Business Research and Insights



Welcome to CoreLogic’s housing market updated for July 2019. The latest housing market results present an early sign that lower mortgage rates and improved sentiment are already having a flow-on effect for housing market conditions. Last month, CoreLogic’s national housing market index moved closer to levelling out with values down 0.2% over the month, the smallest month-on-month decline in the national series since March 2018. The subtle rate of decline was heavily influenced by trends across Sydney and Melbourne where the pace of falling home values has been consistently reducing over the year to May, before posting a subtle rise in June. Sydney values were 1 tenth of a percent higher and Melbourne values were 1 fifth of a percent higher. This was the first positive month-on-month movement in these cities since their respective market peaks in 2017. The only other regions to record a rise in housing values over the month were Hobart with an increase of 0.2%, as well as the regional areas of South Australia where values rose 0.1% and Northern Territory where values increased +0.2%.Importantly, the improving conditions through to mid-May were largely ‘organic’, pre-dating the positive boost in sentiment following the federal election and interest rate cuts in June and July. No doubt the cut to interest rates, as well as the confidence boost following the federal election outcome are factors that have supported the improving trend.On a quarterly basis, every capital city housing market has recorded a drop in value, highlighting the broad geographic scope of this housing market downturn. The largest falls over the past three months were recorded in Darwin (-3.6%) and Perth (-2.1%) where the weaker trend has persisted since mid-2014. Adelaide recorded the smallest decline amongst the capitals over the quarter, with values down 0.4%.In another sign of stabilising conditions, settled sales activity appears to be finding a floor, albeit well below the decade average. Based on estimates of settled sales, the trend towards fewer sales is flattening, with settled sales activity over the June quarter roughly level with the trough recorded over the past two market corrections.Auction clearance rates have also been on an upwards trajectory, reaching the low to mid 60% range across the combined capitals over the second half of June, implying a better fit between buyer and seller pricing expectations. Clearance rates have shown a material improvement over the year to date, but remain well below the levels associated with strong price growth. Although clearance rates have lifted, it is important to note that auction volumes are substantially lower than they have been over recent years. Importantly, auction results are highly correlated with conditions in Sydney and Melbourne, but provide less insight into the smaller capital city market dynamic where auction are a much smaller component of market activity. Of course, conditions across the capital cities are a mixed bag, so let’s take a look at each market in a bit more detail.Sydney dwelling values recorded a small but positive movement in June, rising 0.1% over the month, taking the annual rate of decline back below 10%. While the monthly rise in values was small, the switch to a positive reading is a significant milestone for the Sydney market, after values have been consistently falling since the market peaked in July 2017. The unit market was the main driver of gains, up 0.3% while house values were flat over the month. The more expensive properties, where values were previously falling the most rapidly, are showing the steepest trajectory of improvement.Melbourne housing values posted their first month-on-month rise since 2017, ticking 0.2% higher in June. The June update takes the annual change in Melbourne housing values to 9.2%, down from a recent low of 10%. The improving trend is most evident across the unit market where values were up half a percent over the month while house values were up a smaller one tenth of a percent. Also, it’s the most expensive quarter of the market where the improved performance is most notable. Melbourne’s top quartile based on dwelling values was up 0.6% over the month compared with a 0.1% rise across the lower quartile and a 0.1% slip in values across the broad middle of the market. Despite lower mortgage rates and improved sentiment nationally, the Brisbane housing market is yet to show any signs of moving back into positive growth. Both house and unit values were down over the month, with house values falling 0.5% and unit values down 1%. The softer conditions have been heaviest across the most expensive quarter of Brisbane’s housing market where values are down 3.2% over the past twelve month, while at the most affordable end of the market, values are down a smaller 1.9%. Dwelling values have increased by only 1.4% per annum over the past five years, a slower pace than growth in household incomes and inflation. Adelaide’s housing market has remained a relatively steady performer, with housing values slipping 0.4% over the June quarter which was the smallest quarterly decline amongst the capital cities. The performance across the unit sector has been slightly stronger relative to houses, with unit values tracking nine tenths of a percent higher over the past twelve months while house values are down half a percent. Looking at the market across broad valuation cohorts, it’s the most affordable quarter of the market where conditions are strongest, with values up 1.2% over the past twelve months while the upper quartile is down 1.6%. Housing values across Perth tracked 0.7% lower in June to be down 2.1% over the June quarter and 4.9% lower over the year. With values tracking almost 20% lower since peaking in mid-2014, Perth is now showing the lowest median house value amongst the capital cities and the third lowest median unit value after Darwin and Adelaide. Despite such affordable housing, the missing ingredient in a housing recovery remains the weak economic conditions across WA. Despite ongoing weakness in housing values, rents are up 2.5% over the past twelve months, which is supporting a consistent rise in rental yields which are tracking at the highest level in four years.The Hobart housing market recorded a slight rise in values through June, however the trend is pointing towards a slowing rate of growth, with values slipping lower over two of the past three months. Annual growth has trended lower from just over 13% in early 2018 to the current annual rate of 2.9%, which is the slowest annual gain since 2015. Rental growth is also losing momentum, sliding from a peak annual rate of 12.3% in 2018 to the current annual increase of 3.9%.Darwin housing market conditions remain among the weakest in the nation. Values were down a further 0.9% in June, taking the cumulative decline to 30.1% since the market peaked in mid-2014. The Darwin unit market has worn the brunt of the downturn, with unit values down 41% while house values are down 25% since peaking. We aren’t seeing any signs of a turnaround in market conditions just yet. Although housing values are very affordable and rental yields are the highest of any capital, local economic conditions remain weak with negative jobs growth and a falling population.Canberra’s housing market recorded a 0.9% drop in housing values over the month, which dragged the quarterly rate of value change in negative territory for the first time since 2016. Weakness is mostly emanating from the unit sector, where values are down 1.9% over the past twelve months while house values have posted a 2.4% rise over the year. To date, most of the improved housing market performance observed by CoreLogic has been centered in Sydney and Melbourne where economic conditions are generally stronger than other parts of the country and where unemployment is much lower and jobs growth has been higher. New South Wales and Victoria account for more than 80% of Australia’s jobs growth and are the two states where unemployment is below 5%. Population growth remains strong in both states, supporting housing demand.These are also the two markets where housing affordability remains the most challenging, despite the drop in prices. The median dwelling value in Sydney is 8.4 times higher than the median household income and in Melbourne dwelling values are 7.6 times higher than household incomes. Credit availability will remain a key determinant of the housing markets performance. Although housing credit growth appears to be stabilising after a steep decline, tight credit conditions are the new normal and will continue to dampen market activity. Lenders are progressively becoming less reliant on average household expense benchmarks and prospective borrowers should expect some scrutiny of their balance sheets during the loan application process.Additionally, with borrower debt profiles becoming more transparent via comprehensive credit reporting, lenders will have greater visibility of total debt levels relative to borrower incomes, including credit card limits, mortgages with other lenders, personal debt and auto financing. Borrowers applying for debt that is greater than six times their income may find it increasingly difficult to secure a loan. Overall lenders are going to have a lot more information than they have in the past in order to decide whether a borrower is credit worthy or not.Overall, although we are seeing some positive indicators in the housing market, most regions around the country are still experiencing weak housing conditions. A more broad-based housing market improvement is reliant on a firming of labour market conditions outside of NSW and Vic and a broad strengthening in economic conditions more generally. Lower interest rates should help to support this objective, but it’s becoming increasingly clear that monetary policy isn’t going to shore up the economy on its own. Pressure is building on the federal and state governments to ramp up investment in key infrastructure projects that will have the dual benefit of creating jobs, as well as improving productivity and making affordable housing more accessible and desirable.We will be tracking the progress on the housing market is plenty of detail, and you can access all our research and data at our website: .au ................
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