Housing Market and Economic Update | Chart Pack October 2016

Many of the property market predictions made at the beginning of the year were wrong! Mine included.

With stats in for the first three quarters of the year, the Sydney and Melbourne property markets have performed much stronger than the commentators expected.

On the other hand Perth and Darwin property values have continued to decline as many predicted.

So let’s look more closely at what’s really happening in the property markets around Australia and examine the data and graphs provided by CoreLogic.

Home values increased by 1.0% in September 2016 with values 2.9% higher over the third quarter

• Combined capital city home values increased by 1.0% in September with values rising in all capital cities except for Perth and Darwin

• Home values were 2.9% higher over the three months to September 2016 with home values in Brisbane, Perth and Darwin falling over the quarter
• Over the first nine months of 2016, capital city home values have increased by 8.6% and Perth and Darwin are the only cities in which values have fallen
• Over the past 12 months, combined capital city home values have increased by 7.1% which is up from a recent low of 6.1% at the end of July
• Across the individual capital cities, the annual change in home values have been recorded at +10.2% in Sydney, +9.0% in Melbourne, +3.0% in Brisbane, +6.5% in Adelaide, -7.0% in Perth, +8.7% in Hobart, -6.0% in Darwin and +9.0% in Canberra
• Capital city house values have increased by 7.3% over the past year compared to a 6.1% increase in unit values

WHAT THE CHART ABOVE DOESN’T REALLY SHOW IS HOW FRAGMENTED OUR PROPERTY MARKETS REALLY ARE:

The combined capital city index, which is heavily weighted towards the Sydney property market and Melbourne property market, recorded a 1.0% month-on-month gain, taking capital city dwelling values 41.3% higher since the growth cycle commenced in June 2012 and taking the current growth phase into its 52nd month.

But as you can see in the following graphic capital city growth varies greatly, with the Sydney property market once again the strongest market.

Settled home sales have continued to trend lower

The number of dwelling transactions across the capital cities has been trending lower, but with fewer good properties on the market at a time when there are still plenty of buyers, house prices are moving up — it’s the old supply and demand ratio at work.

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• Over the 12 months to September 2016 it is estimated that there were 326,662 houses and 128,432 units sold and settled nationally with house sales -9.3% lower and unit sales -14.9% lower over the year
• Across the combined capital cities there were an estimated 197,108 houses and 92,986 units sold over the 12 months to September 2016. House sales are -12.5% lower over the year while unit sales are down -17.2%.
• Most capital cities are seeing the number of sales trending lower however, there are signs in Perth that sales are stabilising while they are starting to rise in Adelaide and Darwin
• It is important to note, the large volume of off-the-plan sales currently means there is a high likelihood unit sales volumes will be revised higher over the coming years, these properties will be entered into the database at their contract date but will not be available until they have settled.

Selling time and discounting levels for homes have been steady over recent months

Other signs of our strong markets are the strong auction clearance rates and the facts that properties are still selling relatively quickly without vendors needing to offer sig

nificant discounts:

• The typical capital city house is currently selling after 49 days compared to 38 days a year ago while the typical capital city unit takes 48 days to sell compared to 36 days a year ago
• The average level of discount is recorded at 5.8% for houses and units compared to 6.1% for houses and 5.4% for units 12 months ago
• Auction clearance rates have rebounded in 2016 and have been sitting at above 75% for the past five consecutive weeks

RENTAL MARKETS REMAIN WEAK

While we’ve seen values remain relatively strong, in contrast, rental yields have been in the doldrums due to the fact that residential property values are rising at a faster rate than weekly rents.

The average gross rental yield across the combined capital city dwelling market has held firm at 3.3% over the month, which is at an historic low.

By a large margin, the lowest yields are now in Sydney and Melbourne where value growth has been the most extreme and caused yields to compress.

The typical gross yield on a Sydney and Melbourne house is now 2.8%, while the gross yield profile for a Sydney unit is the lowest of any capital city, averaging 3.9%.

New listings (proeprties for sale) are much lower than a year ago while total listings are at similar levels

• Over the past 28 days there were 45,634 new homes listed for sale nationally and 27,337 of these were listed across the capital cities
• New listings are 0.5% higher than they were a year ago nationally and -2.6% lower across the combined capital cities
• There were 231,650 total listings nationally over the past four weeks and 103,739 total capital city listings
• Nationally, total listings are -1.9% lower than a year ago while they are 3.4% higher across the combined capital cities
• In Sydney in particular there a significantly fewer new listings than there were at the same time a year ago

IS APRA GETTING ITS WAY?

Lending to investors has slowed down over the year, as they are now finding it difficult to get finance, however investor participation levels have picked up recently.

WHAT’S HAPPENING AROUND THE STATES?

At the end of last year many were prepared to write off the Sydney property market saying that not only was the book over, but Sydney proeprty values were going to crash.

But Sydney’s fundamentals are still strong and after a slight retracement at the beginning of the year, Sydney’s price growth has been stronger than any other capital city over the last 12 months

There are fewer than 20,000 dwellings currently being advertised for sale across Sydney, which is less than half the number of homes that were listed for sale five years ago. Reduced stock levels create urgency in the market, adding to the upwards pressure on dwelling values.

The Melbourne property market also performed strongly over the last 12 months, with strong population growth (close to 2% per annum) and a relatively strong economy creating more jobs have underpinning it’s growth.

Brisbane’s property market has confounded those “hot spotters” who were predicting it was going to be the place to be this year.

While overall growth has stagnated, the Brisbane market is very fragmented and there are still some areas that are performing respectably and have good investment prospects.

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.

Adelaide has delivered a very respectable 6.5% growth over the last year, however with total growth of only 9.4% over the pst 5 years and fewer long term growth drivers than the other big capital cities, I would not consider investing there.

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.

There is still some considerable downside to the Perth market as it works its way through the excesses of the mining boom:

Similarly there are few long term 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.

Despite this year’s growth spurt Hobart has underperformed over the last decade with property prices only increasing just over 14% over the last 10 years.

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

Canberra is the only housing market, other than our 2 big capital cities. where the cumulative capital gain has been greater than 20% post GFC.

Economic data remain mixed

• New lending to both investors and owner occupiers has fallen from recent peaks with investor lending recording a much greater decline however, investment lend

• ing increased in July
• Total housing credit is rising however, investment credit growth continues to slow and is now increasing at a rate which is less than half that of APRAs 10% threshold for annual growth although monthly data shows growth in investor credit is picking-up
• The rate of population growth at a national level is lower than recent highs but has steadied over recent quarters thanks to improving net overseas migration
• Dwelling approvals eased a little in August but remain at historically high levels
• Consumer sentiment remains at a fairly neutral setting
• The unemployment rate was recorded at 5.6% in August although employment growth continues to be largely driven by part-time rather than full-time employment
• The Reserve Bank left official interest rates on hold at 1.5% in October 2016

You can see the important link between consumer sentiment and house price sales and values in the 2 graphs below:

Of course jobs growth is an important driver of our property markets and lately the bilk of the new full time jobs have been created in Sydney and Melbourne

WHAT CAN YOU DO TO STAY AHEAD?

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Originally published at Property Update.