Below trend growth to continue
NAB, in conjunction with CoreLogic (RP Data), brings you the Australian Housing Market Update for June 2016.
Welcome to the CoreLogic overview of Australian housing market conditions for June 2016.
Take a look at the national update or your capital city update by clicking on the relevant link below:
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Following the 1.7% rise in capital city dwelling values in April, the May numbers were almost as strong, with our Hedonic Home Value index rising a further 1.6% over the month. The latest results take the combined capital cities index 5% higher over the first five months of the year, which is a stark contrast to the final five months of 2015 where capital city home values actually fell by 0.2%.
The annual rate of capital gains is once again accelerating on the back of these recently stronger housing market conditions. Capital city dwelling values are now 10% higher over the past twelve months.
Sydney and Melbourne have continued to see the strongest annual increases in home values, up 13.1% and 13.9% respectively. There is also evidence that value growth is starting to spread to other capital cities with home values 7.1% higher over the year in Brisbane, 6.1% higher in Hobart and 5.7% higher in Canberra. Values have continued to rise in Adelaide, although the rate of growth has been moderate at just 3.9% over the past year. Home values have continued to fall in Perth and Darwin on an annual basis, down -4.2% and -3.5% respectively.
The strength in the CoreLogic indices is backed up by several other indicators. Auction clearance rates in Sydney have held in the mid 70% range since the last week of April and weekly clearance rates in Melbourne have been higher than 70% almost every week during 2016.
Additionally, the number of events across CoreLogic’s valuation platforms, which account for more than 95% of all bank valuation instructions, are up almost 7% over May which is the highest level of activity since March last year.
Housing finance data to March shows investors as a proportion of all new mortgage commitments have been trending higher since reaching a recent trough in November last
year at 42.9%. The March data shows investors now comprise 47.6% of all new mortgage commitments, the highest proportional reading since August last year.
Anecdotal evidence suggests investor numbers may have increased further from this time, with some lenders loosening their lending policies for investment purposes as growth in investor related credit tracks well under the APRA speed limit of 10% per annum.
Lower mortgage rates are also likely having a positive effect on consumer confidence and housing market conditions, with the standard variable mortgage rate now at its lowest level since 1968.
Although home values are continuing to rise, it is a different story across the capital city rental markets. Across the combined capital cities, rental rates have fallen by -0.3% over the past year setting a new benchmark for the weakest annual rental change on record. While rental rates are falling, home values are continuing to rise and subsequently gross rental yields are continuing to trend lower. Gross rental yields across the combined capitals dwelling index are currently recorded at 3.4%, having fallen from 3.7% 12 months ago.
Although housing market conditions appear to have picked up over recent months I would be surprised if such a strong pace can be sustained.
Affordability constraints in the largest cities are likely to be one factor standing in the way of further gains. Sydney dwelling values have increased by 58% over the past four years and are 86% higher since the beginning of 2009. Although affordability factors aren’t as pressing in Melbourne as they are in Sydney, dwelling values have increased by 71% since January 2009 and are 39% higher over the current growth cycle to date.
Additionally, lending policies are now tighter than they were a year ago, with most banks requiring higher deposits and becoming more risk adverse, particularly within specific new unit markets and in areas that have seen rapid appreciation of values.
The low rental yield profile may add further disincentive to investors who remain a substantial component of housing demand. Yields have compressed across most of the capital cities, however gross rental yields in Melbourne and Sydney have fallen to new record lows over recent months as capital gain substantially outweighs rental gains.
In saying that, investment in housing is likely to remain a popular investment option despite the low yield profile, as long as capital gains remain strong. Relatively safe asset classes like cash and bonds continue offer up little in the way of returns and the volatility in equities has likely shaken the confidence of some investors. Some lenders have recently relaxed previous restrictions on loans for investment purposes which could result in a rebound in demand from this segment over coming months.
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