February Market Outlook

February Outlook

Cameron Kusher, CoreLogic Research Analyst

February 2018

At the end of 2017 dwelling values were sliding and early data for 2018 indicates that trend is continuing. According to the CoreLogic Home Value Index, national dwelling values fell by -0.3% in January 2018 to be down -0.7% from their September ’16 peak. Across the combined capital cities dwelling values fell -0.5% over the month while the combined regional markets recorded a 0.7% increase in values. Over the month, dwelling values were unchanged in Brisbane and they increased in Hobart while they fell across all other capital city markets.

National dwelling values fell by -0.7% over the three months to January 2017. The decline in national values was caused by a -1.0% fall in combined capital city dwelling values while the combined regional markets recorded a 0.7% increase in values over the period. Throughout the individual capital cities, values fell over the three months in Sydney (-2.5%), Perth (-0.3%) and Darwin (-1.6%). Values were higher over the three months in all remaining capital cities however, increases were generally moderate at 0.1% in each of Melbourne, Brisbane and Adelaide, 3.1% in Hobart and 1.0% in Canberra.

Dwelling values remain higher over the past year however, the rate of growth has slowed markedly of late. Nationally, dwelling values were 3.2% higher over the year with combined capital city values 3.2% higher and combined regional market values up 3.3%. It was the first time since September 2016 that combined regional market growth has outpaced that of the combined capital cities. Across the combined capital cities dwelling values are higher over the year in Sydney (1.3%), Melbourne (8.0%), Brisbane (2.1%), Adelaide (2.4%), Hobart (12.4%) and Canberra (4.5%) and they are lower in Perth (-2.6%) and Darwin (-6.4%). Brisbane, Perth, Hobart and Canberra have recorded stronger annual growth over the past year than they had 12 months ago while growth in the remaining four capitals is now softer than it was 12 months ago.

The two largest capital cities are the main drivers behind the capital city housing market slowdown however, most other capital cities have also experienced a weakening of growth over recent months. Annual growth rates peaked during 2017 at 17.1% in May in Sydney and at 13.1% in July for Melbourne. Current annual growth rates in both cities are substantially lower than their 2017 peaks which highlights the significant slowdown over the second half of the year which has continued in January 2018.

The volume of stock for sale at this time of year remains low however, comparing it to the same time over recent years highlights how rising stock levels in certain markets is dampening value growth. Nationally, the volume of stock advertised for sale is lower than any year since 2012 however, across the individual capital cities the trends diverge significantly. In Sydney, there is 23.3% more stock for sale than in 2017 and stock is higher than it has been any year since 2013. Melbourne listings are 1.7% higher than a year ago but are lower than all other years since 2012. In Brisbane stock is 2.3% higher than a year ago and is higher than all other years since 2013. Total listings in Adelaide are 1.4% higher than a year ago and are also higher than in 2015 and 2016. Perth listings are well down on levels a year ago (-6.4%) but remain higher than all other years since 2012. Hobart is a bit of an outlier with total listings -37.4% lower over the year and at the lowest level for this time of year on record. Darwin listings are -3.9% lower than they were a year ago however and are lower than in 2016 too however, they are higher than previous years. Finally in Canberra listings are 10.1% higher over the year and are lower than all other years since 2012 except for 2014.

Although regulators are clamping down on investors by charging higher mortgage rates and limiting the availability of interest-only mortgages, the New South Wales and Victorian markets still appear overweight to investors in terms of new mortgage lending. Based on data to November 2017, if refinances are exclude, investors accounted for 52.4% of the value of mortgage lending in New South Wales and 40.3% in Victoria. Northern Territory also seems somewhat overweight with investors accounting for 45.8% of new borrowings while all other states have investor participation sitting at close to or below 35%. Investor participation in New South Wales and Victoria has reduced but remains well above the long-term average levels of 37.3% and 31.9% of new lending respectively. This will be an important trend to watch over the coming year, especially if it continues to slow given that it has accounted for the majority of housing demand in New South Wales over recent years.

Let’s take a look at the outlook for each capital city

The decline in Sydney dwelling values have continued with a further -0.9% fall in values in January 2018. Sydney values are now -3.1% lower than their July 2017 peak. There are a variety of factors contributing to the slide in Sydney dwelling values. With values up by 75% between February 2012 and July 2017, the city has seen housing affordability deteriorate. Additionally, the most significant source of recent housing demand has been from investors, who are now incurring higher mortgage rates. Credit rationing is also limiting the availability of interest-only mortgages. Finally, interstate migration out of New South Wales is accelerating which is detracting from housing demand. As a result it is expected that dwelling values are likely to continue to fall over the coming months. Strong overseas migration and a jobs growth, as well as low mortgage rates and higher first home buyer activity should help to keep a floor under Sydney housing prices though.

For the second month in a row Melbourne dwelling values fell by -0.2% in January 2018 taking values -0.4% lower than their peak. The Melbourne housing market has seen affordability stretched, although it remains much more affordable than Sydney. Melbourne continues to benefit from very strong net overseas and interstate migration which should support the market however, the moderate value declines are likely to persist over the coming months.

Brisbane dwelling values were unchanged in January and although they have increased over the quarter, the growth rate remains moderate. Brisbane’s market is likely to continue on a similar trajectory over the coming months with escalating interstate migration to Queensland and improving labour market conditions potentially leading to a modest uplift in value growth.

Adelaide dwelling values fell by -0.2% in January however, they are 0.1% higher over the three months to January 2018. The outlook for Adelaide is similar to the performance in 2017 with moderate growth in values expected to continue.

Perth dwelling values had been showing signs of stabilising however, they have fallen over the past two months taking them -0.3% lower over the quarter. We believe that the worst of the declines are now behind however, the market is expected to remain relatively flat over the coming months.

The Hobart housing market is the strongest of all capital cities and has some significant momentum. Dwelling values increased by 1.0% in January to be 3.1% higher over the past three months. Interstate migration to Tasmania has picked-up recently and it remains much more affordable than other capital cities. Given this we anticipate that the momentum is likely to continue over the coming months.

Darwin has been a weak housing market for many years with values falling a further -0.2% in January taking them -21.7% lower from their 2014 peak. There is little evidence to suggest that the slide in values is set to slow over the coming months, although transaction volumes have been moving higher, albeit from a low base.

Growth in Canberra dwelling values has slowed compared to 12 months ago. Although values were 1.0% higher over the past three months, they fell by -0.1% in January 2018. Canberra is currently seeing high levels of stock available for sale and assuming that trend persists it is expected that the rate of value growth will slow further over the coming months.

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