November Market Outlook

November Outlook

Cameron Kusher, CoreLogic Research Analyst

November 2017

Over October 2017, national dwelling values were unchanged according to the CoreLogic Home Value Index. This represented the weakest monthly change in the index since June 2016.  Both the combined capital cities and the combined regional markets recorded no change in values over the month.  Throughout the individual capital cities, falls were recorded in Sydney (-0.5%), Darwin (-1.6%) and Canberra (-0.1%) while values were unchanged in Adelaide and Perth while values rose elsewhere.

The clear trend across the market is that the rate of growth in dwelling values is slowing and this is highlighted when analysing the change in values over the tree months to October.  Over the period, national values have increased by 0.3% with combined capital city values 0.4% higher and regional values falling by -0.1%.  Over the three months, values have fallen in Sydney (-0.6%), Perth (-0.7%) and Darwin (-4.4%).  Across the remaining capital cities, dwelling value increases have been recorded in Melbourne (+1.9%), Brisbane (+0.6%), Adelaide (+0.1%), Hobart (+3.3%) and Canberra (+1.1%).  The -0.6% quarterly fall in Sydney dwelling values is the greatest since March 2016.

Over the 12 months to October 2017, national dwelling values have increased by 6.6% with the combined capital cities recording increases of 7.0% and combined regional markets seeing values increased by 4.9%.  Hobart is the capital city with the fastest annual rate of value growth (12.7%) followed by Melbourne (11.0%), Sydney (7.7%), Canberra (6.4%), Adelaide (4.6%) and Brisbane (2.7%).  Values have continued to decline over the past year in Perth (-2.5%) and Darwin (-5.7%).

The CoreLogic Stratified Hedonic Index indicates that the slowdown in the housing market is being led by the lower end of the housing market.  The 25% of most affordable properties across the country saw values fall by -0.3% over the three months to October 2017.  By comparison, the middle 50% of suburbs saw values increase by 0.8% and the most expensive 25% saw values increase by 0.4%.  The most affordable suburbs have seen values rise by just 2.2% over the past year compared to 6.9% across the middle 50% of properties and 8.2% across the most expensive 25% of properties.  Across the individual capital cities the trends are more diverse.  In Sydney, Melbourne and Darwin the most expensive properties have been weakest for growth over the year, while in Brisbane, Adelaide, Perth, Hobart and Canberra the most affordable properties have recorded the lowest value changes over the year.  The best performing segment of the market has been the most affordable properties in Sydney, Melbourne and Darwin, the middle market has been the strongest for growth in Adelaide, Hobart and Canberra and the most expensive properties have recorded the strongest growth in Brisbane, Perth.  The results point to varying drivers of market demand with the strength in Sydney and Melbourne at the lower end of the market while in most other capital cities the more expensive properties appear to be more sought after.

New first home buyer stamp duty concessions as well as ongoing affordability constraints in these two cities may be supporting increased competition at these lower price points.

A key driver of the slowing Sydney market remains the heightened level of housing stock being advertised for sale.  While at a national level, newly advertised properties for sale are -2.5% lower than they were a year ago and total advertised properties are -5.3% lower, it is a very different story in individual capital cities.  Compared to a year ago, newly advertised properties for sale are higher in Sydney (+4.3%), Melbourne (+1.0%), Adelaide (+3.2%) and Canberra (+27.9%), while they are lower in Brisbane (-10.5%), Perth (-9.2%), Hobart (-5.8%) and Darwin (-13.6%).  When comparing the total number of properties for sale compared to a year ago, there are substantial differences; Sydney (+19.5%), Brisbane (+2.5%), Adelaide (+8.0%) and Canberra (+14.4%).  Elsewhere, the number of properties advertised for sale is lower than a year ago in Melbourne (-1.7%), Perth (-14.3%), Hobart (-33.6%) and Darwin (-1.9%).  The total number of properties for sale in Sydney is at its highest levels since December 2012 which is clearly providing fuel for a slowing market with many willing sellers and fewer active buyers.  On the other hand a market like Hobart is seeing the lowest volume of stock available for sale in many years.  Although the growth in Melbourne values is slowing, it hasn’t slowed at the pace of Sydney and has also not seen a spike in the number of properties advertised for sale.

The unchanged national index in October represented the weakest monthly change in value since March 2016; a time when the first round of tighter APRA credit policies was still working its way through the market.  The rate of value growth also slowed over the month across the combined capital cities and the combined regional markets.  CoreLogic anticipates that over the remaining months of 2017 and into 2018 there is a strong possibility that the headline rate of value growth  could start to fall.  While the winding-down of growth is a development which is likely to be welcomed by federal policy makers and regulators, , they will probably be monitoring market conditions closely, aiming for a controlled slowdown in conditions rather than a swift decline in values which could disrupt broader economic conditions.

Sydney has been the driver of the slowing national housing market however, the rate of change in values over the three months to October 2017 was lower than the change over the three months to July 2017 in Sydney (-0.6% vs +1.0%), Melbourne (+1.9% vs +2.3%), Adelaide (+0.1% vs +0.8%) and Darwin (-4.4% vs -2.6%).  Elsewhere the quarterly rate of change is higher than it was three months ago in Brisbane (+0.8% vs -0.4%), Perth (-0.7% vs -1.4%), Hobart (+3.3% vs +2.1%) and Canberra (+1.1% vs 0.0%).  Clearly the slowing in the two largest cities is having a greater impact on the overall market than an improvement in growth across some of the smaller capital cities.

Sydney’s housing market is slowing on the back of heightened stock available for sale, stretched affordability, increasing number of residents moving interstate and a pull-back in investor housing demand (investors have been the greatest source of housing demand in Sydney over recent years).  Value growth in Melbourne has also slowed however, the slowdown has been much more moderate than in Sydney.  This is likely due to a number of factors including the cost of housing still being much lower than in Sydney, interstate migration to Vic is the strongest in the nation, investor demand has been strong over recent years but nowhere near as strong as in Sydney and Melbourne hasn’t recorded a spike in the volume of stock for sale like Sydney has.  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 over the coming year however, economic performance and job creation will also be an important ingredient to any acceleration 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 have not declined in Perth over the past two months.  While Perth and Darwin are seeing ongoing falls in advertised stock on the market, which is likely to support a reduction in the rate of decline, both cities are seeing stock levels which remain well above average.  Hobart is now the strongest performing capital city housing market in the nation.  Increasing migration to Tas, affordable housing and an improving economy along with very limited supply of stock for sale is a key driver of the acceleration in value growth over the past year.  Canberra dwelling values are increasing at a faster annual pace than they were a year ago however, over recent months the rate of growth has slowed.  This is most likely linked to the fact that the volume of housing stock available for sale across the city is now substantially higher than it was 12 months ago.

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