National dwelling values were unchanged in August according to the CoreLogic Home Value Index. It was the seventh consecutive month in which the change in dwelling values improved and it was the first time since March 2018 that national values didn’t record a monthly fall. The annual rate of decline in July 2019 was recorded at -6.4%, which has slowed from a recent peak of -7.3% in May 2019, and it was the smallest annual decline since February 2019.
The consistent reduction in the rate of decline continues to be largely driven by a levelling out in Sydney and Melbourne dwelling values. The improving conditions spread in July with each of Sydney, Melbourne, Brisbane, Hobart, Darwin, regional SA, regional Tas and regional NT recording a rise in values over the month. For Sydney, Melbourne, Hobart, regional SA and regional NT value have increased now for successive months.
Over the three months to July 2019, national dwelling values fell by -0.5% which was their smallest decline over a three-month period since May 2018. Over the past three months, most regions have recorded a decline in values with Melbourne, Hobart, regional SA, regional Tas and regional NT the exceptions.
Over the past year, national dwelling values have fallen by -6.4% with the combined capital cities recording a larger -7.3% fall compared to a -3.0% fall across the combined regional markets. Hobart and Canberra are the only capital cities in which values have increased over the year while regional SA, regional Tas and regional NT have also recorded value increases.
Despite the recent slowing of value declines, values remain a long way from their peak. National dwelling values peaked in October 2017 and they are currently -8.3% lower than their peak with the combined capital cities recording a larger overall fall (-10.1%) than the combined regional markets (-3.5%). Every capital city is currently experiencing dwelling values below their peak with Adelaide, Hobart and Canberra recording falls of less than 2% while Perth and Darwin have recorded cumulative declines in excess of 20%. In regional areas, regional Tas is the only market where values are at historic highs while peak to current falls are less than 10% across each market except WA where values are almost 35% lower than their peak.
As the value declines continue to slow and result in an unchanged national index in July 2019, it seems that the worst of the housing market conditions have now passed. With reduced serviceability limits, consecutive 25 basis point cuts to official interest rates, tax cuts and the removal of potential for changes to rules around property investment it certainly seems that purchasers have seen improved confidence. This has also been reflected in a large improvement in auction clearance rates since the federal election although it should be highlighted that volumes remain low compared to recent years. Importantly, you can only auction what’s available for sale and newly advertised housing stock for sale is currently at historically low levels although there are early signs that it might be increasing. We would expect a surge in new stock to occur as the market heads to and enters spring.
The latest housing finance data to May 2019 has shown a continuation of the declines in demand for mortgages however, there has been a clear slowing of the decline. Importantly, the recent increase improvement in dwelling value changes is likely to take some time to flow through to housing finance data. It is anticipated that over the coming months the recent improvement in the data will continue with some potential rises in mortgage demand.
While housing market conditions look to be improving there remains plenty of questions regarding how a recovery will play out. The most expensive cities have seen some of the largest declines over recent years yet they are the first ones to show early signs of a recovery. One of the key drivers of the recovery is likely to be a degree of pent-up demand given low mortgage rates, large populations and relatively strong economies. Nevertheless, CoreLogic is not anticipating a rapid recovery in any of the national housing markets. The main reason is that although lending restrictions have eased, July saw the expansion of comprehensive credit reporting (CCR). As a result, lenders will have a lot more information about borrowers from which to make decisions about credit-worthiness. Furthermore, while the serviceability limits have been relaxed making borrowing somewhat easier than it has been over recent years, lending policies and scrutiny of borrower expenses remain much more stringent than they were previously. Given all these factors, it is anticipated that the market sees a slow recovery in values over the coming years.
The next big test for the housing market will come over the coming months. The amount of new stock being advertised for sale has been historically low over recent months, over the coming months it is anticipated that new listings will lift which is the typical seasonal pattern as the market moves into spring. The magnitude of this lift is not yet known however, it will reveal a lot more about the actual depth of buyers in the current market.
Looking forward, we expect the recent increases in dwelling values to continue at a slow pace over the coming months. The recovery is likely to continue to be led by Sydney and Melbourne with the other capital cities finding their floor and then beginning a slow recovery over the coming months.