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July 2017 Westpac Property Market Update

Welcome to CoreLogic’s housing market update for July 2017.  This month we will be providing an overview of housing market conditions over the June quarter as well as examining what factors are likely to be contributing to a slowdown in the pace of capital gains seen over the most recent three months of data.

CoreLogic reported that dwelling values across the combined capital cities rose by 0.8% over the June quarter, which was the lowest quarter-on-quarter growth rate since December 2015.  To put the weaker performance into context, dwelling values were 3.5% over the March quarter, highlighting a softening in the trend rate of growth over the three months ending March.

The slowdown was mostly effected by a softer result across the Sydney housing market, where the quarter on quarter pace of capital gains shifted from 5% in March down to 0.8% in June.  The result in Melbourne was more resilient, with the quarterly pace of capital gain easing from 4.2% in March back to 1.5% over the June quarter.

Outside of Sydney and Melbourne, housing market conditions remain diverse.  Brisbane recorded the third highest quarterly pace of capital gains with dwelling values 0.5% higher over the June quarter.  Brisbane’s growth is entirely attributable to a 0.8% rise in house values which offset a 2.4% fall in unit values over the quarter.  Dwelling values slipped lower across the remaining capital cities, except Perth, which posted virtually flat growth conditions (+0.1%) over the June quarter.

Auction results have shown a similar easing over the June quarter, with clearance rates trending lower from around 80% over the March quarter to the low 70% range through June.  In fact, that last three weeks of June saw the Sydney clearance rate fall below 70% while Melbourne’s auction clearance rates holds around the low 70% mark.

As housing market conditions slow there has also been a rise in the number of homes being advertised for sale in some markets.  Across the combined capitals, the number of newly advertised properties is 7.1% higher than at the same time a year ago, with newly advertised listing numbers surging 18.2% in Sydney and 12.1% higher in Melbourne.  Hobart and Canberra have also seen a rise in newly advertised stock levels relative to a year ago.

Sydney total listing numbers are now 11% higher than a year ago, providing more choice for prospective buyers which should help to ease some of the urgency that has been evident across this market over the past five years.  Total advertised stock levels are generally lower than a year ago in most other markets, apart from Adelaide and Canberra where total listing numbers are up 1.5% and 7.3% respectively.

While the pace of capital gains is slowing, rental growth has been rising, albeit from a low base.  Capital city rents pushed 2% higher over the past twelve months, a stark turnaround from the end of 2016 when rental growth was flat.  The upswing in rental growth is most noticeable in Canberra and Hobart, where rents are respectively increasing at 8.4% and 6.2% per annum, however Sydney and Melbourne rental markets have also seen a turnaround in what was previously a sluggish rental market.  Rents in both cities are 4.5% and 4.1% higher over the past twelve months.  The growth in rents can be attributed to the ongoing significant rate of net migration into New South Wales and Victoria as well as low levels of purchasing activity from owner occupier first home buyers.

Let’s take a look at housing market conditions across the capital cities.

Sydney’s housing market is showing all the hallmarks of a controlled slowdown.  The quarter on quarter pace of capital gains has eased from 5% in March to 0.8% in June, advertised stock levels are rising, clearance rates are trending lower and average selling time has started to edge upwards.  Annual growth has eased from a recent peak of just over 18% in March to the current pace of 12.2%.  We expect that the Sydney housing market will moderate over the remainder of 2017 due to less investment activity and higher mortgage rates, however first home buyer stamp duty concessions that went live on July first may provide at least a temporary respite to the slower growth conditions based on higher demand at the more affordable end of the price range.


Melbourne’s housing market is looking more resilient to a slowdown compared with Sydney, however it is clear that growth conditions are starting to ease.  The quarter on quarter growth rate has fallen from 4.2% in March to 1.5% in June.  The quarterly rise was entirely attributable to higher house values which have offset a 2.5% fall in Melbourne unit values over the quarter.  On an annual basis, the pace of capital gains is now tracking at 13.7%. While that is lower than the 15.9% rate of annual growth recorded over the twelve months ending March, the annual gain puts Melbourne at the top of the tables for annual capital gains across Australia’s capital cities.


The Brisbane housing market continued to record a sustainable but subdued pace of capital gains, with a 0.5% rise in dwelling values over the June quarter.  The half a percent rise in roughly in line with inflation and wages growth.  The rise over the quarter takes Brisbane’s annual growth rate to 2.0% which is entirely attributable to a rise in house values compensating a 3.2% fall in unit values over the year.  The subtle pace of capital gains has held Brisbane’s gross rental yield substantially higher than the combined capitals average, with the typical yield on house averaging 4.1% while unit yields are substantially higher, averaging 5.2%.


Adelaide dwelling values held reasonably steady over the June quarter, down 0.2% as a result of a weaker performance across the unit sector. Detached housing showed a much stronger result, with values up half a percent over the June quarter to be 2.7% higher over the past twelve months compared with a 1.3% fall across the unit sector over the year.  Selling conditions have improved substantially across Adelaide over the year, with homes now selling in 44 days on average, compared with 52 days a year ago, as well as an improvement in vendor discounting rates.


The Perth housing market recorded a steady performance over the June quarter, with house values unchanged while unit values edged 0.6% higher.  The positive movements in dwelling values over the June quarter come as transaction numbers also trend higher.  The first half of 2017 recorded 2.3% more sales compared with the first half of 2016, indicating an improvement in buyer demand, albeit from a low base.  Despite the subtle rise in Perth dwelling values, rental markets remain subdued, with house rents down 1.2% over the June quarter and unit rents falling 1.8%.


Hobart’s housing market growth trend took a pause over the June quarter.  CoreLogic’s home value index showed a 1.3% fall in Hobart values over the past three months, however other indicators continue to suggest the Hobart market is likely to show a further rise in dwelling values over a longer term.  Property sales were 11% higher over the first half of 2017 compared with the same period a year ago and vendor metrics have seen a substantial improvement.  Vendors are discounting their asking prices by only 4% on average and homes are selling in an average of 38 days.


The Darwin housing market recorded a 5.2% fall in dwelling values over the June quarter, with the result being pulled lower by a sharp fall in the unit market index. The annual fall in Darwin dwelling values was 7%.  Despite the weak value conditions, transaction numbers were almost 20% higher over the first of 2017 compared with the same period in 2016, suggesting buyer demand is picking up from a low base.


Canberra dwelling values slipped 0.4% lower over the June quarter, but remain almost 10% higher over the past twelve months, highlighting the strong growth trend that has been evident across the city prior to the June quarter.  Despite the softer capital gain result, housing demand appears to be strong across Canberra.  Dwelling sales were 11% higher over the first half of 2017 compared with 2016, discounting rates were averaging just 3.6% and the average selling time was just 40 days.

Overall, CoreLogic’s June data indicates the housing market is transitioning, with the rate of capital gains moderating across what have been the hottest markets, while other cities continue to offer up a diverse performance.

Sydney and Melbourne dwelling values are now five years into one of the strongest growth phases on record.  Sydney dwelling values have surged 79% higher since values started rising in June 2012 and Melbourne dwelling values are up 60% over the same time frame.  Prospective home buyers and regulators are likely to welcome a controlled slowdown in these markets.

The slowing growth conditions can’t be tied to one particular factor.  The reduction in growth rates is due to a variety of factors including the recently announced macroprudential changes from APRA, higher mortgage rates, particularly for investors, worsening affordability and a general reduction in consumer confidence.

We are yet to see the full effects of the APRA decision to limit interest only lending to 30% of new originations.  There is some way to go before lenders meet this new lending speed limit, and it’s likely that mortgage rates will rise further despite a stable cash rate setting from the RBA.

Discounted variable mortgage rates for investors, based on data to the end of May, are already 35 basis points higher than their recent 2016 low point.  With debt levels high and rental yields generally low, it’s likely that investors will continue to be further disincetivised by higher mortgage rates and stricter credit policies.

It’s clear that lending to investors has been easing since December last year.  The latest data from the Reserve Bank shows that housing credit growth for investment purposes has been easing since December last year which is well before the latest APRA intervention.  If mortgage rates continue to move higher, as we expect, we are likely to see a further slowdown in investment activity.

The latest figures from the Australian Bureau of Statistics indicate that investors comprised 47% of new mortgage originations which is the lowest proportion since October last year, but substantially higher than the long run average which is roughly one third.  As investment incentives deteriorate and first home buyer incentives kick in, it’s likely that investors will comprise a progressively smaller component of the housing market over the remainder of 2017.

The slowdown in investor numbers is likely to impact the Sydney housing market more than others simply because investors comprise a much larger proportion of the market than other regions.  The latest ABS housing finance data indicates investors still comprise 55% of mortgage demand across NSW.  Potentially we may see some investment demand deflect to other markets where rental yields are higher and capital gains are earlier in the cycle.

With the market evolving so rapidly, I recommend that you stay up to date on all the latest housing market research at