May Market Outlook

May Outlook

by CoreLogic

May 2019

National dwelling values fell by -0.5% in April 2019 according to the CoreLogic home value index.  Although values have continued to slide, it was the fourth consecutive month in which the monthly rate of decline has slowed and it was also the smallest monthly fall since October 2018.  Although the monthly rate of decline has slowed the annual decline has increased to -7.2% which is its largest decline since February 2009. National dwelling values have now fallen to levels last seen in July 2016.

Although the rate of decline has slowed, the geographic spread of the declines has continued to expand.  The slowing in the national decline has largely been driven by more moderate value falls in Sydney and Melbourne.  Every capital city except Canberra and every rest of state market except for Vic, SA and Tas recorded value falls over the month.  

National dwelling values were -1.9% lower over the three months to April 2019 which was their most moderate 3-month fall since November 2018.  Hobart (0.5%) and Canberra (0.2%) were the only capital cities in which values increased over the quarter while values were also higher in regional SA (0.5%) and regional Tas (1.9%).

Over the past year, dwelling values across the nation have fallen by -7.2% with the combined capital cities having recorded a larger annual fall (-8.4%) than the combined regional markets (-2.6%).  The only capital city and rest of state markets in which values increased over the year were: Adelaide (0.3%), Hobart (3.8%), Canberra (2.5%), regional Vic (2.2%) and regional Tas (7.0%). Sydney (-10.9%) and Melbourne (-10.0%) recorded double-digit annual falls with large declines also recorded in regional WA (-9.2%) and Perth (-8.3%).

The national market has now seen dwelling values fall by -7.9% since peaking 18 months ago.  Canberra and regional Tas are the only two major regions in which values have not slipped below their previous peak. Values are more than 20% below their previous peak in Darwin and regional WA and are more than 10% below their peak in Sydney, Melbourne and Perth.  The positive side effect of these large falls is improved housing affordability as values slip over a long period in Perth, Darwin and regional WA and they fall at a fairly rapid pace in Sydney and Melbourne.

With the market showing an ongoing slowdown in the rate of decline, the largest falls in dwelling values may now have passed.  Over recent weeks, lenders have also started to reduce introductory mortgage rates and short-term funding costs for lenders have reduced.   Despite a slight improvement in credit availability, accessing finance remains much more difficult than it has in the past. Furthermore, despite many introductory mortgages offered at interest rates below 4%, borrowers continue to be assessed on their ability to repay a mortgage with an interest rate above 7%.

Housing credit data from the Reserve Bank (RBA) has continued to show a slowdown in credit growth over recent months and is now increasing at a historically slow rate.  The latest housing finance release has shown a moderate increase in commitments over the month however, commitments remain substantially lower than they have been over recent years.

Finally, with inflation stubbornly low and now falling further away from the RBA’s target range of 2% to 3%, cuts to interest rates are looking more likely in the short-term.  With rate assessments still above 7%, a cut won’t necessarily lead to significantly more borrowers but it will make repaying mortgages a little easier for current mortgage holders.

The broad expectation is that dwelling values will continue to drift lower through 2019.  The rate of decline is likely to be similar or slower to the monthly declines seen in April.  Although values are expected to drift lower, the prospects of interest rate cuts and increased talk of APRA potentially lowering their serviceability buffer could lead to a quicker than expected bottoming of the housing market.  Nevertheless, CoreLogic’s expectation remains that values will find a floor around early-to-mid-2020 with the recovery fairly slow thereafter.

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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.