It’s interesting how the news can change in just one month with some commentators saying the property market has topped.
Yet it sounds like “the market” hasn’t heard these warnings, with auction clearance rates, particularly in Sydney and Melbourne holding up strongly.
So let’s whip around the Australian property markets and unpack the latest CoreLogic chart pack to see what has scared some of the commentators.
And it’s likley some of the measures in the recently released budget around depreciation will (incorrectly) scare investors off for a little while. Anyway….
Here are some of key findings from Corelogic’s Chart Pack:
- Dwelling values rose by 0.1% in April 2017, their slowest monthly rate of growth since December 2015
- Combined capital city dwelling values increased by 0.1% in April 2017 with values unchanged over the month in Sydney and falling in Perth and Canberra.
- Over the first four months of 2017 combined capital city dwelling values are 3.6% higher and Perth and Darwin are the only two cities to have recorded declines.
- The annual rate of growth was recorded at 11.2% in April 2017 which was the slowest annual rate of growth in three months.
- Across the individual capital cities, the annual change in home values have been recorded at +16.0% in Sydney, +15.3% in Melbourne, +2.1% in Brisbane, +2.2% in Adelaide, -6.0% in Perth, +13.6% in Hobart, -2.3% in Darwin and +8.4% in Canberra.
- Hobart’s annual rate of dwelling value growth is now at its highest rate since December 2004.
What the chart above doesn’t really show is who fragmented our property markets are – Sydney has been the strongest growing property market, not only over the last 12 months, but over the last decade.
And the Melbourne property market came in a close second:
Let’s not forget that the Australian residential property market (valued at $7trillion) is the largest asset class in Australia.
HOME SALES HAVE TRENDED LOWER OVER RECENT MONTHS
Settled dwelling sales are trending lower at a national level but have stabilised recently across a number of capital cities
- Over the 12 months to April 2017 it is estimated that there were 336,667 houses and 138,551 units sold and settled nationally with house sales -4.6% lower and unit sales -8.7% lower over the year
- Across the combined capital cities there were an estimated 199,546 houses and 100,533 units sold over the 12 months to April 2017. House sales are -8.1% lower over the year and unit sales are -10.0% lower.
- It is important to note, the large volume of off-the-plan sales currently means there is a high likelihood unit sales volumes will be revised higher over the coming years, these properties will be entered into the database at their contract date but will not be available until they have settled.
HOWEVER OUR MARKETS ARE STILL STRONG
Dwellings are selling quicker than they were a year ago and experiencing smaller discounts as well
- The typical capital city house is currently selling after 36 days compared to 41 days a year ago while the typical capital city unit takes 35 days to sell compared to 40 days a year ago.
- Each of Sydney, Melbourne, Hobart and Canberra are seeing dwellings typically sell in fewer than 40 days.
- The average level of discount across the capital cities is recorded at 5.4% for houses and 5.3% for units compared to 6.2% for houses and 5.6% for units 12 months ago.
- Sydney, Melbourne, Hobart and Canberra are all seeing typical discount levels lower than 5%.
The number of new and total properties advertised for sale is now lower than it was 12 months ago
- Over the past 28 days there were 40,982 new homes listed for sale nationally and 25,089 of these were listed across the capital cities.
- New advertised properties for sale are -6.6% lower than they were a year ago nationally and -7.3% lower across the combined capital cities.
- There were 229,281 total properties advertised for sale nationally over the past four weeks and 104,636 across the capital cities.
- Nationally, total stock for sale is -5.1% lower than a year ago while they are -2.4% lower across the combined capital cities
APRA IS HAVING AN ONGOING BATTLE?
While initially APRA’s macro prudential controls seemed to be slowing down investor lending, investors are again dominating our property markets:
As you can see from the chart below investors still make up 46.5% of lending in NSW and a high proportion in Victoria and also in the Northern Territory.
However, maybe the macro prudential tightening is staring to bite:
WHAT’S HAPPENING AROUND THE STATES?
Even though there was no growth over the last month Sydney was the strongest performing property market over the last 12 months, with Sydney property values growing 16% in the last 12 months.
Last year Sydney created 54,193 new jobs – almost a third of all the new jobs around the country
Sydney currently has 3.0 months’ of established housing supply available for sale across the city. Sydney has consistently seen low months of supply over recent years however; the figure is currently at its highest level for this time of year since 2012.
Strong population growth (around 2% per annum) and a strong economy creating around 72,786 jobs – most of them full time jobs – (almost half the new jobs in the country) have underpinned the Melbourne property market.
And once again the strong auction clearance rates show the underlying strength of the local market.
This will be boosted in the second half of this year as the First Home Buyers Grant works its way through the market creating an established home owner’s boost as the raft of new home buyers enter the market buying up established apartments.
Melbourne established housing stock currently sits at 4.2 months of supply for the city. Supply levels remain quite low but are at their highest levels for this time of year in five years.
While the Brisbane’s property market performed better than Sydney last month that wasn’t hard to do.
However however the Brisbane market is very fragmented and there are still some areas that are performing respectably and have good investment prospects.
On the other hand, there is a significant oversupply of new high rise off the plan apartments overshadowing the inner city area and nearby suburbs.
Employment growth is ticking up in Queensland which created close to 18,000 new jobs last year.
Brisbane currently has 5.1 months of established housing stock available for sale. The months of supply figure is higher than it has been at this time of year for each of the past five years.
The Adelaide property market continues to languish with home values up 2.2 % over the last 12 months.
Less than 8,000 new jobs were created in Adelaide last year.
The Perth property market is still in its slump phase with a significant oversupply of properties for sale.
As opposed to the eastern states where jobs are being created, Perth lost around 4,406 jobs last year.
At the moment there is 8.3 months of established housing stock available for sale in Perth.
This is a high months of supply figure relative to other capital but it is well down on the 8.7 months at the same time last year.
Last month the Reserve Bank expressed growing concern about the state of the WA property market and economy, warning there are more dangers ahead.
It said WA had the worst mortgage arrears rate in the country which in turn was hurting property prices, the private rental market and the commercial sector.
Though iron ore prices were, until recently, relatively strong, the bank believes the local economy could struggle even more in coming months.
“If commodity prices were to fall or not translate into improved economic conditions in mining-exposed regions, business failure rates may pick up further,” it found.
“In WA and other regions exposed to the mining sector, economic conditions remain challenging and both detached house and apartment prices have fallen as income and population growth have slowed.”
Hobart property performed very well last year – growing 13.6% over the year, and even though some commentators are suggesting it’s a good place to invest, I don’t agree.
With minimal population growth and slow economic growth there seems little reason for property values in Hobart to keep growing substantially.
While Hobart created 3,262 jobs last year – there has been a net loss of 550 jobs in Hobart over the last 5 years.
The months of supply figure for Hobart is the lowest it has been for many years.
There is currently 4.1 months’ worth of established stock available for sale which is down from 5.0 months a year ago and the 7.2 months the year previous, suggesting Hobart property prices should continue rising for a while.
Like Perth the Darwin property market is still suffering form the effects of the end of our mining boom.
Prices are still falling and they’re likely to keep falling for much of this year.
I’ve always found investor driven markets more volatile than our big capital cities and that’s why I avoid them.
Darwin had a net increase of 153 jobs last year, showing how its economy is languishing
Across Darwin there is currently 6.7 months of established housing supply which is well down on the 10.5 months at the same time a year ago and 7.5 months over the previous year.
Canberra’s property market performed well over the last year with property values increasing by 8.4%.
It is the only housing market, other than our 2 big capital cities, where the cumulative capital gain has been greater than 35.8% post GFC.
The local economy is strong creating 3,693 jobs.
There is currently 2.6 months of supply of established housing stock for sale in Canberra. The months of supply level is the same as what it was a year ago but lower than the previous years highlighted.
ECONOMIC DATA REMAINS MIXED
Economic data suggests that demand from the investor segment of the housing market may be slowing
Housing credit growth picked up in March 2017 with investor demand continuing to rise on an annual basis however, monthly data shows that investor credit growth has started to slow.
The value of new mortgage lending fell in February 2017 driven by a substantial decline in investor borrowing over the month.
The rate of population growth at a national level is lower than recent highs but has steadied over recent quarters thanks to improving net overseas migration.
Victoria is seeing a substantially more rapid rate of population growth than all other states and territories.
Dwelling approvals rose moderately in February 2017 with house and unit approvals rising however, overall approvals are substantially lower than their recent peak.
Consumer sentiment remains at a fairly neutral setting although it was more pessimistic than optimistic in April 2017.
As you can see from the charts below, there is a strong link between consumer sentiment and the strength of our property markets.
The unemployment rate has started edging higher however, the economy has shed full-time jobs over the past year with all new jobs created being part-time.
The Reserve Bank left official interest rates on hold at 1.5% in May 2017.
The value of new mortgage lending fell in February 2017 driven by a substantial decline in investor borrowing over the month.
THE BOTTOM LINE…
Despite our low interest rate environment, Australia’s property markets are very fragmented and driven by local factors including jobs growth, population growth, consumer confidence and supply and demand.
The Melbourne and Sydney property markets are continuing to outperform the other states as continuing demand from investors and wealthy home owners drives capital growth.
However this is likely to moderate in future months and at this mature stage of the proeprty cycle careful property selection will be critical for investors as our markets are very fragmented and not all properties are growing strongly in value and some will make very poor long term investment choices.
WHAT CAN YOU DO TO STAY AHEAD?
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