NAB, in conjunction with CoreLogic (RP Data), brings you the Australian Housing Market Update for August 2016.

Take a look at the national update or your capital city update by clicking on the relevant link below:

• National
• Sydney
• Melbourne
• Brisbane
• Perth
• Adelaide

Earlier this month we saw the Reserve Bank cut interest rates for a second time this year, taking the cash rate down to a historic low of 1.5%. The rates decision came a day after CoreLogic reported a slowdown in the rate of growth across the housing market, with dwelling values rising 0.8% over the month across the hedonic home value index. While dwelling values are still rising, importantly, the annual pace of growth was the lowest since September 2013, highlighting that housing market conditions appear to be softer than previously thought.

The monthly headline result masks the diversity that is evident across the Australian housing market. Dwelling values moved higher in July across four of Australia’s eight capital cities and fell across the remaining four cities. Perth and Darwin continued the downwards trend that has been evident since 2014, while Brisbane and Canberra values also dipped lower in July.

Darwin and Perth remain as the only capital cities where dwelling values have shifted lower over the past year. At the other end of the spectrum, Sydney values are up by 9.1% over the past twelve months and Melbourne values have risen by 7.5%. While the annual growth trend in dwelling values remains high in Sydney and Melbourne, the trend is tracking at about half the annual rate of growth compared with the recent peak rate of growth recorded last year.
Several other indicators are also suggesting the housing growth cycle may be losing some steam. The number of dwelling sales has been trending lower during 2016, with the number of home sales across the capital cities showing a 13% year on year decline. Of the major capital cities, the Sydney housing market is showing the most substantial year on year fall in home sales, with transactions over the past 12 months falling 19.5% compared with the same time a year ago.
Dwellings are starting to take longer to sell, with the typical capital city home averaging 47 days to sell compared to 42 days at the same time last year. Outside of the Christmas/New Year period, this represents the longest average time on market since August 2013. Homes are taking longer to sell than they were a year ago in every capital city except Adelaide and Melbourne. If the average selling time continues to trend higher we would expect discounting rates to also rise which is likely to help in easing the upwards pressure on dwelling values.

Another indicator of slowing activity can be seen across the CoreLogic valuation platforms. The CoreLogic Mortgage Index, which tracks mortgage activity across proprietary platforms, was -8.6% lower in July and -3.0% lower year-on-year. This indicates that demand for mortgages eased in July following a fall in June.
Auction markets have bucked the slowing trend, with auction clearance rates gaining some ground during July. In Sydney, auction clearance rates have been above 70% for 15 consecutive weeks, reaching a preliminary clearance rate of 80% over the last week of July, while in Melbourne, clearance rates have been above 70% for each of the past four weeks. Keep in mind that auction volumes are currently much lower than they were 12 months ago.

Housing market conditions across each capital city

Sydney: In Sydney, the annual rate of growth has more than halved since peaking in July last year at 18.4%. Over the past twelve months Sydney dwelling values are up 9.1% with hardly any difference between growth in house values compared with unit values. While the annual trend in growth remains strong, other indicators are pointing towards softer conditions ahead. Listing numbers are rising, despite a sharp slowdown in newly advertised properties being added to the market. With more stock available for sale, we may see buyers gaining some leveraging in the market with more choice and more bargaining power. Properties are now taking substantially longer to sell compared with a year ago, however discounting rates haven’t moved higher as yet.

Melbourne: The Melbourne housing market has slipped back into second place based on the annual rate of growth, now tracking just below Sydney’s at 7.5% per annum. The trend between houses and units is substantially different though, with house values rising at more than double the pace of unit values. Over the past year, Melbourne house values have risen by 8% compared with a 3.2% lift in unit values. The slower rate of growth in unit markets can be probably be traced back to higher supply levels and deteriorating confidence about the prospect of capital gains across the Melbourne unit sector. In reality, the unit markets that show the highest risk profile tend to be both existing and new projects located in the supply epicentre of the Melbourne CBD as well as some of the CBD fringe suburbs such as Docklands and Southbank.

Brisbane: Despite recent signs that the rate of value growth may have been accelerating, Brisbane was one of the four capital cities to record a fall in values in July which has resulted in a slowing of the annual growth rate for the city. House values were down 0.7% over the month and unit values were down a larger 2.3%. A similar trend can be seen over the past year with house values increasing by 4.1% and unit values rising at less than half the pace at 1.9%. Similar to Melbourne, Brisbane’s unit market is likely seeing growth rates dampened by concerns around oversupply, however high unit supply levels are generally confined to specific areas of the inner city where high rise apartment project numbers have surged.

Adelaide: Adelaide home values have increased by 4.7% over the first seven months of the year and are 4.8% higher over the past twelve months. Despite local economic uncertainty, growth in values has picked up over recent months. House values have increased by 5.0% over the past year compared to a much lower 2.6% growth rate across the unit sector. Transaction numbers are also looking reasonably resilient across Adelaide, with dwelling sales only 2.7% lower year on year. Adelaide and Hobart are the only capital cities where dwellings are selling faster than a year ago, currently averaging 52 days to sell a property. The faster rate of sales comes with a higher discounting rate though, suggesting Adelaide vendors need to and have been flexible with their pricing expectations in order to achieve sales.

Perth: The Perth housing market has continued to lose some steam with dwelling values falling 4.7% over the first seven months of the year to take the cumulative decline since the market peaked in December 2014 to 8.3%. Transactions numbers have held firm over the past few months, suggesting buyer demand many be finding a floor, however the average selling time remains high at 79 days, indicating buyers can take their time and negotiate hard on prices. Rental prices are also falling across Perth, with house rents down 9.3% over the year and unit rents falling 7.7%.

Hobart: Hobart’s housing market has gathered some momentum during 2016 to be the third best performing capital city, after Sydney and Melbourne, based on the annual rate of growth. Hobart unit values are rising at a faster rate than house values, which is a trend that is unique to Hobart and Sydney. House values rose 5.6% over the past year while unit values were up 12.9%. As the housing market improves, properties are now selling faster than a year ago and transaction activity is holding reasonably firm.

Darwin: Darwin, which is the weakest performing capital city based on the annual change in dwelling values, saw the value of properties fall further in July. Since dwelling values peaked in mid-2014, the market has declined by 12.7%. Transaction numbers are down by 25% year on year, indicating a sharp slowdown in housing demand. Low demand is also evident across the rental market where weekly rents have fallen by almost 16% over the past twelve months.
Canberra dwelling values are 2.9% higher over the past twelve months, with a 3.1% annual gain in house values being counter balanced by a 0.4% fall in unit values. Canberra rental growth has actually accelerated over the past year with house rents increasing 1.8% and unit rents 2.4% higher. As a result, gross rental yields have held reasonably firm across Canberra with houses returning an average gross yield of 4% and unit yields recorded at 5.1%.

While the rate of value growth has slowed over recent months, the two largest and most expensive cities, Sydney and Melbourne, have continued to record relatively rapid rates of value growth.
With investment in the market place still a large source of mortgage demand, it will be important to monitor investment appetite for housing over the coming months. Investors still comprise 47% of the value of housing finance commitments, excluding refinanced loans.

Over a year ago APRA advised Australian lenders that they couldn’t grow their investor housing credit by more than 10% per annum. The most recent housing credit data has shown that investor housing credit has increased by just 5.0% over the past year, its slowest rate of growth since March 2012. Tighter serviceability limits and a recent crackdown on lending to investors from offshore has resulted in the fall in demand from the investor segment of the market. The data indicates that there is scope for lenders to increase their lending to investors however, it remains to be seen as to whether there will be any significant uplift in demand from this segment.

Investors may progressively look outside of the two major capital cities, but they are likely to be cautious of potential oversupply in the apartment market as well as low yields due to soft rental conditions.

With interest rates coming down in August, policy makers and regulators will be keeping a close eye on housing market conditions. In the statement from the RBA following the rates decision, Reserve Bank governor, Glen Stevens, indicated that the likelihood of lower interest rates exacerbating risk in the housing market had diminished.

There is already an indication that the cash rate cut won’t be passed on in its entirety to mortgage rates, which will help to minimise the chances of a rebound in home value appreciation. Additionally, pre-existing affordability barriers, higher supply levels, low rental yields and a more cautious lending environment are likely to dampen the trend rate of capital gains further.

The information in this video has been prepared by RPData Pty Ltd ABN 67087 759 171 trading as CoreLogic Asia Pacific (‘CoreLogic RPData’). CoreLogic RP Data is not related to NAB. The information in the video is provided for general information purposes only and is a summary based on selective information which may not be complete for your particular purposes. NAB does not accept liability for any loss or damage whatsoever which may   directly or indirectly result from any advice, opinion, information, representation or omissions, whether negligent or otherwise, contained in the video.