Australian housing market update: October 2016
Get the latest monthly update on housing market conditions around Australia.
Welcome to CoreLogic’s monthly housing market update. This month we’re covering off on the performance of the housing market through to the end of October 2016.
Take a look at the national update or your capital city update by clicking on the relevant link below:
The rate of capital gains remains reasonably strong across the Australian housing market, at least at a macro level. Based on the October results from CoreLogic’s hedonic home value index, dwelling values moved half a percent higher over the month to be 2.7% higher over the quarter and 7.5% higher over the past twelve months.
A year ago, the annual growth rate was stronger, with values 10.1% higher over the year; but importantly, the market was softening at this time last year, capital city dwelling values recorded a negative change over the final quarter of the year and auction clearance rates had fallen to the low 60% range before dipping even lower in December. This softness has well and truly dissipated on the back of lower mortgage rates, tight stock levels and a rebound in investment activity.
In the current market, clearance rates are still above 75% across the combined capitals while auction results in Sydney have consistently been above 80% throughout Spring. CoreLogic’s estimate of settled sales has shown a recent improvement after trending lower over the past year.
And investment activity has been steadily rising since the latest cycle of interest rate cuts, with the value of investment related housing finance commitments up 10% between May and August this year.
Additionally, stock levels generally remain low despite the recent seasonal rise in listing numbers. Newly advertised properties are tracking 3.6% lower than at the same time last year across the combined capitals. With stock levels remaining short, particularly in the hottest markets, there has also been a recent improvement in selling metrics.
The average selling time has dropped from 50 days to 39 days in September and discounting rates have also fallen to the lowest levels since March 2015.
Low mortgage rates are likely to be one of the primary drivers of housing market strength. The discounted average standard variable mortgage rate is tracking at 4.5% and three year fixed mortgages are averaging an even lower 4.0%. The cost of housing debt hasn’t been this low since the early 1960’s.
While the headline figures remain supportive of further capital gains, not all housing markets are seeing positive housing market conditions.
The weakest capital cities remain Perth and Darwin where dwelling values have fallen by almost 10% since peaking in 2014. CoreLogic’s hedonic index recorded a rise in dwelling values as well as the volume of settled sales across both cities during October which may indicate these markets are approaching the bottom of their cycle, however we aren’t yet seeing any evidence that consistent rises are around the corner in these markets.
The broad regional markets are recording relatively sedate growth which is balanced by accelerating market demand and home values across many of the coastal and lifestyle markets while regions linked with the mining and resources sector remain weak.
Let’s take a look around each of the capital city housing markets.
Sydney: Sydney dwelling values rose a further 0.6% in October, taking property values 66% higher since the current growth cycle commenced in June 2012. Despite some concerns around unit supply levels, the performance of houses and units has shown little difference over the past year. Sydney house values are 10.9% higher while unit values have increase a slightly lower 9.1%. Low stock levels are continuing to create a level of urgency amongst Sydney buyers. With approximately 22,000 properties advertised for sale over the past month, total listing numbers remain 10.1% lower than at the same time last year and roughly half the number of listings compared with five years ago.
Melbourne: The Melbourne housing market saw dwelling values rise 0.8% in October to be 4.6% higher over the three months ending October 2016. Since Melbourne dwelling values started rising in June 2012 they have risen by a cumulative 49%. Growth rates across the city are very much skewed towards detached housing, with apartment values appreciating at 5.2% per annum compared with house values which are 9.6% higher over the past year. Melbourne is also showing the fastest average selling time of any capital city, with dwellings sold via private treaty remaining on the market for only 31 days. Stock levels remain slightly lower than a year ago, however new listings are tracking 6.1% lower than last year suggesting that buyers are competing across a small pool of listing which is likely to create further upwards pressure on prices.
Brisbane: The Brisbane housing market recorded a 0.8% rise in dwelling values in October, taking the annual pace of capital gains to 4.1% which is well below the average growth rate across the combined capital cities. The headline growth figure for Brisbane has been dragged lower by weaker conditions across the unit market where values were down 1.4% over the past twelve months. Despite the relatively low pace of capital gains, rental yields across Brisbane remains amongst the highest of any capital city which is providing some compensation for the softer pace of capital gains. The gross total return across Brisbane, which includes the annual gross rental yield as well as capital gains, provides a more respectable 8.7% total annual return.
Adelaide: The accelerating run of capital gains that has been evident across Adelaide has recently stalled, with dwelling values recording a 2.4% fall over the month of October according to the CoreLogic index. The trend in capital gains has been more skewed towards detached housing, where house values are 2.7% higher over the past twelve months compared with a 1.5% fall in unit values. The weak reading is likely to be temporary, with Adelaide transaction numbers continuing to trend higher and listing numbers remaining relatively low. Homes are averaging 55 days to sell across Adelaide compared with 50 days a year ago and vendor discount rates have also crept higher to reach 6%.
Perth: The Perth housing market had a reprieve from value falls in October, with the CoreLogic index recording a 0.8% rise in Perth dwelling values. While the monthly result is a positive outcome for property owners, we will need to see a few consistent months of growth before we can suggest the Perth housing market has bottomed out. Since dwelling values peaked in December 2014, Perth values have fallen by 9.7%. Listing numbers remain relatively high across the city which is likely to dampen prospects of a market recovery and vendors are still facing long selling times and high discounting rates across the city.
The strong run of capital gains took a pause across the Hobart market in October with dwelling values down 2.1% according to the CoreLogic index. The downwards movement comes after a solid run up in capital gains which have provided a 5% rise in dwelling values over the past twelve months. Despite the negative monthly result, total returns across Hobart are the fourth highest of any capital city. Combining the annual capital gain with Hobart’s high rental returns provides and annual gross return of 10.6%.
Darwin: Darwin dwelling values moved 2.2% higher in October to be 4% higher over the past three months but 3.8% lower over the full year. The Darwin housing market has recently shown some positive signs with transaction numbers trending higher over the past three months as well as an improvement in average selling times and vendor discounting rates. Listing numbers are roughly on par with the same level a year ago, however new stock being added to the market is substantially lower suggesting a pending improvement in overall stock levels which should assist with some further market recovery over time.
Canberra: The Canberra housing market has well and truly emerged from the doldrums with dwelling values rising by almost 8% over the past twelve months. The nation’s capital is benefitting from improved economic conditions, low unemployment and stronger jobs growth which is helping to drive demand for housing. Most of the capital gains have been recorded across the detached housing sector rather than the unit market, with house values increasing more than double the rate of unit values at 8.2% over the past twelve months compared with unit values which were 3.2% higher.
National: Overall, the headline growth rate across the Australian housing market remains strong, but the annual growth rate remains softer than it was a year ago. With the pace of value growth accelerating over the second half of 2016, it may be the case that the annual rate of growth starts to track higher than last year’s measure over the coming months.
While a high rate of capital gains has been good news for home owners, many prospective buyers are now stretched for affordability. In the highest growth market, Sydney, household incomes have risen by 25% over the past five years and dwelling values are 62% higher. This disconnect between the appreciation of home values and incomes is creating significant hurdles to enter the market, particularly considering that loans with less than a 20% deposit also incur the additional impost of lenders mortgage insurance.
Higher entry and exit costs are another barrier for higher transaction numbers. Government charges, including stamp duty, on the purchase of a median priced Sydney dwelling have increased by 72% over the past five years while the median dwelling price has increased by a much lower, but still high, 58%. Government charges in Sydney and Melbourne are now substantially higher compared with the other capital cities.
Additionally, there is a growing imbalance between rents and dwelling values which is once again more pronounced in Sydney and Melbourne where rental yields are pushing new record lows due to the rapid appreciation in dwelling values while rents remain relatively flat.
Higher yielding capitals, such as Hobart, Canberra, Brisbane and Adelaide where the typical gross rental yield on a house is at least 4% may start to become more attractive to investors because of their healthier yield and earlier state in the housing market cycle.
Another pain point in the market can be seen in the significant supply of apartments that have been approved and are under construction. While there are no real concerns around detached housing supply, the number of units under construction within high-rise towers has surged to unprecedented highs. Such high levels of apartment development have caused lenders to heighten their risk assessments across key inner city markets.
While there are a growing number of factors that indicate the housing market is likely approaching a peak, it appears that low mortgage rates are likely to keep a floor under housing demand. Additionally, investors, who comprise approximately 48% of all new mortgage originations, are progressively stepping up their presence in the market. With other asset classes providing low returns or higher volatility, it’s likely that housing will continue to be an appealing choice for many looking to invest.
For more analysis and research about Australia’s housing market, make sure you visit our web site at www.coreLogic.com.au.
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.