Below trend growth to continue
Recovery in housing values accelerated in August.
CoreLogic’s housing market update suggests recovery in housing values accelerated in August with national dwelling values increasing by eight tenths of a percent over the month. This was the first month on month rise in the national index since values peaked in October 2017 and it was the largest monthly lift since April 2017. The August reading was certainly a step up in the pace of recovery, however, market conditions have been consistently improving throughout 2019 as the rate of decline lost momentum, with national values stabilising in July before rising in August.
The significant lift in values over the month aligns with a consistent increase in auction clearance rates and a deeper pool of buyers at a time when the volume of stock advertised for sale remains low. It’s likely that buyer demand & confidence is responding to the positive effect of a stable federal government, as well lower interest rates, tax cuts and a subtle easing in credit policy.
Housing values increased across five of the eight capitals over the month, but slipped lower in Adelaide, Perth and Darwin. Across the rest-of-state regions, only Victoria, Tasmania and Northern Territory recorded monthly increases. August marked the third successive month of capital gain in Sydney, Melbourne and Hobart and the second successive month of increases in Brisbane.
So, while the recovery trend is still early, it does appear that growth trends are gathering some pace, particularly in the largest capital cities.
Across the regional areas of Australia, 11 of the 42 sub-regions have recorded a rise in dwelling values over the past three months and two regions have returned a stable result. Regional areas where values increased over the rolling quarter include the Capital Region, Newcastle and Lake Macquarie and Richmond-Tweed in NSW, Wide Bay, Mackay-Isaac-Whitsunday and Townsville in Qld and Geelong in Vic.
Evidence of growth returning to areas such as Newcastle, Lake Macquarie and Geelong may well be a hint that the value growth occurring in Sydney and Melbourne is already beginning spillover into nearby regions.
Looking at the market performance by broad valuation cohorts and it’s clear that the more expensive end of the market in Sydney and Melbourne is the primary driver of rebounding capital gains. The rapid recovery across higher valued properties makes sense considering this sector of the market recorded a more substantial correction. Additionally, borrowing capacities have recently increased thanks to a relaxation of serviceability assessments from APRA. For prospective buyers looking to upgrade into a larger or more expensive property it seems to be an opportune time.
While dwelling values are now rising, the same results cannot be shown for the national rental market with rents recording a further fall of -0.1% over August 2019; the third consecutive month of negative rental movements. The only exceptions were in Brisbane, Adelaide and Hobart where rental rates increased over the month. While rents softened over the past month, rental rates increased in all capital cities other than in Sydney and Darwin over the past year.
With value growth now outpacing rental growth, the improving trend in capital city gross rental yields is now reversing. Most regions are recording yields higher relative to a year ago, however the more recent trend in the data shows yields are now stabilising or trending lower.
The latest month’s housing data confirms the ongoing turnaround in housing market conditions. Since late May we have consistently heard that housing market confidence has improved and the data since then continues to confirm the improved sentiment.
Monthly sales activity began to increase over recent months, although sales are still well below the decade average, an upwards trend is becoming evident.
Auction clearance rates continue to climb and are now at their highest levels since early 2017 in both Sydney and Melbourne.
The latest housing credit data to July also shows a slight rise in credit growth, which has been driven by a sizeable increase in credit to owner-occupiers.
While all of these factors point to an improvement in housing market conditions, new advertised stock levels are now increasing, albeit from a very low base. Total new inventory levels remain -17% lower than a year ago with the largest year-on-year declines recorded in Sydney and Melbourne. With the spring selling season now here, the seasonal rise in advertised listing numbers will be a timely test of the market’s depth.
As listing numbers and auction volumes rise, the pace of growth may soften if buyer demand doesn’t lift to match the increase in supply.
Our expectation has been that this recovery would be a slow and steady one considering tighter credit policies and slowing economic conditions, however, with housing credit restrictions recently easing and mortgage rates likely to reduce further, this rebound could potentially be more rapid than expected.
No doubt, policy makers and regulators will be monitoring the housing market indicators very closely over the coming months. At the outset, it appears that a rapid recovery would confirm that low interest rates and a loosening in credit policy is reigniting some market exuberance, despite housing affordability remaining a significant challenge, rising unemployment, low wages growth and near record-high levels of household debt.
If the strong rises in values continue over coming months, I wouldn’t be surprised to see a new round of macroprudential policies introduced in order to keep debt levels in check and encourage spending in other areas of the economy.
To find out more, read the September Housing Market Update Transcript or take a look at the national update or your capital city update by clicking on the relevant link below:
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