17 Mar Market facts make way for wishful thinking – Cameron Kusher
According to the latest CoreLogic home value index results, the pace of declining property values has eased slightly. However, values continued to trend lower in six of the eight capitals, last quarter. Cameron Kusher from CoreLogic joins me to discuss the results and identifies which markets are improving and those that are struggling.
Kevin: According to the latest CoreLogic home value index results, the pace of declining property values has eased slightly. However, values continued to trend lower in six of the eight capitals, last quarter.
Kevin: Cameron Kusher from CoreLogic joins me. Cameron, thanks for your time.
Cameron: No worries, Kevin.
Kevin: Which of the capitals are still trending lower, according to the quarterly figures, Cameron?
Cameron: All of them, except for Hobart and Canberra. And in saying that, Canberra was actually seeing unchanged values over the last three months. Hobart, up 1.1%. But every other capital city has seen a decline in values. The largest falls in Darwin, down 5.1%. But both Sydney and Melbourne have seen falls of 4.1%, over the last three months.
Kevin: If you look at Darwin’s figures, the rate of decline there seems to be slowing dramatically. 5.1% last quarter to 1.7, last month. Am I reading that correctly?
Cameron: It’s hard to say. Obviously, the monthly decline is more moderate, but Darwin being a small market can be a little bit more volatile. And keep in mind that the market there is down 27% from where it was at its peak, so I wouldn’t say it’s close to the bottom yet.I wouldn’t say it has hit the bottom, and obviously, it’s got a long way to go to get back up to those previous highs.
Kevin: Yeah. Some of the agents I’m talking to, maybe it’s just wishful thinking on their part, but they believe that it’s starting to turn around a bit. So I guess, time will tell. We’ll have a look at the figures, next month.
Cameron: Yeah, the next couple of months will tell us the story.
Kevin: Yeah. I want to talk to you about rolling averages, because that tells a great story. But before I do that, can I just ask you how values compare to say, five or 10 years ago?
Cameron: Yeah. In most capital cities, values are much higher. If we look at Sydney, it’s had compound annual growth of 4.7% over that period of time. Melbourne, 5%. Brisbane, 2.2%. Adelaide, 2.6%. But you go to some of the other capital cities, Hobart quite strong at 6.2%. But Perth values are falling at a rate of 3.6% annually over the last five years, and Darwin has fallen at a rate of 5.7% annually, over the last five years.
Cameron: Very mixed. Sydney, Melbourne, and Hobart, obviously, are well out in front. Canberra, not too far below behind that. Brisbane and Adelaide, fairly moderate growth. And then, some significant falls in Perth and Darwin.
Kevin: I mentioned there about the rolling averages. I believe it gives us a really good understanding about the true direction of the market because it looks at the rolling change. The regions seem to me, to be holding on a little bit better than the cap cities, right now.
Cameron: They are. Like on an annual basis, the combined capital cities have seen values fall 7.6%, whereas the regional markets have seen values fall 1.4%. But I think the broader overarching theme is that pretty much everywhere, whether it’s a capital city or a regional market, the annual rate of growth is slowing. Sure some of them are in negative territory, but the growth is on a slowing trajectory, even in markets like Regional Victoria, which has been very strong, and Regional Tasmania, over the last few years.
Kevin: Yeah. Staying with that rolling change graph, just for a moment, it’s interesting how they really mirror each other. There are changes sometimes in which area is getting further ahead, regional or the cap cities. But gee, looking back at February 2004, that was a big separator between the regions and the cap cities, wasn’t it?
Cameron: It was. And I guess, now what we are seeing is it’s a bit of a mixed result. In New South Wales, for example, Sydney was very strong, and that growth spilled out into regions like Newcastle, Wollongong, those kind of markets. And now, with Sydney’s slows, those markets are feeling the impact of that slowdown.
Cameron: Whereas, you look to Melbourne, the growth only really spilled out into Geelong. But now, we’re actually seeing quite a lot of strengths in places like Bendigo, Ballarat, even Latrobe Valley, Tasmania. The strengths kind of spilled out of Hobart into those other regions of the state.
Cameron: If we look at Queensland, for example, for most of the last five years, the Gold and Sunshine Coasts have actually been stronger in terms of capital growth than Brisbane has been. But now, the Gold Coast, for example, is slowing quicker. I think you can see the impact of a lot of demand for housing on the Gold and Sunshine Coasts coming out of Sydney and Melbourne. And now, that the values are declining in those markets, then there’s a lot less demand for housing on those regions.
Kevin: Cameron Kusher from CoreLogic. Cameron, can we just have a look at the rents? That they seem to be on the rise, right now. Both in the cap cities, and in the regions?
Cameron: Yeah. It’s one thing to be cautious of, because we do find that the first quarter of the year is generally seasonally a fairly strong time for the market. As you said, rents are up over the quarter. They’re up 0.6% nationally. Even a market like Sydney, where the rental market has been quite weak. We saw an increase of 0.3% over the month, and only down 0.1% over the last three months. But looking a bit deeper in the data, rents in Sydney, for example, are down 2.9% from the last year. The rate of growth in rents in Melbourne is slowing. On the flip side of that though, Perth and Brisbane have been seeing some large falls in rents, over the last few years, and we’re starting to see a bit of the acceleration in rental growth there.
Kevin: Cameron, there has been a level of criticism about a lack of credit availability being to blame for slowing conditions. Do you hold with that? Do you agree with that?
Cameron: Yes, I certainly do. I think the Reserve Bank has kind of pointed the finger at a lack of demand for credit, but I am not so convinced on that. I mean, the last 25 years has really been all about making finance and credit more freely available, and that’s certainly contributed to the strong growth in property prices we’ve seen over that time.
Cameron: But really, since 2014, when the Reserve Bank started going down and APRA started going down this path of macro prudential policies, they’ve made credit harder to access. So whilst the banks might be getting less applications across their desks, and I’m sure that’s the case, I don’t know that it’s through lack of people wanting to buy. I would suggest that a lot of people are going and talking to their mortgage broker, and the mortgage broker is saying, you know what? You’re just not going to get there with these finances, at the moment, so we’re not even going to put in the application.
Kevin: Yeah, I was just talking to some brokers. That’s certainly supporting what you’re saying. They’re becoming a lot more hesitant to even put them forward. And in fact, they’re seeing an increase in the number of applications that are being refused, Cameron.
Cameron: Yeah, really really doesn’t surprise me at all. Credit has got a lot tighter. There’s a lot more questions being asked about your expenditure, and I kind of liken it to historically, when you apply for a mortgage, you’ve had to show that you have the capacity to repay that mortgage. There’s a kind of trust that you’ll adjust your expenditure, once you take out that mortgage to pay it off. Now, you actually have to show evidence that you’ve made that adjustment, before a lender is willing to give you that mortgage, and that’s a pretty big change. Because technically, if it’s your first mortgage, you don’t have any experience of paying off a mortgage, and cutting back on those expenses can be hard.
Kevin: Talking about mortgages and interest rates, and so on, based on this report, how do you think the RBA will be feeling about the market, now?
Cameron: They’ve certainly changed their tune a little bit over the last couple of months from saying that the market slowdown is orderly. They’ve had some questions in some of their speeches, and kind of alluded to the fact that they don’t know how far the market is going to fall, and when the falls are going to end.
Cameron: I think there’s a level of concern, probably maybe even playing it down a little bit in their public statements at the moment. But I think the biggest concern for them is not necessarily that prices are falling, but what the consumer might do as prices fall. And if they start to go and spend less out there in the shops, then that’s the concern because consumer expenditure or household expenditure makes up about 60% of GDP. If that starts to fall, then economic growth slows, and that creates a whole range of other headaches for the Reserve Bank.
Kevin: Yeah. Always a great insight. Cameron Kusher from CoreLogic. Thanks for your time, Cameron.
Cameron: Thanks for having me, Kevin.