The latest NAB Health Insights Special Report takes an in-depth look at health consumer attitudes and satisfaction levels. It’s a revealing investigation available for download now.
At the start of this month we’ve seen another cut to the cash rate, taking official interest rates down to a new historic low of 1.75%.
NAB, in conjunction with CoreLogic (RP Data), brings you the Australian Housing Market Update for May 2016.
Take a look at the national update or your capital city update by clicking on the relevant link below:
At the start of this month we’ve seen another cut to the cash rate, taking official interest rates down to a new historic low of 1.75%. With most of Australia’s largest banks passing on the full cut, we are likely to see the typical standard variable mortgage rate for owner occupiers slip to approximately 5.4%. The latest cut to mortgage rates has been more than enough to reverse the rate lift seen in late 2015 when APRA implemented rules for higher capital requirements on residential mortgages. Australia hasn’t seen mortgage rates this low since July of 1968. Whether lower mortgage rates will stimulate the housing market enough to see a rebound in the rate of capital gains is yet to be seen, however with lending criteria having tightened through 2015 and lenders even more vigilant around housing market risk, we aren’t likely to see a substantial rebound in the rate of capital gain which has broadly been trending lower since mid-last year.
Despite the moderating trend in the rate of home value growth, capital city dwelling values were up 1.7% over the month of April, which is a sharp rise from the negative results recorded over the final quarter of 2015 and the relatively soft growth conditions seen over the first quarter of this year. The latest monthly data takes capital city dwelling values 3.3% higher over the first four months of the year so far.
Growth in dwelling values over first four months of 2016 has been broad based, with Perth the only city where home values haven’t recorded a rise. Values are down half a percent in Perth so far this year while the highest growth rates have been in Sydney and Adelaide, both up 4.5% and Hobart values are 4.4% higher.
The longer term trend still shows Perth and Darwin to be the only capital cities where values are lower over the past twelve months. Darwin dwelling values peaked in May of 2014 and have since fallen by a total of 6.2%. Perth’s market has been more resilient to a correction with dwelling values falling 4.2% since peaking in December 2014. Melbourne is showing the highest annual growth rate at 10.1% and is the only capital city to record annual growth in the double digits.
The growth over the past four months has also been confirmed with clearance rates that have been consistently in the high 60% to mid-70% range across Sydney and Melbourne during April. Compared with December last year when clearance rates were recorded as low as 52% in Sydney and 63% in Melbourne, the current clearance rates have bounced and held higher.
Transaction volumes are painting a softer picture of housing market conditions, with the number of home sales drifting lower in most capital cities. Year on year sale numbers are down nearly 16% across the combined capital cities with the largest falls being recorded in Darwin where annual home sales were down 25% compared with a year ago. Sydney transaction numbers were down 15%, Melbourne by 14% and Perth sales are 14% lower than a year ago.
While values continue to broadly rise, rents aren’t doing much at all. Weekly rents were virtually flat over the first four months of the year and are down 0.2% over the past year. The fact that rents are being substantially outperformed by values has continued to push rental yields lower. In fact, both Melbourne and Sydney are once again seeing gross rental yields at record lows. Hobart is now the highest yielding capital city, after Darwin has slipped down from the number one position due to large falls in weekly rents over the past year.
As always, the differences between housing markets and product types are significant.
Sydney home values are up 4.5% over the first four months of the year with a relatively similar performance between houses and units. In fact, Sydney’s unit market is now seeing a stronger annual rate of growth compared with houses, with unit values up 11.5% over the past twelve months compared with an 8.4% rise in house values. The trend rate of growth showed a slight improvement over the month, however compared with May last year when Sydney dwelling values were rising at 18.4% per annum, the market has clearly slowed. With transactions now trending lower we are also seeing listing numbers rising across the Sydney market to be 22% higher than a year ago. While the rise in stock levels compared with a year ago is substantial, listing numbers in Sydney are moving off a very low base and remain almost 35% lower than the peaks last seen in 2012. Nonetheless, higher stock levels means good news for buyers with more choice and more ability to negotiate.
Melbourne’s housing market has continued to show a large difference between the rates of capital gain for houses compared with units. Over the first four months of the year, Melbourne house values have increased by 3.7% compared with a 0.4% fall in unit values. The trend is more substantial over the past twelve months where house values are up by 10.8% compared with a 4.7% rise in unit values. Higher supply levels are likely to weigh down the rate of capital gain for inner Melbourne units for at least the next two years, with CoreLogic’s settlement risk report showing 31,000 units are due to settle across inner Melbourne over the next 24 months. Another weak point in the Melbourne housing market is the low yield profile. Gross rental yields slipped to a new record low in Melbourne, with the typical Melbourne house now showing a gross yield of just 2.9% while the average gross yield on a unit is 4%.
Brisbane dwelling values recorded a further 2.2% rise in dwelling values in April taking the annual growth rate to 6.2% – the highest annual growth rate in Brisbane since September 2014. Similar to Melbourne, most of the growth in Brisbane’s housing market is coming
from the detached housing sector where values are 6.7% higher over the year compared with a 1.2% rise in unit values. Housing demand in Brisbane is holding reasonably firm compared with the larger capital cities however rents are weakening across the city, with weekly house rents down half a percent over the past year and 1.3% lower for units. The soft rental conditions coupled with stronger capital gains is pushing Brisbane’s rental yields lower, however yields in Brisbane remain higher than most other capitals.
Adelaide’s housing market has posted a strong performance so far this year, with dwelling values rising by 4.5% over the first four months of the year. The annual growth rate in Adelaide is only 3.6%, highlighting that the recent growth conditions have been substantially stronger than the annual trend. The strong market conditions are surprising given the economic uncertainty across South Australia, however transaction numbers have also been trending higher over the past year suggesting market demand remains reasonably healthy.
The trend rate of capital gains across Perth’s housing market has recently started to improve after dwelling values have been declining for more than 12 months. The annual rate of decline found a recent trough in January this year when values were falling at the annual rate of 4.1%. Since that time that annual rate of decline has lifted to -2.1% and transaction numbers appear to be levelling out after starting a downwards slide in late 2013. This is very much a buyers’ market, with listing numbers higher than a year ago across Perth which has pushed the average selling time out to just over three months. Weekly rents have shown substantial falls over the past year, down almost 9% over the past twelve months.
Hobart home values are gradually trending higher, with a 1.1% rise over the past twelve months, however the market reading has been volatile. The sheer affordability of the Hobart marketplace is likely to be one of the most attractive elements of this market, with a median house price of just $350,000. Rents are rising at a slightly faster pace than dwelling values which has pushed the yields slightly higher, in fact Hobart yields are now the highest of any capital city now which is likely to be an incentive for investors. The number of homes for sale is reducing rapidly across Hobart, with 27% fewer homes available for sale now compared with a year ago.
Darwin dwelling values were down in April, however, thanks to some subtle appreciation in the earlier months of the year, Darwin dwelling values have moved 0.6% higher over the first four months of the year which may signal some improvement in the weak trend that has been evident in Darwin since May 2014.
While dwelling values have reduced by 3.7% over the past twelve months, the real weakness seems to be in the rental market where weekly rents have fallen by 12.6% over the same period. The fall in rents has toppled Darwin from the number one yield position it has held for so long. Despite yields moving lower, at 5.3% gross for houses and 5.1% for units, Darwin ranks amongst the highest yielding capital cities together with Hobart and Brisbane.
Canberra home values rose by 1.2% in April to take values 3% higher over the year to date and 4.5% higher over the past twelve months. Most of the capital gains in Canberra can be attributed to appreciation in house values rather than unit values. House values are 4.8% higher over the past year while unit values have edged 1.2% higher. The number of homes on the market has also reduced substantially over the past year, down by 17.3% compared with the same time a year ago, providing less choice for buyers which will likely provide some further upwards pressure on prices.
Overall we are looking at housing market conditions that are still broadly rising, but not at the same pace as they were six months ago. There is some risk that lower mortgage rates could stoke housing demand higher, however my guess is that low interest rates will continue to provide a floor under housing demand and help to retain buyer confidence without reigniting the boom in home values that was very much evident up to the first half of last year.
Affordability constraints and low rental yields are two factors that will help to keep a lid on the pace of capital gains, but also stricter lending conditions and higher housing supply is likely to play a role as well.
Investors are still facing a 30 basis point premium on their mortgage rates and lenders are generally insisting on deposits of 20% for the majority of their new loans. The result is a slowdown in investment activity in the market after this segment peaked in May last year at 55% of all new mortgage commitments.
There is also some growing risk around supply coming on line in the apartment markets of Inner Melbourne and Inner Brisbane. CoreLogic’s settlement risk report identifies approximately 31,000 new apartments will settle across Inner Melbourne over the next two years and about 17,500 across inner Brisbane. With the rate of capital gain weak across both the Melbourne and Brisbane unit markets, there is some risk that off the plan purchases could show a settlement valuation that is lower the contract price. If this does turn out to be the case, some buyers may face higher than expected financial costs to maintain their loan to valuation ratio requirements.
As we approach the federal election, which is likely to be held on July 2, housing will be a key topic of debate. The latest federal government budget announced no changes to negative gearing or taxation policy related to housing, which is in direct contrast to the Labor policy which is to allow negative gearing on newly built properties only as well as halving of the capital gains tax concession from 50% to 25%.
As always, CoreLogic will be providing the market with insights and analysis based on statistical evidence and facts which will hopefully help to guide the housing debate in a positive direction.
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.
More from NAB:
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.