Softer housing market no confirmation of peak

by Miklos Bolza02 Jun 2017
Although new figures from CoreLogic point to softer housing market conditions, researchers from the firm have refrained from declaring that the market has peaked.

Results for the CoreLogic Home Value Index for May have shown a month-on-month drop of 1.1% for combined capital city dwelling values, which was largely due to falls in Sydney and Melbourne where values decreased by 1.3% and 1.7% respectively.

CoreLogic head of research Tim Lawless said that the average dwelling value across Australia’s capitals actually rose modestly by 0.4% with four out of the eight capitals recording a drop in values.

Throughout the quarter, dwelling values in Sydney remained unchanged while those in Melbourne increased by 0.7%. Growth rates in Brisbane and Adelaide rose while those in Perth, Darwin, Hobart and Canberra fell.

These results should be viewed in terms of market seasonality, he said, with drops in dwelling values found in May of four out of the past five years.

“Reading through the seasonality indicates that value growth in the market has lost momentum, particularly in Sydney and Melbourne where affordability constraints are more evident and investors have comprised a larger proportion of housing demand,” Lawless said.

New macro-prudential measures implemented by the Australian Prudential Regulation Authority (APRA) around interest-only lending have also added to the complexity, he added, especially with mortgage rates increasing as a result.

“Considering we are yet to see the full effect of the recent round of macro-prudential measures flow through, there is a high possibility that investor activity, and consequently housing demand, will slow further during 2017,” Lawless said.

“Investor demand will also be dampened due to higher mortgage rates and tighter credit policies as well as the added disincentive of low rental yields and reduced ability to claim depreciation and travel expenses.”

Other trends such as a drop in dwelling turnover, a moderation in auction clearance rates and higher levels of advertised stock also suggest a slower pace of growth in the property market.

Across the combined capital cities, dwelling turnover was 6.9% lower year-on-year with the largest falls in Melbourne (-12.4%), Brisbane (-11.1%) and Sydney (-4.3%). This is a result of affordability constraints, tighter credit policies, rising mortgage rates and a downturn in consumer sentiment, Lawless said.

Clearance rates have also moderated, particularly in Sydney where rates have dropped from the 80-85% range in the second half of April to 70-75% at the end of May.

“The final week of May saw the Melbourne clearance rate reach 74%, which is the lowest reading so far this year and Sydney recorded a clearance rate of 73%, which is the third lowest clearance rate over the year to date.”

Finally, the number of residential properties advertised has also gone up. Total listings are 6.3% higher than a year ago while levels in Sydney have shot up by 15%. This should provide prospective buyers with more choice and reduce some of the urgency that has been contributing to rapid selling times and price escalation, Lawless said.

He concluded, saying that the jury was still out on whether the housing market has peaked.

“Based on CoreLogic data, as well as other indicators, it’s fair to say that growth conditions appear to be slowing in Sydney and Melbourne while the performance across other capital city regions remains mixed. The housing market remains as diverse as ever and the flow of data over coming months will be critical to get a better understanding of the trends.”

It will take a couple of months more data to confidently say that the housing market has peaked, Cameron Kusher, head of research at CoreLogic, told Australian Broker. This would include weaker months with continuing trends such as lower clearance rates and higher volumes of properties on the market.

Given these market movements, Kusher said the risk of a property oversupply was already playing out especially in Brisbane and to a lesser extent Melbourne in terms of capital growth.

“I think there’s definitely some risk there but particularly in Melbourne if you look at it, while 12 months ago we flagged that risk, we’ve actually started to see rental growth start to pick up. That would indicate to us that there’s not an oversupply of housing in that market.”

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