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June 2017 Westpac Property Market Update

Welcome to CoreLogic’s update on Australia’s housing market for June 2017.  CoreLogic’s May results provided further support that the pace of capital gains is losing some momentum, particularly in Sydney and Melbourne where housing market conditions have been the hottest.  According to CoreLogic’s home value index, capital city dwelling values slipped 1.1% lower in May, which was the largest month-on-month decline in 18 months.

It’s important to note that May has historically been a seasonally weak month of the year.  Adjusting for this seasonality suggests capital city dwelling values were flat rather than falling in May, however there has been a noticeable easing in the trend rate of growth as well as other indicators such as auction clearance rates, transaction volumes, housing finance and consumer sentiment.

The slowdown in housing market conditions has been more noticeable across the unit sector rather than detached housing.  The first five months of 2017 have seen capital city house value increase by 2.8% while unit values have remained virtually flat with a 0.2% rise in values.  The stronger performance in the detached housing sector likely reflects the growth in the underlying land value as well as higher supply levels weighing on growth rates in the unit market.

Auction clearance rates, which provide one of the timeliest indicators on the fit between buyer and seller expectations, have been moderating since mid-April, reaching 72% in Sydney over the first week of June and 73% in Melbourne. Both results were the lowest clearance rate over 2017 to date and preliminary results for the second week of June show some further slippage.  While these figures still indicate an overwhelming majority of auctions are successful, the clearance rate is on a clear downtrend.

The number of settled sales has also trended lower which is likely attributable to a range of factors including tighter credit policies, affordability constraints in some markets, low advertised stock levels and weaker sentiment.  CoreLogic estimates national settled sales are 4.6% lower year on year with more substantial falls recorded across Melbourne, Brisbane and Sydney.

On the other hand, some markets which have been weaker have seen transactions holding firm or rising.  Year on year settled sales moved off a low base in Darwin, rising 2.6% and Perth sales edged 0.3% higher.

Adding to the complexity in reading the current market is the recent Australian Prudential Regulation Authority announcement at the end of March for a new round of macroprudential measures aimed at slowing the pace of interest only lending.  Based on the new rules from APRA, Australian lenders will need to reduce lending on interest only terms to less than 30% of new originations.  Considering interest only loans currently comprise about 36% of new mortgage lending, there is likely to be further in loans originated on interest only repayment terms.    

Subsequently, mortgage rates are continuing to trend higher, particularly for investors and interest only loans.

Another factor that is likely contributing to slower growth conditions is a dent in consumer confidence.  Consumer sentiment towards housing, as measured by Westpac and the Melbourne Institute, showed a marked downturn in May.  In particular, the Westpac ‘time to buy a dwelling index’, fell 6.5% over the month.  According to Westpac, ‘consumer sentiment towards housing shows an increasingly negative view’.

While market conditions appear to be broadly tapering, housing markets are at very different stages of the growth cycle across each of the capital cities.

The Sydney housing market seems to be losing some steam after five solid years of capital gains have pushed home values 75% higher.  Dwelling values were flat over the three months ending May 2017, with a 0.7% rise in house values offsetting a 3.2% fall in unit values.  Auction clearance rates have been trending lower, with preliminary numbers for the second week of June indicating Sydney’s clearance rate fell below the 70% mark for the first time since March 2016.  Listing numbers are now higher than a year ago, providing buyers with more choice and a little bit less urgency in their decision making.

Melbourne’s dwelling values pushed a further 0.7% higher over the three months ending May 2017, with a 1.2% rise in house values offsetting 3.9% fall in unit values.  The latest data shows Melbourne unit values have recorded their first year on year fall since 2013.  Since dwelling values started trending higher five years ago Melbourne dwelling values are now 55% higher.  Despite the recent softening, Melbourne’s auction market appears to be more resilient to a slowdown compared with Sydney, with clearance rates remaining in the low to mid 70% range through May and the first week of June.

In Brisbane, dwelling values continued their sustainable but moderate pace growth, tracking 1.2% higher over the three months ending May 2017 to be 2.3% higher over the year.  Like many cities, the growth in dwelling values is mostly attributable to the detached housing sector.  House values are 1.5% higher over the rolling quarter and 2.3% higher over twelve months, while unit values have slipped 1.7% lower over the rolling quarter to be down 4.5% year on year which is the largest fall since 2012.  The last five years has seen Brisbane dwelling values increase by 21% with an annual growth rate of 3.9%.

Adelaide dwelling values were 2% higher over the three months ending May 2017 and annual capital gains were recorded at 2.9%.  The growth has been mostly attributable to detached housing stock where house values have increased by 3.1% over the past twelve months while unit values have held reasonably firm with a rise of just 0.3%.  A subtle 0.6% rise in year on year settled sales indicates a slight increase in buyer demand, particularly for detached houses, where settled sales were 1.5% higher over the year compared with a 1.9% fall in the number of settled unit sales.

The Perth housing market saw dwelling values fall a further 0.4% in May to be 3.8% lower over the past twelve months.  Since peaking in December 2014, Perth dwelling values are now down 10.3%.  While the growth rate remains negative, the Perth housing market is showing some tentative signs of levelling, with settled sales inching higher over the year, listing numbers starting to reduce and a moderation in the downwards trend in home values.

Hobart’s housing market took a breather in May with dwelling values slipping 1% over the past three months.  The negative movement has broken an accelerating trend in capital gains, and there is a strong likelihood that the negative result will be a temporary blip on Hobart’s improving capital gain trajectory.   The southernmost capital city continues to record the highest gross rental yields of any city as well as the most affordable housing prices across the capitals as well as burgeoning demand for lifestyle properties that should continue to support further growth in home values.

The Darwin housing market saw dwelling values edge lower over the past three months, down 0.1%.  The subtle decline comes after a long period of falling home values.  Since the market peaked in mid-2014, dwelling values have fallen by a cumulative 11.5%.  Despite the ongoing falls, the magnitude of decline has started to level and transaction numbers have risen by 2.6% year on year, suggesting an improvement in buyer demand.

Canberra dwelling values have slipped over the past rolling quarter, down 1.5%, with a larger fall of 3.5% recorded across the unit sector being slightly offset by a more subtle 1.5% drop in house values.  Settled sales are also down, falling 1% over the past twelve months.  The trend in capital gains was accelerating across Canberra up until recently, so it will be interesting to see if the recent slowing is more than just temporary.


Overall, the negative May index results from CoreLogic comes at a time of seasonal weakness which may imply that calling a peak in the housing market is premature.  But it is becoming increasingly clear that some heat has left the Sydney market place and to a lesser extent Melbourne.

One of the key factors affecting housing market conditions is likely to be the fact that mortgage rates are pushing higher.  Since August last year, discounted variable rates have risen by 10 basis points for owner occupiers and by 35 basis points for investors.  Mortgage rates could rise further as the recently announced macroprudential measures from APRA progressively impact on credit policies and the federal government banking levy comes into effect on July 1st.

Small rises in mortgage rates are likely to have some impact on housing demand, considering household debt is tracking at record highs.

For investors, the higher cost of servicing their debt comes at a time when rental yields are close to record lows in Sydney and Melbourne, which are also the two cities with the largest concentration of investors.  Landlords are likely to try pushing rents higher, but this may be difficult considering the weak wages growth environment and higher level of rental supply in some regions.

While we are expecting investment activity to slow, the fact is other asset classes aren’t likely to be as attractive as property to investors.  Cash and bonds continue to provide low but safe returns and equities remain volatile.  Considering the alternatives, we are likely to see property investment remain a popular option.

If investors are concerned about the run of capital growth in the two largest cities coming to an end, the more astute investors may change their focus towards the rental return given the possibility of lower capital growth potential.  Yields are much healthier in cities like Hobart, Brisbane and Canberra and the growth cycle is nowhere near as mature as Sydney and Melbourne.

In summary, the jury is still out on whether the housing market has peaked, however if it hasn’t, a peak could be just around the corner.  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.

Of course, you can stay in tune with regular housing market updates via the CoreLogic website at