April Market Outlook

April Outlook

by CoreLogic

April 2019

According to the CoreLogic Home Value Index, national dwelling values fell by -0.6% in April 2019.  Although the monthly decline was the smallest since October 2018 and has now taken values -7.4% lower than they were at their peak in October 2017.  National dwelling values are now sitting at levels last recorded in August 2016.

While the pace of falls has slowed in April, the scope of the downturn has become more geographically widespread. Dwelling values were down across six of the eight capital cities over the month, with Canberra values holding firm while Hobart values were 0.6% higher.  Outside of the capital cities, most of the ‘rest of state’ regions also recorded a fall in values; the exceptions being regional Tasmania where values were half a percent higher and regional South Australia where values were up three tenths of a percent.

The quarterly trend in dwelling values is showing a similar pattern, with six of the eight capitals recording a fall in values over the April quarter, led by Darwin which was down 3.9% over the April quarter, followed by Melbourne where the market was down 3.4% and Sydney which recorded a 3.2% drop in values.

National dwelling values have been trending lower for seventeen months and have fallen by a cumulative 7.4% since peaking in October 2017. Despite the broad based weakness, the national index remains 15.9% higher relative to five years ago, highlighting that most property owners remain in a strong equity position.

Markets where values peaked much earlier have shown a more substantial downturn. In Darwin and Perth, where weak housing market conditions were driven by weaker economic and demographic conditions post mining boom, dwelling values have fallen by a cumulative 27.5% and 18.1% respectively since peaking in 2014.  The silver lining here is that housing is now very affordable and first home buyers are proportionally much more active relative to other areas of the country.

No doubt, some prospective buyers and sellers are delaying their housing decisions until after the election, however, there is no guarantee that certainty will improve post-election, considering the impact of a wind back to negative gearing and halving of the capital gains tax concession is largely unknown.  It seems a reasonable assumption that removing an incentive from the market would result in some downwards pressure on activity and prices for a period of time.

Another key factor in relation to the housing market will be credit availability. CoreLogic data tracking the number of housing valuation events, which provides a timely proxy for mortgage activity, has remained around 14% below activity a year ago.

A similar trend is confirmed within the less timely ABS housing finance data which continued to show a reduction in both investor and owner occupier lending through to the end of January.  While this trend in weaker housing finance commitments is very much entrenched for investment lending, the sharp downturn in owner occupier lending is more concerning.

The value of owner occupier lending is around 2.6 times the value of investor lending, so the substantial drop in owner occupier mortgage commitments perhaps explains why the housing downturn is becoming more widespread.  The value of owner occupier housing finance commitments, excluding refinanced loans, was down 17.1% compared with January last year and investment credit was 24.6% lower.

While there are headwinds for the housing market, other factors are likely to help offset the weakness such as a high likelihood that the cash rate will be cut later this year, which may result in lower mortgage rates.

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