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Housing Market Update August 2021 TranscriptWelcome to CoreLogic’s housing market update for August 2021Australian housing values increased a further 1.6% last month, taking home prices 14.1% higher over the first seven months of the year and 16.1% higher over the past twelve months. The annual change in national housing values is the fastest pace of annual growth since February 2004. However, in a sign the housing market is losing some steam, the monthly growth rate has been trending lower since March this year when the national index rose 2.8%. The gradual easing in the rate of housing value growth can probably be attributed to a combination of affordability factors and less stimulus. With dwelling values rising more in a month than incomes are rising in a year, housing is moving out of reach for many members of the community. Along with declining home affordability, much of the earlier COVID related fiscal support, particularly fiscal support related to housing, has expired.On the flip side, demand is being stoked by record low mortgage rates and the prospect that interest rates will remain low for an extended period of time. The number of home sales is tracking approximately 40% above the five-year average while active listings remain about -26% below the five-year average. The mismatch between demand and advertised supply remains a key factor placing upwards pressure on housing prices. Although the pace of growth has slowed, housing values continue to rise at a rate that is well above average across most areas of the country. The previously stronger performance across regional markets relative to the capital cities has normalised through 2021. After the combined regional areas of Australia recorded stronger housing market conditions through the second half of 2020, the first seven months of 2021 shows an almost equal rate of growth, with values up 14.5% across the regions and 14.0% across the capitals. In another broad trend, houses continue to record much stronger growth in values relative to units. At the macro-level, national house values are up 18.4% over the 12 months ending July, while unit values have risen by less than half this amount, up 8.7%. Clearly there has been a shift in buyer preferences away from higher densities, however with affordability pressures mounting across the detached housing sector, we could see more demand gradually deflected back towards higher density housing options.Advertised listing numbers remain well below average across most parts of the country, despite the number of new listings added to the market trending higher than average. Recently there has been some volatility in new inventory levels, with the number of newly advertised properties falling sharply across Sydney and Melbourne amidst lockdowns. We have seen the same trend through earlier lockdowns, where both buyer activity and vendor activity reduce before recovering to pre-lockdown levels once restrictions are eased or lifted.On the demand side, the number of home sales has held well above average over the year with CoreLogic estimating a 42% year-on-year lift in the number of sales. The annual number of home sales has not been this high since the year ending January 2004, with the past 12 months recording nearly 600,000 dwellings sold across the country, which is approximately 140,500 more sales than the decade average.With stock levels remaining tight and demand so high, selling conditions have been skewed towards vendors. The combined capital cities auction clearance rate averaged 73% through July, and private treaty sales continue to record rapid selling times and low discounting rates. Considering the tight advertised supply levels and high demand, prospective buyers are likely to be feeling a sense of urgency due to the level of competition in the market. However, with affordability constraints starting to impact purchasing capacity, it’s possible market activity could reduce through the second half of the year, helping to rebalance the market and take some further heat out of the rate of house price growth. Now for a roundup of housing market conditions across each of the capital cities.Sydney has once again recorded one of the largest rises in housing values over the month, but it’s also the city which has recorded the sharpest reduction in the pace of capital gains from earlier highs. The monthly rate of growth is down from a recent high of 3.7% in March to 2.0% in July. Sydney is the most expensive capital city by some margin and it has also been the city where values have risen the most over the first seven months of the year. Worsening affordability is likely a key contributing factor in the slowdown here, along with the negative impact on consumer sentiment as the city moves through an extended lockdown period. Sydney house values are now up 23% over the past twelve months, while unit values are up less than half that rate, with a 7.6% rise in values over the year.Melbourne’s housing market has moved through another solid month of growth with housing values rising 1.3% over the month to be 10.4% higher over the year. While the annual rate of growth is about double the decade average, it’s the lowest annual increase across the capital cities. The softer performance relative to other regions is due to a few different factors. These include weaker unit market conditions, where values are up by 5.9% over the year, weaker demographic trends as population growth is negatively impacted by closed international borders and stronger migration to the regional areas of the state, and a more significant impact from COVID outbreaks and associated lockdowns.The rate of growth across the Brisbane housing market has held firmer relative to the larger capital cities. While there is some evidence that growth in housing values has slowed, the reduction is nowhere near as sharp as Sydney or Melbourne. Similar to most regions around the country, house values are rising at a faster pace than unit values with an annual growth rate of 17.7% for houses and 7.0% for units. The outlook for Brisbane is looking more positive though, with a strong demographic trend fuelled by interstate migration, a large infrastructure budget and a burgeoning level of excitement following the announcement that Brisbane would host the 2032 Olympic Games. It’s likely the strong market fundamentals, along with a lower price point and higher yield than the larger capitals will be attractive to investors going forward.Adelaide housing values were up 1.7% in July, taking the annual growth rate to 15.7%, the highest level since the Global Financial Crisis. Housing demand has surged across Adelaide, with the number of home sales over the past year the highest since 2002. While demand is at the highest level in almost two decades, advertised supply levels are around record lows. Active listings were tracking about 34% below the five-year average at the end of July, demonstrating a severe shortage of available supply that is keeping upwards pressure on housing prices. Across the sub-regions of Adelaide, the pace of annual capital gains ranges from a 26.8% lift in values across Burnside through to a 3.4% rise across the inner-city precinct.The Perth housing market continues to record a rise in values although the pace of growth has slowed. In line with rising home values, the annual number of dwelling sales across the Perth market has reached the highest level since 2006, with approximately 49,500 houses and units sold over the year. At the same time, the number of listings across the Perth region has trended lower, tracking roughly 26% below the five-year average at the end of July. Rental markets are amongst the tightest of any capital, with house rents up 16.6% over the year and unit rents 14.6% higher. With housing values rising, strong rental conditions and high rental yields, along with improving demographic and economic conditions, it’s likely the Perth housing market will become increasingly more attractive to investors. Hobart housing values have recorded a further 1.7% lift in July, taking the annual growth rate to 21.9%; the second highest rate of annual growth across the capitals after Darwin at 23.4%. Over the past five years Hobart has been a clear standout from the other capitals. Housing values have increased by almost 11% per annum to be 65.9% higher since July 2016. Such a substantial rate of growth is likely to be great news for home owners. However, housing affordability has become a significant hurdle, especially for younger buyers and first time buyers. The worsening affordability challenges could be one reason why Hobart is the only capital city where unit values have recorded a higher rate of capital gain than houses. Unit values have increased by 23% over the year compared with a 21.7% increase in house values.Darwin stands out as the strongest housing market by some margin over the past year. Dwelling values have surged 23.4% higher over the year. Normally such as rapid rate of growth would erode rental yields, however Darwin’s rental market has almost kept pace with the surge in housing values, with rents rising 21.8%. With both housing values and rents rising so quickly, gross yields are nation leading, averaging 6.0% gross. Darwin’s spectacular growth trajectory follows a long running decline in housing values between mid-2014 and mid-2019, where values were down 32.7% from peak to trough. With housing values falling so remarkably, the local market still needs to see a further 15.3% lift in values before staging a nominal recovery.Canberra has been one of the strongest capital city housing markets over the past five years, with housing values up 45.4% since July 2016. The past twelve months has seen housing values rising even faster than the average pace, up 20.5%. Similar to most of the other capitals, houses are showing a much stronger performance than units, with values up more than twice as much over the past year at 23.4% and 10% respectively. While there has clearly been a national preference shift towards lower density housing options, the Canberra unit market has also been impacted by a large amount of new unit development that has probably contributed to the softer growth conditions across this sector of the market. Overall, Australia's housing market remains in a strong position, however signs of a slowing rate of appreciation have become more evident. The pace of capital gain has been tapering since April this year which can be attributed to growing housing affordability challenges along with less fiscal support. It is likely recent COVID outbreaks and associated lockdowns have contributed to some of the loss of momentum as well, particularly from a transactional perspective in Sydney which is enduring an extended period of restrictions.Previous ‘circuit-breaker’ lockdowns have generally seen housing values remain resilient to falls, but the number of home sales and listings activity has been more substantially disrupted in the most recent lockdowns. Once restrictions are lifted, it’s likely pent-up demand will flow through to an increase in activity. However, it is reasonable to assume the uncertainty associated with the duration and severity of Sydney’s lockdown could see a greater level of disruption relative to previous, shorter periods of restrictions. Although the rate of growth has eased, housing values are continuing to rise substantially faster than average. Over the past 10 years, the average pace of monthly dwelling value appreciation has been recorded at just 0.4% compared with the last year with monthly growth has averaged 1.3%.It’s likely the rate of growth will continue to taper through the second half of 2021 as affordability constraints become more pressing and housing supply gradually lifts.Other potential headwinds are apparent, including the possibility of tighter credit policies and an earlier than expected lift in interest rates.Tighter credit policies, should they be introduced, would likely have an immediate dampening effect on housing markets, however the trigger for another round of macroprudential intervention isn’t yet apparent. APRA, the RBA and the broader Council of Financial Regulators are watching for any signs of a material slip in lending standards, as well as a more substantial lift in household debt or speculative activity. While each of these metrics is on the rise, the level is likely to be insufficient to trigger a response from APRA. Similarly, a lift in the cash rate is likely to be some time away, but, depending on the trend in labour markets and inflation, we could see rates potentially rise earlier than the RBA’s 2024 forecast. The recent spate of lockdowns is likely to see Australia’s economy once again contract through the September quarter, a factor that could keep rates on hold for a while longer, providing ongoing support for housing demand.Over the short term, let’s hope the recent COVID outbreaks are contained so restrictions can be lifted. Chances are we could be in for an active spring season as pent up demand is unlocked, but that of course depends on whether restrictions are lifted. In the meantime, you can keep up to date with all things housing at .au. ................
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