According to the CoreLogic home value index results for August 2019, national dwelling values increased by 0.8% over the month. Not only was this the first monthly increase since October 2017, it was the largest monthly increase since April 2017. The increase is a continuation of the trend whereby the housing market had previously been seeing the rate of decline in values slow each month this year, which has now culminated in an increase over the past month. While values are now higher over the month, dwelling values remain -5.2% over the past year, which is the smallest annual fall since December 2018.
Five of the eight capital cities recorded an increase in dwelling values in August, however, it was the 1.6% increase in Sydney and the 1.4% increase in Melbourne that was the driving force behind the national increases in values. Only Adelaide, Perth and Darwin recorded monthly falls amongst the capital cities while in regional areas only Vic, Tas and NT recorded increases with values unchanged in regional Qld.
National dwelling values have now shifted higher over the past three months, lifting 0.6% to August 2019. Across the individual capital cities, values are higher over the most recent three months in Sydney, Melbourne, Hobart and Darwin and are lower elsewhere. In regional areas, values have increased over the past three months in regional Tas and regional NT but they have fallen elsewhere.
Although national dwelling values have seen an ongoing slowing of decline in 2019 and a rise in August, values remained -7.6% lower than their peak at the end of the month. Combined capital city values are -9.2% lower and combined regional market values are -3.6% lower. Across all capital cities, values remain below their historic highs, however, values in Hobart and Canberra are now less than 1% off their peaks while Sydney values remain more than 10% below their peak, Perth values are more than 20% lower and Darwin values are more than 30% lower. Regional Tas is the only regional market in which values are at historic highs however, regional WA is the only market where values are more than 10% off their peak.
With the market having now clearly bottomed (at least at a national level driven by Sydney and Melbourne) it is clear that the recent stimulus has led to improving housing conditions. The reduction to serviceability floors, the consecutive 25 basis point cuts to interest rates, tax cuts for lower income earners and the removal of potential changes to the capital gains tax discount and negative gearing (following the federal election) have all contributed to the positive shift in housing sentiment, leading to increased demand and providing some upward pressure on values. Another factor driving the improved housing sentiment is the fact that the amount of new stock being listed for sale is quite low while the pool of active buyers has increased. Fewer properties for sale and a greater number of buyers has led to an escalation in dwelling values.
While dwelling value data points to the market has bottomed, so too does a number of other regular data. Over recent months, there has been a slight uplift in transaction data, pointing to increased demand for housing. Sales volumes remain at low levels however, they are lifting. Auction clearance rates have continued to trend higher which is reflective of the stronger value growth conditions being experienced in Sydney and Melbourne. The latest housing finance data showed a significant surge in commitments during July following a more moderate increase in June. Finally, confidence about the strength of the market appears to be increasing amongst vendors with new property listings ramping-up in early spring much quicker than over recent years. Despite this sharp ramp-up, new listings remain well below levels over recent years.
While housing market conditions look to be improving there remains plenty of uncertainty regarding how a recovery will play out. The most expensive cities have seen some of the largest declines over recent years yet they are the first to show early signs of a recovery. One of the key drivers of the recovery is likely to be a degree of pent-up demand given low mortgage rates, large populations and relatively strong economies. Although there was a large increase in values in August, CoreLogic, at this stage, is not anticipating a rapid recovery in any of the national housing markets. The main reasons relate to credit availability. Although lending restrictions have eased, July saw the expansion of comprehensive credit reporting (CCR). As a result, lenders will have a lot more information about borrowers from which to make decisions about credit-worthiness. Furthermore, while the serviceability limits have been relaxed making borrowing somewhat easier than it has been over recent years, lending policies and scrutiny of borrower expenses remain much more stringent than they were previously. Given all these factors, it is anticipated that the market sees a slow recovery in values over the coming years. If there were to be an ongoing large increase in dwelling values, there is the possibility that APRA and the RBA will intervene with a new round of macroprudential policies. These policies would likely be aimed at reducing the risk of a further rise in household debt and limiting the proportion of low deposit loans or loans to borrowers with a high debt to income ratio.
The next big test for the housing market will come over the coming months. The amount of new stock being advertised for sale has been historically low over recent months, however, new listings are climbing rapidly as the market enters spring. The increase in the supply of properties for sale will reveal a lot more about the actual depth of buyers in the current market.
Looking forward, we expect the recent increases in dwelling values to continue over the coming months. The recovery is likely to continue to be led by Sydney and Melbourne with the other capital cities finding their floor and then beginning a slow recovery over the coming months.