Below trend growth to continue
The housing market recovery has continued to gather some pace through with our national index up 1.7% last month.
The December housing market update indicates the housing market recovery has continued to gather some pace through the month, with our national index up 1.7% last month, delivering the fifth consecutive monthly rise coupled with the largest month-on-month gain since 2003. The latest update takes national dwelling values back into positive annual growth for the first time since April 2018.
Watch the video now to get the national update.
Find out the latest news for each capital city by clicking the link and watching the videos below or read the full December Housing Market Update Transcript
Since finding its trough in June earlier this year, the national dwelling value index has recovered by 4.7%. Although values are recovering rapidly, at a national level home values remain 4.1% below their 2017 peak, tracking roughly at the same level as January 2017.
Sydney and Melbourne continued to drive the rapid recovery, with values up by 2.7% and 2.2% respectively over the month, while each of the remaining capital cities, apart from Darwin, recorded a rise in values in November.
In a significant turn of events for the Perth market, values edged higher in November; the first month-on-month rise in dwelling values since the downtrend took a pause in early 2018. Dwelling values have been trending lower since mid-2014, down a cumulative 21.3% through to the end of November. Over the past thirteen years, Perth has seen house values move from being among the most expensive across the capital cities to now be the lowest; great news for first home buyers, however Perth home owners have seen a material reduction in their wealth over the past five and a half years.
A variety of factors are supporting the strong gains in housing values. The synergy of a 75 basis points rate cut from the Reserve Bank, a loosening in loan serviceability policy from APRA, and the removal of uncertainty around taxation reform following the federal election outcome, are central to this recovery.
Additionally, we’re seeing advertised stock levels persistently low which is creating a sense of urgency in the market as buyer demand picks up. There’s also the prospect that interest rates are likely to fall further over the coming months and an improvement in housing affordability following the recent downturn are other factors supporting a lift in values.
While housing values trend higher, rents are sluggish. Across the combined capital cities, rents were unchanged in November and only 0.4% higher over the past twelve months. Softer rental conditions can be attributed to a range of factors including the recent history of rising rental supply, demonstrated by unprecedented levels of investment participation in the housing market between 2012 and 2017, as well as a significant increase in dwelling construction skewed towards rental accommodation in the high rise apartment sector. Additionally, a larger than normal number of renters have transitioned to first home buyers, thereby denting rental demand.
The Australian housing market is now five months into an unexpectedly strong period of recovery. The question is, how long can such a high pace of capital gains be sustained?
Annualising the growth rate over the past three months implies the national index is already tracking well above double digit annual growth, while Sydney and Melbourne dwellings are tracking around the mid-twenty percent range for annualised capital gains based on the most recent three month trend.
Considering wages and household income growth remains low, economic conditions are losing momentum and housing affordability is once again worsening, from an already high base in the largest cities, there are likely to be some headwinds in maintaining such a fast recovery.
Additionally, the market is yet to be tested on higher supply levels. Advertised listing numbers have remained seasonally low throughout spring due to low new listing numbers and an increased rate of absorption as buyer demand lifts.
With selling conditions looking very strong, there is a high probability that listing numbers will show a material lift through the first quarter of 2020 which will test the depth of the market, and potentially ease some of the urgency that is contributing to higher prices.
Smaller cities are starting to show a stronger growth trajectory in the housing market, including Perth, where housing values have been trending lower since mid-2014. As housing affordability becomes more pressing, jobs growth fades and unemployment ticks higher across New South Wales and Victoria, the smaller capital cities may be beneficiaries of increased demand. Based on data to June from the Australian Bureau of Statistics, there is a clear trend towards stronger interstate migration rates into Queensland as well as a reduction in the interstate outflow from South Australia and Western Australia.
More affordable housing options across the smaller cities is likely to be attractive to interstate residents, however jobs growth and the employment rate is generally weaker relative to the larger cities which remains a barrier to higher housing demand.
With interest rates likely to track lower in 2020, we could see additional stimulus counteracting some of these headwinds. Mortgage rates are already at their lowest level since at least the 1950’s which is one of main factors supporting increasing market activity. If rates do move lower, no doubt policy makers will be watchful for any triggers that could provoke a policy response limiting housing credit. Previous rounds of macro-prudential have had an immediate slowing effect on market activity.
As the housing market quietens through the festive season, we expect activity to ramp up into February. You can stay up to date with all the housing market news at www.corelogic.com.au. No doubt the New Year will provide just as many twists and turns in housing market conditions as 2019. Until then, have a save Christmas and happy New Year.
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