June Market Outlook

June Outlook

by CoreLogic

June 2019

According to the CoreLogic Home Value Index results for May 2019, national dwelling values fell by -0.4% over the month. The -0.4% fall in dwelling values over the month was the smallest monthly decline since August 2018 and the 5th consecutive month in which value declines have diminished. Although the rate of decline has been slowing, National dwelling values declined by -7.3% over the year which was their largest annual fall since January 2009. Dwelling values have now declined to levels last seen in June 2015.

While the rate of decline has eased further over the past month, most capital cities continue to record falls and the declines in Perth and Darwin remain large. In fact, Adelaide was the only capital city in which values did not decline in May 2019. Outside of the capital cities, regional areas of SA, Tas and NT were the ‘rest of state’ regions to avoid a value decline.

Over the three months to May 2019, national dwelling values declined by -1.5% which was their smallest quarterly fall since the three months to October 2018. While the rate of decline generally slowed, only Canberra, regional SA and regional Tas actually recorded value increases over the three month period.

Nationally the -7.3% annual fall was made up of an -8.4% fall in values across the combined capital cities and a -3.0% fall in regional markets, highlighting more buoyant conditions outside of the capital cities. Adelaide, Hobart and Canberra were the only capital cities in which values rose over the year while in the rest of state regions values rose in Vic and Tas. Sydney was the only region in which values recorded a double-digit decline over the year.

National dwelling values peaked in October 2017 and they have since fallen by -8.2%. Regional Tas is the only region of the country in which values have not yet fallen below their peak. Across the major regions, values have fallen by more than 10% from their peak in Sydney (-14.9%), Melbourne (-11.1%), Perth (-19.2%), Darwin (-29.5%) and regional WA (-32.5%) all of which are the largest corrections on record for these geographies. Although homeowners are seeing some deterioration in their wealth, the value declines are leading to improvements in housing affordability.

Given the ongoing slowing of value falls it appears as if the worst of the declines have now probably passed. Over the past month, many lenders have begun offering lower mortgage rates, the election has now passed and there will be no changes to negative gearing or the capital gains tax discount and APRA is contemplating removing the 7.25% serviceability hurdle for borrowers. Already since the election auction clearance rates have lifted and over the coming months, if interest rates are cut and serviceability calculations are reduced, we may see a moderately improved access to finance.

Although credit may be about to become a little easier to access, the latest data for housing credit shows that credit expansion continued to slow, increasing at a historically slow pace due to slowing owner occupier growth and record-low investor credit growth. Housing finance data highlights the slowing mortgage demand with owner occupier and investor finance commitments continuing to trend lower.

The Reserve Bank also cut official interest rates by 25 basis points at their June 2019 meeting. The rationale for the cut was:

  1. That inflation is low and inflationary pressure is likely to remain subdued; and
  2. There remains significant spare capacity in the labour market

The interest rate futures market has another 25 basis point cut priced in by October this year which would take rates down to 1%. Interest rate cuts combined with reduced serviceability requirements are likely to provide support for mortgage demand and are expected to see the market trough reached late this year rather than the current forecast for the middle of 2020.

Although the end of the housing market’s decline is anticipated to be reached earlier, CoreLogic expects that any rebound in dwelling values is likely to be slow and take some time. The reason being that although access to finance looks set to become a little easier, access is still likely to be much more difficult than it has been in the past. Furthermore, the upcoming implementation of comprehensive credit reporting means that lenders will have much more access to details on borrowers total debt position. For borrowers, this means that they won’t be able to hide their debts and for lenders, it will mean that there are few excuses for writing bad loans. Given all of this, while mortgages may become a little easier to access, they are still likely to be difficult to access relative to how it has been over recent decades.

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.