After a two-year slide the latest stats show we’re at or near the bottom of this property cycle.
Corelogic report that in 2019 dwelling values increased across all capital cities except for Adelaide, Perth and Canberra.
The stabilisation in housing values is becoming more broadly based, with five of the eight capital cities recording a subtle rise in values over the month, while the regional areas of South Australia, Tasmania and Northern Territory also recorded a lift in housing values in July.
Over the month, combined capital city values increased by 0.1% while the combined regional markets recorded a -0.2% fall.
There has also been a notable change in buyer sentiment with buyers out in the market applying for loans , looking at properties and making offers.
The turnaround in sentiment can be traced to a number of factors:
- The RBA’s back to back interest rate cuts which have pushed mortgage rates to record lows and the prospect of further falls to come
- Banks passing on the rate cuts to borrowers
- APRA’s loosening of mortgage stress tests
- The best housing affordability nationally since 2016
- Tax cuts putting a little more money in our pockets
- Positive messages in the media stoking consumer confidence, and of course
- Increased confidence after the surprise re-election of Scott Morrison’s government in May, which killed off Labor plans to wind back tax breaks for property investors.
In Sydney, housing values ticked slightly higher for the second consecutive month, providing further confirmation that the market has commenced what is likely to be a gradual recovery after values fell almost 15% from their July 2017 peak.
Sydney dwelling values recorded a small but positive movement in July, rising 0.2% over the month, taking the annual rate of decline back to -9%.
The apartment sector is showing a slightly stronger performance relative to houses, with values declining less during the down phase and slightly leading the charge as the market stabilises.
Corelogic report that the unit market was the main driver of gains, up 0.3% while house values were up 0.2% over the month.
The more expensive properties, where values were previously falling the most rapidly, are showing the steepest trajectory of improvement.
The slow Sydney housing market means that:
- The average selling time of a home is 57 days (41 days a year ago) and
- Vendors are discounting their properties an average of 6.3% to affect a sale (5.9% a year ago)
- 18.7% fewer properties sold in the last 12 months compared to the previous year
Currently there is a significant number of new apartments coming onto the market in Sydney- it is estimated that 54,000 apartments will be completed in Sydney in 2018 and 2019 – but it’s likely that both buyers and tenants will be wary of these considering the media attention structural issues in new buildings has been receiving.
Investors are abandoning the off the plan apartment sectors for many reasons including concerns about construction standards, but many of those who purchased off the plan a few years ago are now having trouble settling with valuations coming in on completion at well below contract price at a time when banks are more reluctant to lend on these properties.
In the background strong economic growth and jobs creation is leading to population growth and ongoing demand for property in Sydney.
At the same time international interest from tourists and migrants continues.
This is a great countercyclical time to look at buying an investment grade property in Sydney which 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 continuing to move forward
Melbourne housing values posted their second month-on-month rise, ticking 0.2% higher in July.
This takes the annual change in Melbourne housing values to -8.2%, down from a recent low of – 10%.
The improving trend is most evident across the unit market where values were up 0.4% over the month while house values were up a smaller one-tenth of a percent.
Also, it’s the most expensive quarter of the market where the improved performance is most notable.
Melbourne’s top quartile based on dwelling values was up 0.6% over the month compared with a 0.1% rise across the lower quartile and a 0.1% slip in values across the broad middle of the market according to Corelogic .
The slow Melbourne housing market means that:
- The average selling time of a home is 49 days (30 days a year ago) and
- Vendors are discounting their properties an average of 6.5% to affect a sale (4.4% a year ago)
- 27% fewer properties sold in the last 12 months compared to the previous year
Over the last year there were 25% fewer sales than the previous year, a sign that sellers are not putting their properties on the market unless they really need to sell.
Melbourne homes now an average of 44 days to sell over the March quarter, compared to 29 days a year ago, however vendors are discounting their properties by an average of 6.3% compared to 4.0 would% a year ago to affect a sale.
Over the last 12 months 27.4% fewer property sold in Melbourne than in the previous year
But the Melbourne property market is very fragmented, with values of detached houses having fallen more than apartments.
The resilience across the apartment sector, despite higher supply levels, probably comes back to a combination of affordability constraints in the market as well as more first home buyers supporting housing demand across the lower price points of the market, thanks to the First Home Owner incentives.
At Metropole we’re finding the Melbourne property market is slowly regaining its confidence and the underlying fundamental growth drivers remain strong.
For example auction clearance rates are rising, albeit on much smaller volumes.
Overall property values will be underpinned by a robust economy, jobs growth Australia’s strongest population growth and the influx of 35% of all overseas migrants.
Remember…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.
Brisbane’s property downturn has been quite shallow compared to the big two capital cities, with local values only 2.9% below their peak.
But this followed a relatively mild growth cycle where growth in housing values in Brisbane averaged only 1.4% per annum over the past five years.
There is little difference between the performance of houses and units across Brisbane, with values down 0.8% over the past three months across both sectors of the market.
Corelogic report that house values rose 0.3% over the month of July and apartment values actually rose 0.1% over the month, breaking a long-running trend of falling values.
While Brisbane apartment values remain 12.5% below their 2010 peak, the unit oversupply has slowly been absorbed due to rising population at a time of less new supply coming on to the market.
The slower Brisbane housing market means that:
- The average selling time of a home is 64 days (38 days a year ago) and
- Vendors are discounting their properties an average of 5% to affect a sale (4.3% a year ago)
- 14% fewer properties sold in the last 12 months compared to the previous year
With migration rates lifting, supply under control and generally healthy levels of housing affordability, the Brisbane housing market fundamentals are looking healthier compared to most other capital cities.
At the same time the underlying strong demand from home buyers and investors from the southern States at a time when yields are attractive and housing affordability is relatively healthy and putting a floor under property prices.
Brisbane’s economy is being underpinned by major projects like Queen’s Wharf, HS Wharf, TradeCoast, Cross River Rail, the second airport runway and the Adani Coal Mine, but jobs growth from these won’t really kick off for a few more years.
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.
Adelaide Housing Market
Adelaide values dipped 0.3% in July, taking the three-month trend to -0,6% and the annual decline to -0.8%.
Adelaide is the most affordable capital city but its property values peaked in December 2018 and since then dwelling values have fallen a modest 1.3% .
Signs of the slower Adelaide property market include:
- The average selling time for a home is 50 days – up from 44 days a year ago)
- Vendors are discounting their properties an average of 5.7% to affect a sale (5% a year ago)
- 6.3% fewer properties sold in the last 12 months compared to the previous year
While things look good for Adelaide property in the short term, over the next few decades the bulk of Australia’s long-term jobs growth, economic growth and population growth will occur in our 4 big capital cities meaning there are better locations for long term wealth creation that Adelaide.
Perth Housing Market
Perth has recorded a further reduction in dwelling values, down 0.5% over the last month and 8.9% lower over the past twelve months taking values 20.2% lower since peaking in June 2014.
The ongoing weakness in the Western Australian housing market can be attributed to mix of weak economic and demographic conditions overlaid with a tight credit environment.
Perth values are now amongst the most affordable amongst the capital cities, but it’s much too early for a countercyclical investment in the west – I can’t see prices rising significantly for a number of years.
Signs of the ongoing slump in the Perth housing market include:
- The average selling time of a home is 66 days (59 days a year ago) and
- Vendors are discounting their properties an average of 6.9% to affect a sale (6.5% a year ago)
- 8.3% fewer properties sold in the last 12 months compared to the previous year
Hobart Housing Market
Hobart has been the best performing property market in the last three years, but its boom is now over.
CoreLogic figures show prices are stabilising and now 0.8% below their peak in March this year.
It’s likely the Hobart market will continue to lose its momentum over the year.
Signs of the slowing Hobart property market include:
- The average selling time for a home is 32 days (12 days a year ago)
- Vendors are discounting their properties an average of 3.8% to affect a sale (3.5% a year ago)
- 11.6% fewer properties sold in the last 12 months compared to the previous year
Over the last few years too many investors chased the Hobart “hot spot” at a time when there was a lack of employment drivers, insufficient population growth and not enough infrastructure spending.
Remember home buyers create a property market (they make up 70% of buyers) and investors create property booms – which is what’s happened in Hobart.
And Hobart is too small a market to be a long term “investment grade” proposition.
Darwin Housing Market
The Darwin property market peaked in August 2010 is still suffering from the effects of the end of our mining boom with a very soft employment market and lack of migration and infrastructure spending.
Currently values are 29.8% below their historic averages and it is unlikely we’ll see these types of house prices again in the next decade.
Signs of the easing in the Darwin market slowdown include:
- The average selling time for a home is 68 days (77 days a year ago) and
- Vendors are discounting their properties an average of 8.2% to affect a sale (7.7% a year ago)
- and a slight increase in number of sales in Darwin (0.4%) than 12 months ago
The small size of the Darwin market makes it more susceptible to local events and Darwin typically has a higher and more variable vacancy rate, a product of a large transient working population.
Darwin does not have significant growth drivers on the horizon and would be best avoided by investors.
Canberra Housing Market
Canberra’s property market has been a “quiet achiever” with dwelling values having grown 1.4% over the last year, but they seem to have peaked in April this year.
Signs of the slowing momentum of the Canberra housing market include:
- The average selling time for a home is now 53 days (41 days a year ago) and
- Vendors are discounting their properties an average of 3.1% to affect a sale (2.5% a year ago)
- 10.3% fewer properties sold in the last 12 months compared to the previous year.
Overall…our property markets are slowly improving
Vendor metrics have generally improved over recent months but are weaker than a year ago.
Corelogic reports the number of property transactions is down 16.5% nationally year on year.
However a sign of our weak markets is the extent of vendor discounting necessary to sell a property.
One important metric to keep an eye on is Days on Market (the time it takes to sell a property) which will drop as the market turns around. Currently DOM suggests there more properties available for sale than there are active buyers.
Corelogic’s estimate of settled sales is down 16.5% nationally year-on-year, with sales lower across all capital cities however, recent monthly data shows a moderate lift in monthly sales.
Vendors seem to have got the message that it isn’t a great time to sell, with fewer new listings being added to the market than over recent years and total listings now also lower than they were a year ago.
One sign of increased confidence, especially in the Melbourne and Sydney property markets arising auction clearance rates.
If these continue to remain in the high 60% range this could lead to rising property values.
Our rental markets
As housing market conditions have improved and values have stopped falling, gross rental yields have softened a little over the past month, a trend that we may see continue.
While rental rates have fallen -0.1% in July 2019, over the 12 months to July 2019 rental growth has lifted from 0.4% to 0.6%.
Despite the increase in annual rental growth, there is little pressure on rental rates currently.
Dwelling approvals are trending lower and expected to fall further, despite a slight increase over the month.
Other market indicators:
The trend in population growth has eased over the twelve months ending March 2018, as both the rate of net overseas migration and the rate of natural increase fell.
Slower population growth has a negative implication for housing demand.
Housing finance data and credit aggregates highlight the slowdown in mortgage demand of late.
Although housing finance commitments have continued to fall, the rate of decline has slowed and with improved market confidence we could see some moderate increases over the coming months.
Official interest rates were cut to 1.0% in July and the expectation from the market is that cuts are more likely than increases from here.
We’re at an interesting stage of our property cycle with signs we’re nearing the bottom.
While there may be a little more downside in our big two capital city markets it looks like the best time to buy counter cyclically in Sydney and Melbourne for over a decade and to ride the Brisbane property cycle.
Canberra property should continue to perform well and Adelaide should hold its own, but it’s likely Hobart will now slowly move to the slump phase of its own property cycle and there is still more downside for Perth and Darwin
Of course, property will remain a sound asset for long term wealth creation, but now more than ever correct asset selection will be critical, 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.
If you’re looking at buying your next home or investment property here’s 3 ways we can help you:
Why not get the independent team of property strategists and buyers’ agents at Metropole to help level the playing field for you? We help our clients grow, protect and pass on their wealth through a range of services including:
- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! Click here to learn more
- Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property. Click here to learn how we can help you.
- Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
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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