June Market Outlook

June Outlook

Cameron Kusher, CoreLogic Research Analyst

June 2017

According to the CoreLogic Home Value Index, combined capital city dwelling values fell by -1.1% in May 2017. While the fall goes against the recent growth trend, the index, which is not seasonally-adjusted, often shows weakness at this time of year. In fact, dwelling values have fallen in May over four of the past five years. Across the individual capital cities, dwelling values fell in Sydney (-1.3%), Melbourne (-1.7%), Perth (-0.4%), Hobart (-4.8%), Darwin (-3.5%) and Canberra (-0.1%). Meanwhile, moderate increases were recorded in Brisbane (+0.3%) and Adelaide (+0.8%).

Combined capital city dwelling values have increased by 2.5% over the first five months of 2017. By comparison, over the first five months of last year, values had increased by 5.0%. Although the rate of growth is lower so far this year, values have increased across all capital cities except for Perth (-2.6%) and Darwin (-6.0%). Values are higher so far this year in Sydney (+3.6%), Melbourne (+3.0%), Brisbane (+0.9%), Adelaide (+3.2%), Hobart (+1.4%) and Canberra (+2.1%).

Dwelling values have shifted 8.3% higher over the past 12 months across the combined capital cities, although the rate of growth has slowed from a recent peak of 12.9% in March of this year. Dwelling values have increased in all capital cities except for Perth (-3.8%) and Darwin (-6.4%) over the past year. Sydney (+11.1%) and Melbourne (+11.5%) have seen the greatest increases in values over the past 12 months, with values also lifting in Brisbane (+2.3%), Adelaide (+2.9%), Hobart (+5.8%) and Canberra (+5.7%).

There has been a divergence over recent months between the performance of houses and units. If we firstly look at houses, values across the combined capital cities have increased by 2.8% over the first five months of this year. Across the individual capital cities, house value changes so far this year have been recorded at +4.0% in Sydney, +3.5% in Melbourne, +1.2% in Brisbane, +3.3% in Adelaide,
-2.6% in Perth, +1.2% in Hobart, -5.1% in Darwin and +2.2% in Canberra.

While house values are 2.8% higher so far this year, unit values have risen by just 0.2%. Perth
(-1.7%) and Hobart (+3.9%) are the only markets in which units outperformed houses. Elsewhere, the changes in unit values so far this year have been recorded at: +1.6% in Sydney, -1.9% in Melbourne, -2.2% in Brisbane, +1.7% in Adelaide, -9.5% in Darwin and -0.1% in Canberra,

There is mounting evidence to suggest that if the housing market hasn’t yet peaked, it is very close to peaking. The auction market performance and the number of homes being advertised for sale are two key data points that also indicate to a potential cooling of the residential housing market.

Across the combined capital cities, the number of new properties advertised for sale is now higher than a year ago, while total listings are unchanged. In saying this, in Sydney, which has been the nation’s hottest housing market, new listings are now 15.0% higher than they were a year ago and total listings are 6.3% higher than a year ago. New listings are also higher than a year ago in Melbourne, Hobart, Darwin and Canberra. Meanwhile, total listings are only lower than they were a year ago in Melbourne, Perth, Hobart and Darwin. More stock to choose from, should it persist, should lead to a slower pace of value growth due to greater housing choice which in turn should reduce upwards pressure on selling prices.

Some of the heat has also come out of the two largest auction markets, -Sydney and Melbourne- over the past month or so. Auction clearance rates remain at high levels, but are not as high as they were earlier this year. Earlier in the year, Sydney auction clearance rates were in the high 70% to low 80% range, yet over the past six weeks they have remained below 70%, culminating in last week having the third-lowest clearance rate of the year. In Melbourne, clearance rates have also fallen, albeit more moderately, from the high 70% to low 80% range down to mid-70%. Last week’s auction clearance rate for Melbourne was the lowest over the year to date.

Despite the May seasonality, the Sydney and Melbourne markets appear to be losing momentum. Ongoing lending policy changes, specifically those targeted at the investor segment of the market, should also contribute to some cooling of market demand. Investors have already seen their mortgage rates lifted by an average of at least 25 basis points, and the looming changes to the availability of interest-only lending may further discourage some housing investment activity.

We expect that the rate of growth across the combined capital will slow over the second half of 2017 as further macroprudential policy changes take effect. Furthermore, the ongoing deterioration in housing affordability and a potential lift in the number of homes available for sale, particularly in Sydney but possibly also in Melbourne, should result in more choice and less urgency for buyers. In turn, this should help to muffle the high pace of capital gains.

While Sydney and Melbourne are expected to slow, Brisbane and Adelaide are likely to continue to see moderate growth, which may potentially lift a little. Hobart and Canberra may see growth accelerate a little from its current level. Perth and Darwin are expected to continue to see values fall, but by year’s end if we continue to see the volume of stock for sale fall, the declines may have finished, or be close to finishing. Of course, the broader demographic and economic conditions along with any fiscal policy changes will continue to influence the housing market’s performance over the second half of 2017.

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