I can feel it – our property markets are on the move.
In fact almost everyone involved in property has noticed a marked change in consumer confidence, buyer inquiry and general interest in our housing markets.
Most property economists believe the worst of the housing downturn is over, with a stabilisation of the Sydney and Melbourne real estate markets and property price falls now levelling off elsewhere.
Melbourne and Sydney enjoy the strongest economic conditions around Australia and despite being the two most unaffordable markets, these are the only locations which so far to have shown green shoots.
Firstly there was a strong rise in auction clearance rates in our two big capitals and now CoreLogic reporting housing prices are up up by 0.1 per cent in Sydney and 0.2 per cent in Melbourne in June.
Factors that led to this change in the market momentum include:-
- Increased confidence now that the Coalition has won the Federal Election
- APRA easing bank’s assessment criteria for new loans – this should commence in the next month
- Two interest rate cuts and the prospect of more to come
- Banks passing on the home loans with some cutting rates even before the most recent RBA “official” cut in rates
- Tax cuts are on the way – more money in our pockets
- The best housing affordability nationally since 2016.
- Positive messages in the media stoking consumer confidence.
- First home buyers returning to the market encouraged by government incentives.
And this will only get better in the next few months as APRA’s changes haven’t really worked their way through the system yet, many home owners and investors aren’t yet enjoying the lower mortgage rates and the tax cuts are yet to hit our hip pockets.
Sydney dwelling values recorded a small but positive movement in June, rising 0.1% over the month, taking the annual rate of decline back below 10%.
While the monthly rise in values was small, the switch to positive territory is a significant milestone for the Sydney market, after values have been consistently falling since the market peaked in July 2017.
Corelogic report that the unit market was the main driver of gains, up 0.3% while house values were flat 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 54 days (37 days a year ago) and
- Vendors are discounting their properties an average of 6.4% to affect a sale (5.7% a year ago)
- 21.9% 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 – and this will obviously put pressure on prices and rentals.
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.
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 or early 2020.
It is a great countercyclical time to look at buying an investment grade property in Sydney
Melbourne housing values posted their first month-on-month rise since 2017, ticking 0.2% higher in June.
This takes the annual change in Melbourne housing values to 9.2%, down from a recent low of 10%.
The improving trend is most evident across the unit market where values were up half a percent 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 46 days (29 days a year ago) and
- Vendors are discounting their properties an average of 6.4% to affect a sale (4.2% 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 property values were down 0.6% in June, with falls confined to the detached housing sector.
Corelogic report that 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 55 days (36 days a year ago) and
- Vendors are discounting their properties an average of 5% to affect a sale (4.3% a year ago)
- 12.7% 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 was the only capital city to avoid a fall in housing values through May, with the CoreLogic index rising 0.2% over the month to be 0.4% higher over the past twelve months.
Adelaide is the most affordable capital city in Australia with dwelling values falling -0.2% over the last 3 months but they are up 0.4% over the last year.
Signs of the slower Adelaide property market include:
- The average selling time for a home is 43 days – much the same as last year (42 days a year ago) and
- Vendors are discounting their properties an average of 5.3% to affect a sale (4.9% a year ago)
- 2.3% 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 1% over the month and 8.8% lower over the past twelve months taking values 19.2% 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 with a median dwelling value of $436, 000 which is only $4,500 higher than Adelaide’s median dwelling value.
Signs of the slow Perth housing market include:
- The average selling time of a home is 57 days (49 days a year ago) and
- Vendors are discounting their properties an average of 6.9% to affect a sale (6% a year ago)
- 7.2% fewer properties sold in the last 12 months compared to the previous year
It’s much too early for a countercyclical investment in the west – I can’t see prices rising significantly for a number of years.
Hobart Housing Market
Hobart has been the best performing property market in the last three years, but it looks like the boom is now over with prices peaking in March this year.
The Real Estate Institute of Tasmania’s March 2019 Quarterly Report showed sales numbers had decreased for the third consecutive quarter and median prices retracted for the first time in several years, with 8.6 per cent fewer property transactions than in 2018, and an 18 per cent increase in the number of properties advertised for sale.
CoreLogic figures showing a 0.4% slide of dwelling prices last month.
And it’s likely the Hobart market will continue to lose its momentum over the year.
Further signs of the slowing Hobart property market include:
- The average selling time for a home is 32 days (9 days a year ago) and 4.33.3
- Vendors are discounting their properties an average of 4.3% to affect a sale (3.3% a year ago)
- 10.1% 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 29.5% 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 67 days (66 days a year ago) and
- Vendors are discounting their properties an average of 7.1% to affect a sale (7.2% 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 is a “quiet achiever” with dwelling values having grown 2.4% over the last year with house price growth (+3.4%) much stronger than the apartment market where prices fell – 1.1% over the last 12 months.
Signs of the slowing momentum of the Canberra housing market include:
- The average selling time for a home is now 44 days (36 days a year ago) and
- Vendors are discounting their properties an average of 3.0% to affect a sale (2.2% a year ago)
- 10.2% fewer properties sold in the last 12 months compared to the previous year
With the Federal election now over, confidence is likely to return to the Canberra market and population growth is expected to remain strong, which will support underlying demand for dwellings.
Overall..our property markets are still easing
Vendor metrics have generally improved over recent months but are weaker than a year ago.
Corelogic report the number of property transactions is down 17.5% nationally year on year.
Other signs of our slowing property markets are rising Days on Market (the time it takes to sell a property) which is a sign that there more properties available for sale then there are active buyers, and also the increase vendor discounts necessary to sell a property.
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, while total advertised stock levels are tracking much higher, due to a slower rate of absorption.
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 are also doing it tough
Rental markets continue to trend lower.
Corleogic reports that national rents were unchanged over the month and 0.4% higher over the past year which remains their slowest annual rate of growth on record (data from 2005).
Rental yields have continued to lift from their record lows as rental growth outpaces value growth, however yields generally remain well below the long term average in most cities.
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.
Dwelling approvals are trending lower and expected to fall further.
Dr. Andrew Wilson, Chief Economist of MyHousingMarket.com.au commented:
Latest home lending data unsurprisingly remains subdued with reported loan levels continuing to decline in most states.
The ABS reports that overall residential lending to households seasonally adjusted declined by 2.4% over May.
The value of national home loans over the first 5 months of this year was down by 19.1% compared to the same period last year.
All states recorded monthly declines in residential lending with the exception of Tasmania which reported an increase of 1.5%. Tasmania is also the only state where lending activity so far this year is higher compared to the same period last year.
Continued subdued home loan activity over May is no surprise and doesn’t account for the more recent positive impact on housing market activity of the federal election result, interest rate cuts, easing of lending restrictions and legislated income tax cuts – the effect of which have clearly influenced more timely market indicators such as auction clearance rates.
Corelogic report that housing credit growth has stabilised at a relatively low level, with lending to investors remaining weak and more recently owner occupier lending has slumped.
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 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
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.