0.6% over the last 12 months.property markets Adelaide

Despite the slower growth rate, houses are selling relatively quicker than they did a year ago and Adelaide is the only capital city to record a higher number of property sales than a year ago up 2.5%.

Currently interstate investors are looking at Adelaide as a future ” hotspot”, but I would caution that there are a few long-term growth drivers in Adelaide, and history has proven that this year’s hotspot becomes next year is not spot.

Currently Adelaide which is experiencing above average unemployment rates and poor employment growth.

While Adelaide might be a lovely city to live in and is still very affordable, our research suggests investors should look elsewhere.

For example, there are better long-term growth drivers in the Brisbane property market.

 

Adelaide property statistics

Dwelling Adelaide

PERTH HOUSING MARKET

The Perth property market has been on a downward trajectory since peaking in June 2014.

Although values are still falling, many of the other metrics are now suggesting that the Perth property market is bottoming out, though it has not found a floor yet. Perth Property Update

Properties are selling a little faster – the average selling time is gradually reducing, falling 73 days from 77 days a year earlier; and vendors are discounting their asking prices by a lesser amount.

Additionally, there is less advertised stock for sale on the market now well below the 2016 highs.

While the Perth market may level out in the next six months, it’s much too early for a countercyclical investment in the west – I can’t see prices rising significantly for a number of years.

Due to the significant oversupply of new apartments there is little to no prospect of capital growth or rental growth in the Perth apartment market for many years.

Like the other states, Western Australia’s population trend has a significant impact on the overall performance of its property market.

To get people back into the State more jobs will need to be created.

perth property stats

Dwelling Perth

HOBART MARKET UPDATE

Hobart has been the strongest performing capital city over the last 2 years, but indicators are suggesting that this market has now topped out.

Over the last five years median dwelling prices have increased at about double the rate of household income growth creating a deterioration in housing affordability in the Apple Isle.

This together with investors moving their aim to the next “hot spot” suggests that Hobart’s property prices may now gently start falling.

Dwelling Hobart

 

DARWIN HOUSING MARKET

The Darwin property market peaked in August 2010 is still suffering from the effects of the end of our mining boom today 8 years later falling another 3.7% over the last year, and our research suggests that house prices are likely to keep falling for some time yet. Darwin

Darwin is Australia’s most affordable capital city housing markets due to its high wages at a time of continuing house price and rental falls.

Over the past decade, prices are up 30.3% compared to a 60.8% increase in household incomes.

As opposed to the east coast capital cities where many jobs are being created, Darwin had a net loss of jobs last year, showing how its economy is languishing.

Darwin does not have significant growth drivers on the horizon and would be best avoided by investors.

Dwelling Darwin

CANBERRA MARKET UPDATE

Canberra’s property market is a “quiet achiever” with dwelling values having grown 2 % over the last year.

House values increased 3.1% over the last 12 months, but apartment prices are still falling (-1.4%) which pull down the overall figures

If history repeats itself, the uncertain political climate leading up to the federal election next year will reduce local consumer confidence and dampen housing demand a little but,  as always, this will correct itself after the election and Canberra’s property market is likely to continue to do well in the medium term.

Dwelling Canberra

 

CLEARLY OUR PROPERTY MARKETS ARE SLOWING

Our quieter markets have translated into fewer property sales with transaction volumes 10% lower than they were a year ago.

Settled sales have been down even more substantially in Sydney (-18.5%) and Melbourne (-15.8%). Sydney Market Down

In general there are two types of vendors.

Those who must sell their property because of personal circumstances, and discretionary vendors who are happy to upgrade their homes when conditions are right.

Currently discretionary vendors are sitting tight, riding out this flat stage of the property cycle.

On the other hand, motivated vendors are still putting their properties on the market creating great opportunities for homebuyers who are keen to upgrade or investors looking to buy the type of property they would have had to compete strongly for last year.

 

Sales

RENTAL GROWTH HAS STALLED

At the same time as house prices are fallen rental growth has been sluggish around Australia, and rents have fallen a little in Sydney and Darwin.

Rent

Rent 2

Further signs of our slowing markets are the increased length of time it takes to sell a property which increased relative to a year ago as well is the great event or discounting required to make a sale.

Dwelling Sale

With deteriorating vendor confidence and, as mentioned, with discretionary vendors being reluctant to put their properties in the market, fewer new properties are being listed for sale than there were a year ago.

However, with properties taking longer to sell and with fewer properties selling, there are 9.5% more properties for sale than there were a year ago and this number is even higher in Sydney (22.2%) and Melbourne (16.7%)

Advertised Property

Lower auction clearance rates are another sign of the lack of depth of our property markets.

Auction Clearance

POPULATION GROWTH

Population growth remains strong however, and this will underpin our property markets.

Housing Demand

HOUSING FINANCE

APRA has quelled our property boom and demand for investor finance is waning, leaving owner occupiers as the dominant source of finance demand.

Dwelling Approval

Housing Finance

Housing Finance2

Mortgage Rates

THE BOTTOM LINE…

We’re clearly in the next stage of the property cycle, one of moderate growth in some regions and virtually no growth in others and falling prices in yet others. risk investment market

Australia’s property markets are very fragmented, driven by local factors including jobs growth, population growth, consumer confidence and supply and demand.

This makes it an opportune time for both home buyers and investors to buy property at a time when they’ll face less competition.

However correct asset selection will be more important now than ever, so only buy in areas where there are multiple long term growth drivers such as employment growth, population growth or major infrastructure changes.

Similarly suburbs undergoing gentrification are likely to outperform.

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.  

1-percent

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.

Source of graphs and data: CoreLogic

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About

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


'State by state housing market update | Chart Pack October 2018' have 1 comment

  1. Avatar for Property Update

    October 18, 2018 Jon

    Thanks so much Michael – I really look forward to these monthly updates – clearly you put a lot of work into them – please keep it up – they are appreciated

    Reply


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