Housing Market and Economic Update | Chart Pack May 2016

It’s time for a whip around the country to see how our property markets are performing and to look at the factors affecting their future.

CoreLogic recently released their chart pack for May which gives us a good overview of what’s happening as well as some of the economic factors impacting our markets.

Here’s some key points from their report and my thoughts:

Just to put things into perspective: the Australian property market is valued at around $6.5 Trillion and is significantly larger than all the listed stocks on our stock exchange and virtually 3 times bigger than our Superannuation Industry.

The markets have slowed down:

Clearly our markets have entered the next stage of the property cycle, with capital growth slowing to a much lower rate than in the last few years.

This graph gives an overview of the whole Australian market and we’ll look at how the individual State markets perform in a moment:

What the chart above doesn’t rally show is that our property markets are very fragmented — Melbourne has been the strongest growing property market, not only over the last 12 months, but over the last decade with Sydney becoming a close second:

After a number of strong years, overall our property markets have moved from fifth gear into second gear (not in reverse as some would have us believe) with fewer properties changing hands as investor and home owner confidence wanes:

Rental Growth:

At the same time rentals have only been grown slowly in some of our capitals and while they have fallen significantly Perth and Darwin where there is a significant oversupply of property.

This combined with rising property values means that rental yields to property investors have fallen.

However currently there are signs, particularly in Canberra, Melbourne and Sydney (where vacancy rates are low), that the tide is turning and rents are slowly rising again.

More properties for sale

Another sign of our slowing property markets is an increase in the number of days on market (how long it takes homes to sell.)

Yet at the same time there are more properties for sale, particularly in Sydney where there are 22% more properties for sale now than there were 12 months ago.

Investor Participation has fallen

APRA seems to have achieved what it wanted.

Investors, who were dominating our property markets last year, are now finding it difficult to get finance resulting in investor participation levels today being back around the average level for the last decade:

The following graphs show lending growth to investors falling.

This is a leading indicator — a sign of what’s ahead (as investors generally obtain their finance pre approval is prior to purchasing) — suggesting quieter times ahead for our property markets.

What’s happening around the states?

Melbourne was the strongest performing property market over the last 12 months, but this year capital growth has slowed to a more sustainable level.

Strong population growth (around 2% per annum) and a relatively strong economy creating more jobs have underpinned the Melbourne property market.

The Sydney property boom is over, but its fundamentals are still strong and after a slight retracement at the beginning of the year, Sydney’s price growth has resumed at a much more sustainable level:

Brisbane’s property market grew a respectable 6.2% over the past year:

While Adelaide property values increased 4.5% over the last three months, causing some locals to say “ I told you so!”, house prices have only increased 6.7% over the last five years, so the market is really just playing catch up.

The Perth property market is still in its slump phase with a significant oversupply of properties for sale and values still falling.

Similarly the oversupply of rental properties in Perth is causing rents to fall.

I believe there is still some downside to the Perth market as it works its way through the excesses of the mining boom:

Similarly there are few growth drivers for Hobart property prices, and even though some commentators are suggesting it’s a good place to invest “because it has to catch up”, with minimal population growth and slow economic growth there seems little reason for property values in Hobart to grow substantially.

Darwin property values are lower than they were 12 months ago, and like Perth, I believe there is more down side yet to come.

The Canberra property market is likely to remain in limbo for the next few months until the outcome of the Federal Election is clear.

Some Macroeconomic factors affecting our property markets:

Australia’s population growth, one of the big drivers of our property parts of the last few years, is now slowing due to fewer overseas migrants.

Victoria (really Melbourne) has the greatest percentage change in population and this is clearly one of the factors driving the Melbourne property market:

At the same time we’ve been building more dwellings over the last few years and, as the following graph show, we are building virtually as many units as houses reflecting the change in the way we live.

The following graph shows that the ratio between supply and demand for properties is narrowing, but if you dig deeper you’ll find we tend to be building the wrong properties in the wrong locations — too many high-rise towers in our CBD’s:

Another factor affecting our property markets is lower consumer sentiment. [adrotate group=”8"]

When we feel confident we tend to go out and spend, but when we fell less secure about our jobs or our future we tend to put off major purchase decisions like buying a new home or investment property.

It’s likley consumer confidence will be subdued in the lead up to the Federal Election, creating a window of opportunity for those with a long term view.

As you can see from the graphs below, there is a strong correlation between consumer sentiment and dwelling sales and property values:

A positive sign for our property market is is jobs growth and low unemployment levels at a time when the participation rate (the percentage of the population working) has increased:

Lower mortgage rates (and the hint of more rate cuts to come) are also positive for property:

The bottom line:

The trend for capital growth has dropped from the peaks of 2015, but dwelling values continue to track higher across each of the capital cities over the first four months of this year.

In April, the pace of capital gains rebounded from the relatively flat numbers recorded in March, with dwelling values increasing by an average of 1.7 per cent across the CoreLogic combined capitals’ index.

The latest figures now take the combined capital city dwelling values measure 3.3 per cent higher over the first four months of 2016 and our property markets are behaving in a generally orderly fashion.

Source of graphs: Corelogic

Originally published at Property Update.