August Market Outlook

August Outlook

Cameron Kusher, CoreLogic Research Analyst

August 2017

Combined capital city dwelling values increased by 1.5% in July to take values 2.2% higher over the three months to July 2017, according to the CoreLogic home value index.  While values were higher over the month, each of Brisbane, Perth and Darwin recorded declines.  The ongoing growth in dwelling values has taken the total value of residential housing nationally to an estimated $7.2 trillion at the end of July 2017.

The 2.2% increase in dwelling values over the three months to July 2017 was mainly the result of substantial increases in Melbourne (+4.1%) and Canberra (+4.9%).  In fact, all other capital cities recorded either quarterly value falls or increases below that of the combined capital cities.  The changes in value elsewhere over the quarter were recorded at: +2.2% in Sydney, -0.7% in Brisbane, +0.1% in Adelaide, -0.3% in Perth, -1.4% in Hobart and -6.8% in Darwin.

Over the year to July 2017, combined capital city dwelling values have increased by 10.5%, which is higher than the 7.0% annual increase at the same time last year, but down from its recent peak of 12.9% annual growth in March 2017.  Brisbane and Adelaide are the only two capital cities that have not seen a superior change in values over the past 12 months compared to a year ago.  Despite continuing strong growth in values in a number of regions, the slowdown relative to the recent peak indicates some of the heat has come out of the market.  Across the capital cities, the changes in dwelling values over the 12 months to July 2017 were recorded at: +12.4% in Sydney, +15.9% in Melbourne, +2.2% in Brisbane, +2.1% in Adelaide, -2.1% in Perth, +6.5% in Hobart, -2.1% in Darwin and +12.9% in Canberra.

Houses have continued to record a stronger annual rate of growth than units.  The combined capital city index shows that over the year, house values have risen by 10.9%, while unit values have increased by 7.3%.  Interestingly, Perth and Darwin – where overall dwelling values have fallen over the past year – are the only two cities in which the change in unit values has been superior to that of house values.  Over the past year, house value changes across the capital cities have been recorded at: +12.8% in Sydney, +17.2% in Melbourne, +2.6% in Brisbane, +2.2% in Adelaide, -2.5% in Perth, +7.0% in Hobart, -3.6% in Darwin and +13.2% in Canberra.  The annual change in unit values across the capitals has been recorded at: +10.3% in Sydney, +4.6% in Melbourne, -1.4% in Brisbane, +0.6% in Adelaide, +3.0% in Perth, +2.4% in Hobart, +4.6% in Darwin and +10.0% in Canberra.

The number of days a property takes to sell across the combined capital cities continues to point to fairly strong housing market conditions; however, the figure has started to lengthen recently.  The latest data shows it is typically taking 42 days to sell a capital city home, outside of the typical January and February seasonal spike it is the highest days-on-market figure since August 2016 and has increased from a recent low of 36 days in March of this year.  Sydney homes are now typically taking 34 days to sell compared to a recent low of 29 days in February, and Melbourne homes are taking 31 days to sell-up from a recent low of 29 days.  In most other capital cities there have also been moderate increases in the days-on-market figure over recent months, pointing to slightly softer housing market conditions.

The volume of stock advertised for sale across the combined capital cities is at a similar level to what it was a year ago however, there are some substantial differences across the individual capital cities.  Sydney which has seen the strongest value growth over recent years, currently has 14.3% more homes advertised for sale than a year ago.  In fact, if we compare listings at this time of year, Sydney stock on market is at its highest level since 2013, providing potential buyers with more housing choice than they have typically had over recent years.  In Melbourne, Brisbane, Adelaide and Darwin, stock levels are slightly higher than they were a year ago.  Perth and Hobart are seeing substantially fewer homes advertised for sale than a year ago. Perth listings remain elevated, but are encouragingly heading in the right direction, while in Hobart the amount of stock for sale is the lowest it has been in many years.  Finally, in Canberra the volume of stock for sale is much higher than it was a year ago; however, it remains lower than it was each year between 2012 and 2015.  Higher stock levels in some cities are contributing to slower value growth, while lower stock elsewhere is supporting either growth or an improvement in housing market conditions.

Housing demand from investors appears to be continuing to slow.  Investor housing credit expanded by 0.4% in June 2017, which was its slowest rate of monthly growth since May 2016.  In terms of new lending, there was $12.3 billion in housing finance commitments to investors in May 2017, which was the lowest monthly value since August 2016.  When you look at individual states, investors remain most active in New South Wales (55.1% of total lending in the state excluding refinances), Victoria (44.6%) and the Northern Territory (42.1%).  Investor demand is being impacted by less availability of interest-only mortgages, which are favoured by investors and higher mortgage rates for both investors and interest-only borrowers.  In fact, the RBA reports that investors are now typically incurring mortgage interest rates that are 55 basis points higher than those for owner occupiers.  The lower demand from investors is likely to have the most pronounced impact on the New South Wales housing market, where investors account for more than half of new mortgage demand.

Dwelling value growth remains healthy, but at a combined capital city level it is not quite as strong as it was earlier in the year.  Although it is anticipated that the market will continue to see values rise, it is expected that the rate of growth will continue to slow throughout the remainder of 2017.  Investors have been significant market participants over recent years and the ongoing increases in mortgage rates for them should contribute to slower value growth.   Sydney is likely to be most impacted by a slowdown in investor demand considering that investors have accounted for more than half of new mortgage demand over recent years, and it is the least affordable capital city housing market.  Growth in Melbourne is also expected to slow but not as rapidly as Sydney, largely due to it seeing stronger population growth and its greater availability of affordable housing options.  The Brisbane and Adelaide housing markets are expected to see more of the same, moderate growth in values.  Although both Brisbane and Adelaide have some significant affordability advantages, the ongoing weaker economic conditions in both states is likely to result in only moderate value growth.  Hobart and Canberra have seen an acceleration of value growth over the past year and the robust growth is likely to continue due to improving economic conditions, affordability relative to Sydney and Melbourne, superior rental yields and a low volume of stock available for sale.  Perth and Darwin are continuing to see value falls; however, the future looks somewhat different across the two cities.  Perth has seen a dramatic fall in the number of homes for sale which may slow the declines in values, while Darwin is still seeing excess stock being brought to the market which may depress values further.

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