May Market Outlook

May Outlook

Cameron Kusher, CoreLogic Research Analyst

May 2017

Capital city dwelling values increased by 0.1% in April 2017 according to the latest CoreLogic Home Value Index results.  The 0.1% increase was the slowest rate of monthly change since December 2015, when values were unchanged.  Over the month, values were unchanged in Sydney, they fell in Perth and Canberra and rose across the remaining capitals.

Over the first four months of 2017, combined capital city dwelling values have increased by 3.6%, which is slightly higher than the 3.3% increase in values over the first four months to 2016.  Perth and Darwin are the only two capital cities in which dwelling values are lower so far this year.

Combined capital city dwelling values have increased by 11.2% over the 12 months to April 2017.  Although the annual rate of growth slowed over the month it shows that the housing market, particularly in Sydney, Melbourne, and Hobart, remains strong.  The recent softer conditions in the housing market is being caused more by the unit market rather than detached houses – and this is evident when looking at the annual change in values.  Combined capital city house values have increased by 11.9% over the past year compared to a 6.2% increase in unit values.

Sydney has continued to be the strongest performing market over the year (+16.0%) and although dwelling values were unchanged in April 2017, they have increased by 5.0% so far this year.  Sydney houses have recorded an increase in value of 17.4% over the past year compared to a 9.8% rise in unit values.

Over the past year, Melbourne dwelling values have increased by 15.3%, with values having increased by 0.5% in April to be 4.7% higher so far this year.  Melbourne unit values have increased over the year by 4.1%, which is around one quarter of the rate of growth in house values (16.5%).

Brisbane dwelling values increased in April to be 0.6% higher over the first four months of 2017, and 2.1% higher over the past year. Over the past 12 months, houses have not recorded significant value growth (2.6%); however, the unit market is noticeably weaker, decreasing by -3.1%.

Dwelling values in Adelaide increased by 0.8% in April to be 2.4% higher so far this year, and 2.2% higher over the past 12 months.  Unit values have fallen by -0.2% over the past year while house values have increased by 2.4%.

Perth has continued to see dwelling values decline with falls of -1.0% in April 2017, -2.4% so far this year and -6.0% lower this year.  Over the past 12 months, house values have fallen by -6.0% while unit values have fallen by -5.9%.

Hobart has recorded the highest rate of growth in dwelling values so far this year (6.0%) with values up a further 1.0% in April to be 13.6% higher over the past 12 months.  House values have increased by 13.3% over the past year while unit values are 17.2% higher over the past year.

Dwelling values in Darwin were 0.5% higher in April 2017, but have fallen by -2.6% so far this year and are  -2.3% lower year-on-year.  House values have fallen by -2.8% over the past 12 months while units have recorded a moderate 0.3% increase.

Canberra recorded a -2.8% fall in dwelling values in April 2017; however, values are 2.2% higher so far this year and 8.4% higher over the past 12 months.  Unit values have increased by 3.8% over the past 12 months; this is less than half the rate of growth of houses, which rose 8.7%.

A number of other factors are contributing to the divergent performances in housing markets across the nation’s capital cities.  In the following paragraphs, we will investigate some of these factors in greater depth.

The total number of properties being advertised for sale is lower than it was a year ago in all capital cities except for Brisbane, Adelaide, and Canberra.  Sydney and Melbourne have seen stock levels consistently lower than the same time a year ago; however, the annual change in listing numbers has trended closer to zero during 2017, edging into positive territory through most of April.  If listing numbers trend higher in these markets where stock has been in short supply, we can expect buyers to have more choice and potentially some urgency in the purchasing decision will dissipate, providing further relief in the rapid pace of capital gains.  Hobart stock levels are substantially lower than they were a year ago. Brisbane and Adelaide have seen little movement in stock on market over recent years, while Perth and Darwin have seen some recent moderate improvement, but over recent years have seen a steady increase in the volume of stock advertised for sale.

Certain capital cities are experiencing a rapid rate of sale while others are seeing homes taking much longer to sell.  Those with a typically short time on market are also those with low stock for sale, namely Sydney, Melbourne, and Hobart (along with Canberra).  Each of these cities has a typical days-on-market figure of 35 days or less.  Meanwhile, the remaining cities where there is a greater volume of stock available for sale are typically taking 50 days or more to sell properties.

Finally, population growth is a key driver of housing demand and recently released data shows that Sydney’s population increased by 82,797 persons over the 12 months to June 2016. Over the same period, Melbourne’s population grew by 107,770 persons. These two cities recorded annual growth of 1.7% and 2.4% respectively and they accounted for 24.5% and 31.9% of the national population increase over the year. Across the other capital cities, their proportion of national population growth over the year were: 12.2% in Brisbane, 2.8% in Adelaide, 8.1% in Perth, 0.5% in Hobart, 0.3% in Darwin, and 1.5% in Canberra.

The overall outlook for the housing market appears a little unclear from here, with the market yet to show the effect of recent macroprudential changes and the ongoing independent increases in mortgage rates. The Monthly Home Value Index Data in April 2017 was quite weak compared to recent months; whether this is just a monthly blip or the sign of a coming slowdown remains to be seen.  Last time the banking regulators adjusted macroprudential policies, specifically those targeted at investors, it slowed the rate of growth for a period and we would expect a similar and perhaps more sustained outcome this time around.  That being said, once lenders get below the new limits to interest only lending (a 30% cap) we may see housing demand and subsequently values start to rise again as they have done previously. Therefore, we do expect the rate of growth to slow over the second half of this year as policy changes are further implemented; however, the market’s performance thereafter will largely be dependent upon any additional lending policy changes – which may or may not be made – and of course, overall economic and demographic conditions.

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