December Market Outlook

December Outlook

Cameron Kusher, CoreLogic Research Analyst

December 2017

National dwelling values were unchanged for the second consecutive month in November 2017, according to the CoreLogic Home Value index. This also follows unchanged values in August and October 2017. Values fell by -0.1% across the combined capital cities over the month, the first monthly fall in the combined capitals index since March 2016. Values increased by 0.2% across the combined regional markets.  Dwelling values fell over the month in Sydney and Darwin, were unchanged in Adelaide and rose elsewhere.  In fact, it was the largest monthly fall in Sydney since February 2016.

Over the three months to November 2017, national dwelling values have increased 0.2% with the combined capital cities index recording an increase of 0.2% and the combined regional market value rose 0.4%.  Across the individual capital cities, values have increased over the quarter in Melbourne (+1.9%), Brisbane (0.6%), Adelaide (+0.1%), Perth (+0.3%), Hobart (+3.3%) and Canberra (+1.3%).  Values have fallen over the past three months in Sydney (-1.3%) and Darwin (-2.7%).  Perth’s 0.3% rise in values is the largest quarterly gain since the three months to June 2014. In Sydney, the -1.3% decline in values is the city’s largest fall since the April 2016 quarter.

Nationally, dwelling values have increased by 5.2% over the past year, their slowest annual rate of growth since December 2016.  Combined capital city values are 5.5% higher over the year, while combined regional market values are 4.2% higher. At an individual capital city level, only Perth (-2.6%) and Darwin (-5.5%) have recorded value falls over the past 12 months.  Hobart (+11.5%) and Melbourne (+10.1%) have recorded double-digit value increases with more moderate increases recorded in Sydney (+5.0%), Brisbane (+2.4%), Adelaide (+3.4%) and Canberra (+5.8%).

The market is now clearly slowing, with the rate of growth decelerating nationally, and in most capital cities.  Perth is the one exception: with values having increased over the past quarter, the market may now be slowly improving after ongoing declines since 2014.

Sydney, which is Australia’s largest market both in terms of population and value, accounting for almost a third of the value of housing nationally, is now clearly slowing.  Since the peak at the end of July 2017, dwelling values to the end of November 2017 are down -1.3%. If anything, the decline in the Sydney housing market is gathering some pace monthly declines were recorded at -0.1% in September, -0.5% in October and -0.7% in November.  Across all other capital cities, the rate of growth has at best steadied, or in many instances slowed, over recent months.  Following the market reset, which occurs over the Christmas / New Year period, it will be interesting to see whether the slowdown continues next year.

Lending policies which have tightened the availability of credit – particularly to investors – seem to be playing a large role in the housing slowdown. This is especially the case in Sydney. If we look at new lending (excluding refinances) at its peak in May 2015, investors accounted for 54.8% of the total value of new housing finance commitments across Australia. By September 2017, the proportion had reduced to 44.5%.  Taking a look at the state data, investors peaked at 63.6% of all new mortgage commitments in New South Wales in May 2015, and had reduced to 50.3% by September 2017 (still more than half of all new mortgage demand). Investors have also been quite active in Victoria, albeit to nowhere near the same magnitude as in New South Wales.  At the peak in May 2015, investors accounted for 54.7% of all new housing finance commitments in Victoria, with the figure reducing to 43.2% by September 2017.  It is clear that the crackdown on investor lending is leading to lower activity by that segment of the market. This is having a more profound impact in Sydney where investors have been significantly more active over recent years than elsewhere across the country.

The other driver of the housing slowdown, particularly in Sydney, remains the volume of stock for sale.  Advertised stock levels typically rise through Spring, but they are currently exceptionally high in Sydney.  Over the 28 days to 26 November, there were 26,559 unique properties advertised for sale in Sydney. This was 19.2% higher than a year ago.  Although stock levels were slightly lower over the week, at this time of year stock has not been this high since 2012.  Across the remaining capital cities, stock advertised for sale is higher than last year in Melbourne (+2.8%), Brisbane (+0.1%), Adelaide (+7.5%) and Canberra (+4.1%).  Although stock levels in these cities are higher than a year ago, they are at similar levels to recent years (unlike Sydney).  Perth (-12.7%) which is an improving market, and Hobart (-36.3%) which is the strongest performing capital city, are seeing substantially lower levels of stock on the market compared to last year.  Finally, Darwin continues to experience value falls, however stock levels are now starting to tighten, at -3.2% lower than a year ago.

It will be interesting to see how the current slowing of the housing market plays out over the coming months.  The housing market virtually stops from mid-December until late January, so what happens in the New Year will be telling.

In Sydney, the falls in values have gathered momentum over recent months however, these declines are relatively minor so far, particularly when compared to the run up in dwelling values over recent years.  Sydney has seen housing affordability deteriorate, a pull-back of investor activity and interstate migration away from New South Wales accelerate.  Although these appear to be negatives for Sydney, remember that the economy remains strong with low unemployment and sustained, positive levels of net overseas migration to Sydney.

In Melbourne the housing market has steadied of late, recording a 0.5% rise in values over three of the past four months.  Investors have never been as active in Melbourne as they have been in Sydney, and interstate and overseas migration are strong, as is the economy. Despite the strong increase in values over recent years, Melbourne remains significantly more affordable than Sydney.

Brisbane and Adelaide have continued to see quite moderate growth however, with migration lifting into south-east Queensland, a rise in the rate of value growth may be expected over the coming year. Economic performance and job creation will also be an important ingredient to any acceleration of value growth across either city.

Perth and Darwin have continued to see values fall over the year however, Perth looks as if it has bottomed out, with values rising over the past quarter.  Sales volumes have increased across both cities, while the volume of stock for sale is lower relative to last year.  While Perth and Darwin are also seeing ongoing falls in advertised stock on the market, which is likely to support a reduction in the rate of decline however, both cities are seeing stock levels which remain well above average.

Hobart is now the strongest performing capital city housing market in the nation.  Increasing migration to Tasmania, affordable housing and an improving economy (along with very limited supply of stock for sale) is a key driver of the acceleration in value growth over the past year.

Canberra dwelling values are increasing at a faster annual pace than they were a year ago. However, over recent months the rate of growth has slowed.  This is most likely linked to the fact that the volume of housing stock available for sale across the city is now substantially higher than it was 12 months ago.

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