October Market Outlook

October Outlook

Cameron Kusher, CoreLogic Research Analyst

October 2017

The September results of the CoreLogic Home Value Index showed that the rate of value growth continued to moderate after peaking in late 2016. Nationally, values increased by 0.2% in September with combined capital city dwelling values increasing by 0.3% while the combined regional markets recorded value growth of 0.1%. Across the individual capital cities; values fell over the month in Sydney and Darwin and were unchanged in Adelaide but rose elsewhere.

The third quarter of the year saw national dwelling values increase by 0.5% with combined capital city values 0.7% higher and combined regional market values unchanged. Across the capital cities, values fell throughout the quarter in Perth (-1.3%) and Darwin (-4.0%) but rose elsewhere. The increases in dwelling values were recorded at: +0.2% in Sydney, +2.0% in Melbourne, +0.5% in Brisbane, +0.3% in Adelaide, +3.4% in Hobart and +1.3% in Canberra.

Dwelling values have increased by 8.0% over the 12 months to September 2017, a growth rate which was last recorded in February of this year. A divergence remains between the annual rate of growth across the combined capital cities (+8.5%) and the combined regional markets (+5.6%). At an individual capital city level, Hobart values increased by 14.3% which is the fastest rate of growth since August 2004. While Sydney (+10.5%) and Melbourne (+12.1%) still recorded double-digit value growth, it was the slowest rates of growth since December 2016 and March 2017 respectively. Canberra (+7.8%), Adelaide (+5.0%) and Brisbane (+2.9%) have also seen values increase over the past year while Perth (-2.9%) and Darwin (-4.7%) have recorded ongoing falls.

Nationally, house values increased by 8.3% over the past year compared to a 6.9% rise in unit values. Houses have recorded stronger value growth over the year than units across the combined capital cities and the combined regional markets. Perth is the only individual capital city in which the change in values for units over the past year has been greater than the change for houses. The quarterly data shows quite different trends with houses recording stronger growth than units in Brisbane, Adelaide, Hobart and Canberra but units outperforming houses elsewhere. While in Melbourne the quarterly value change was similar (2.0% for houses vs. 2.1% for units), the difference was quite significant in Sydney (-0.2% vs 0.9%), Perth (-1.6% vs +0.3%) and Darwin (-6.3% vs. +0.4%). It will be interesting, particularly in Sydney and Melbourne, to see if these trends hold as they would seemingly point to detached housing becoming too unaffordable and buyers increasingly choosing attached product which is significantly cheaper and generally more strategically located compared with affordable detached housing stock.

The rate of rental growth has continued to accelerate. Over the 12 months to September 2017, rents have increased by 2.9% and although that doesn’t sound like much, that is the fastest pace of rental growth since April 2012. Across the combined capital cities rents are 2.8% higher over the year and combined regional market rents have increased by a higher 3.0%. Across the individual capital cities, rental rates have fallen over the year in Brisbane (-0.1%), Perth (-3.7%) and Darwin (-2.2%) but they have risen elsewhere. The annual rental increases have been recorded at: 4.0% in Sydney, 4.8% in Melbourne, 2.2% in Adelaide, 8.9% in Hobart and 5.7% in Canberra. Obviously strong rates of population growth, especially overseas migration, are fuelling growing rental demand in Sydney and Melbourne however, it is somewhat difficult to reconcile exactly what is driving such strong growth when wages are barely growing and so much new housing supply has been added over recent years to many markets. One theory is that an increasing number of properties are being removed from the long-term rental market and are being offered in the short-term market via platforms such as AirBNB. The reduction is long-term supply may be creating fewer rental vacancies and pushing rental rates higher.

Although the first month of Spring is over, there has been no significant increase in the volume of stock available for sale across most capital cities. Across the combined capital cities the number of newly advertised properties for sale has increased by 3.7% over the Spring period to date, while the total number of advertised properties is 1.8% higher. If we look at the change in newly advertised properties for sale between the week ended 03/09/2017 and the week ended 01/10/2017 the changes across the capital cities have been recorded at: +2.7% in Sydney, -2.2% in Melbourne, +5.5% in Brisbane, +17.0% in Adelaide, +12.2% in Perth, +12.5% in Hobart, -12.1% in Darwin and -4.9% in Canberra. It is interesting to note that new listings have actually reduced over the past month in a number of cities. Looking at the total number of properties advertised for sale and the change between 03/09/2017 and 01/10/2017, the changes across the capital cities have been recorded at: +3.9% in Sydney, +1.0% in Melbourne, +2.2% in Brisbane, +2.1% in Adelaide, +0.9% in Perth, -4.3% in Hobart, -2.0% in Darwin and -1.9% in Canberra. The data highlights that it has been a sluggish start to Spring with only Sydney, Brisbane and Adelaide seeing a noticeable lift in advertised stock for sale while stock levels have actually reduced in three capital cities.

The Australian Bureau of Statistics released demographic data for the March 2017 quarter over the past month. The release showed a further ramping up of population growth largely due to net overseas migration. The national population increased by 126,138 persons over the March 2017 quarter, its greatest quarterly increase since March 2008. At the same time, net overseas migration was recorded at 86,595 persons over the quarter which was its greatest quarterly rise since March 2009. New South Wales and Victoria continue to be the main benefactors of overseas migration accounting for 37.4% and 35.9% respectively of all national net overseas migration. It was the strongest rate of quarterly net overseas migration to New South Wales (32,368 persons) and Victoria (31,064 persons) on record. In terms of net overseas migration, Victoria remains the powerhouse with a gain of 4,956 persons over the quarter while interstate migration to Queensland is lifting with a gain of 4,142 persons. The particularly strong rate of net overseas migration to New South Wales and Victoria is contributing to housing demand, particularly in the capital cities.

At a national level the rate of dwelling value growth has continued to slow and this is generally being reflected across both capital city and regional housing markets. Should this trend continue, it is likely to be a very welcome development for policy makers such as the RBA and APRA. CoreLogic is expecting slower growth conditions to continue throughout the remainder of 2017, in particular this could lead to the start of some moderate declines in values in Sydney. The combination of more stock for sale, the rationing of credit to investors who have been extremely active in Sydney and the lack of affordable housing is likely to impact on growth going forward. While the rate of growth is slowing in Melbourne it is not anticipated to be as affected as Sydney due to much more affordable housing and less investor activity. Brisbane and Adelaide have continued to see quite moderate growth however, with migration lifting into south-east Queensland this may lead to a rise in the rate of value growth. Perth and Darwin have continued to see values fall over the year however, Perth looks as if it is closer to a market bottom than Darwin however, sales volumes have increased across both cities while values recorded a monthly rise in Perth. While Perth is seeing an ongoing fall in advertised stock on the market, which which is likely to support a reduction in the rate of decline, Darwin continues to see heightened levels of new stock hitting the market which could lead to a continuation in the downwards pressure on values. Hobart and Canberra are the two cities in which value growth has accelerated noticeably over the past year. Each of these cities are seeing relatively low stock available for sale and improving local economies which is driving more housing demand. Hobart in particular is also benefitting from being a significantly more affordable location to purchase a home than all other capital cities which is likely contributing to its capital city-leading rate of value growth over the past year.

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