Nationally housing prices have been falling since mid-2017 and are now 10% down from their peak.
But lately, people are starting to ask: “Are we there yet? How much further property prices likely to fall?”
This current market downturn, which looks like it will end up as the longest and most severe downturn in modern history, is being caused by the constrained ability to access finance, poor consumer confidence and the oversupply of too many of the wrong properties, rather than the typical cause of a market downturn such as economic recession or high interest rates.
However, some green shoots are appearing… so let’s look at the latest graphs and statistics from CoreLogic to get a better idea of what’s happening around our property markets in Australia
CoreLogic report that:
- Nationally dwelling values fell for the 18th consecutive month in April 2019, recording a -0.5% decline
- Over the month, combined capital city values fell by -0.5% which was the smallest decline since October 2018.
- The combined regional markets recorded a -0.3% fall.
- Over the past year, national dwelling values have fallen by -7.2% which is their largest annual fall since February 2009.
- Combined capital city dwelling values were -8.4% lower over the year and combined regional market values were -2.6% lower.
- The number of property transactions is down 14.4% nationally year on year, Adelaide and Darwin were the only cities in which sales volumes rose over the year.
Monthly price declines are now moderating, suggesting that we are probably past the worst and prices should begin to stabilise by late 2019.
However, it looks like this will be the longest and deepest property downturn in modern history, despite the fact that the underlying economic fundamentals are sound.
Sydney
The Sydney property market peaked in mid-2017 after dwelling values surged almost 80% since the beginning of the last cycle in 2012.
Sydney real estate values have been falling consistently since then, with dwelling values falling by 2.5 % over the past three months, but the rate of decline is easing (0.7% over the month of April – the smallest decline in 6 months).
The Sydney market is now down 13.9% since values peaked in July 2017.
This time round there has been a larger decline in the value of houses in Sydney than for Sydney apartments and more expensive properties are experiencing a bigger downturn than cheaper properties.
This is due to affordability factors as well as a surge in first home buyer activity which is supporting demand across the more affordable end of the market.
First home buyers are active in Sydney creating stronger markets over the lower quarter of the market – especially apartments.
With dwelling values having fallen by – 10.9% over the year to April 2019, only two regions, both of which are located in the Blue Mountains (Blue Mountains North and Wentworth Falls), have recorded annual growth.
Sydney homes now an average of 62 days to sell, compared to 33 days a year ago, however, vendors are discounting their properties by an average of 6.9% compared to 4.9% a year ago to affect a sale.
The fact that Days on Market and Vendor Discounting is dropping and auction clearance rates are rising are all positive signs for Sydney property market.
Melbourne
The Melbourne property market peaked in November 2017 and CoreLogic report a 10% fall in values over the last year, but values only fell 0.6% over the last month (the smallest decline since June last year.)
Over the last year, there were 25% fewer sales than the previous year, a sign that sellers are not putting their properties on the market unless they really need to sell.
Melbourne homes now an average of 43 days to sell over the March quarter, compared to 27 days a year ago, however vendors are discounting their properties by an average of 6.2% compared to 3.8% a year ago to affect a sale.
But the Melbourne property market is very fragmented, with values of detached houses having fallen more than apartments. Apartment values were down 4.1% over the last year compared with a 12.6% drop in house values.
The resilience across the apartment sector, despite higher supply levels, probably comes back to a combination of affordability constraints in the market as well as more first home buyers supporting housing demand across the lower price points of the market, thanks to the First Home Owner incentives.
Brisbane
Many have been predicting that now is the time that the Brisbane property will finally have its turn in the sun, but despite performing better than much of Australia, CoreLogic report that recently market conditions have softened a little.
Brisbane house values slipped 0.4% lower in the month of April are down 1.9% over the last 12 months despite rising demand from a growing population and relatively affordable prices.
However, the markets are very fragmented, with apartments (-2.4%) continuing to underperform free-standing homes (-1.8%), and some suburbs strongly outperforming others.
The slower Brisbane housing market means that:
- The average selling time of a home is 60 days (34 days a year ago) and
- Vendors are discounting their properties an average of 4.7% to affect a sale (4.2% a year ago)
- 9.3% fewer properties sold in the last 12 months compared to the previous year.
We are not expecting the Brisbane market to have a substantial correction like Melbourne and Sydney are experiencing because the lower property values in Brisbane have made it less susceptible to being caught out in the fallout from the tighter lending restrictions.
At the same time the underlying strong demand from home buyers and investors from the southern States at a time when yields are attractive and housing affordability is relatively healthy and putting a floor under property prices.
Adelaide
Adelaide’s housing market has recently shown some weakness after a long run of steady and sustainable growth.
Adelaide remains the most affordable capital city, but the first quarter of this year saw dwelling values fall 0.5%.
However, over the last 12 months, Adelaide house values are 0.7% higher and unit values are 1.2% higher.
Signs of the slower Adelaide property market include:
- The average selling time for a home is 54 days 45 days a year ago) and
- Vendors are discounting their properties an average of 5.2% to affect a sale (4.2% a year ago)
Perth
Perth has recorded a further reduction in dwelling values, with the market down 2.3% over the last 3 months, taking values 8.3% lower over the past twelve months and 18.4% lower since peaking in 2014.
The median house value in Perth is now the lowest of any capital city but housing affordability being the best it has been in a long time, local confidence is low with poor economic conditions, relatively high unemployment and subdued migration levels.
Signs of the slow Perth housing market include:
- The average selling time of a home is 62 days (48 days a year ago) and
- Vendors are discounting their properties an average of 6.8% to affect a sale (5.8% a year ago)
- 4.6% fewer properties sold in the last 12 months compared to the previous year.
Hobart
Hobart has been the best performing property market in the last three years, but it looks like the boom is now over.
The Real Estate Institute of Tasmania’s March 2019 Quarterly Report showed sales numbers had decreased for the third consecutive quarter and median prices retracted for the first time in several years, with 8.6 per cent fewer property transactions than in 2018, and an 18 per cent increase in the number of properties advertised for sale.
CoreLogic figures showing a 0.9 per cent slide of dwelling prices last month.
And it’s likely the Hobart market will continue to lose its momentum over the year.
Further signs of the slowing Hobart property market include:
- The average selling time for a home is 32 days (9 days a year ago) and
- Vendors are discounting their properties an average of 4.3% to affect a sale (3.1% a year ago)
Over the last few years, too many investors chased the Hobart “hot spot” at a time when there was a lack of employment drivers, insufficient population growth and not enough infrastructure spending.
Remember home buyers create a property market (they make up 70% of buyers) and investors create property booms – which is what’s happened in Hobart.
Darwin
The Darwin property market peaked in August 2010 is still suffering from the effects of the end of our mining boom today with a very soft employment market, lack of migration and infrastructure spending.
Currently, values are 28.3% below their historic averages and it is unlikely we’ll see these types of house prices again in the next decade.
Signs of the ongoing slowdown in the Darwin market include:
- The average selling time for a home is 77 days (67 days a year ago) and
- Vendors are discounting their properties an average of 7.1% to affect a sale (6.9% a year ago)
The small size of the Darwin market makes it more susceptible to local events and Darwin typically has a higher and more variable vacancy rate, a product of a large transient working population.
Canberra
Canberra’s property market is a “quiet achiever” with dwelling values having grown 2.5% over the last year with house price growth (+3.5%) much stronger than the apartment market where prices fell – 0.8% over the last 12 months.
Signs of the slowing momentum of the Canberra housing market include:
- The average selling time for a home is now 42 days (33 days a year ago) and
- Vendors are discounting their properties an average of 2.7% to affect a sale (5.8% a year ago)
- 4.6% fewer properties sold in the last 12 months compared to the previous ye
While economic growth in the ACT is projected to slow down in the 2019 financial year, it is likely to remain above the national average.
Population growth is expected to remain strong, which will support underlying demand for dwellings.
Our property markets are slowing
CoreLogic report the number of property transactions is down 14.4% nationally year on year, Adelaide and Darwin were the only cities in which sales volumes rose over the year.
Other signs of our slowing property markets are rising Days on Market (the time it takes to sell a property) which is a sign that there more properties available for sale then there are active buyers, and also the increase vendor discounts necessary to sell a property.
Vendors seem to have got the message that it isn’t a great time to sell, with fewer new listings being added to the market than over recent years, while total advertised stock levels are tracking much higher, due to a slower rate of absorption.
Auction clearance rates are higher than they were late in 2018 but much lower than a year ago with volumes also much lower.
Our rental markets are also doing it tough
Rental markets continue to trend lower.
National rents were 0.3% higher over the month and 0.4% higher over the past year which remained at their slowest annual rate of growth on record (data from 2005).
Rental yields have continued to lift from their record lows as rental growth outpaces value growth, however, yields generally remain well below the long term average in most cities
Other market indicators
The trend in population growth has eased over the twelve months ending March 2018, as both the rate of net overseas migration and the rate of natural increase fell. Slower population growth has a negative implication for housing demand.
Dwelling approvals are trending lower and expected to fall further, despite a slight increase over the month.
Housing finance data and credit aggregates highlight the slowdown in mortgage demand.
While housing finance commitments were slightly higher in February, they are substantially lower year-on-year.
Housing credit is growing at an historically low annual rate of 4.0% with owner-occupier credit growth slowing to 5.7% while investor credit growth increasing at a historic low rate of 0.7%.
Official interest rates remain at 1.5%, however, the expectation from the market is that cuts are more likely than increases from here.
In fact, if employment figures don’t improve we could have the first of a number of rate cuts very soon.
