Our property markets are down but not out

With so many mixed messages in the media about what’s going to happen to property I thought I’d take a look at the latest property statistics to see what’s going on and look for clues as to where market is headed.

Recently Residex released its growth figures for our capital cities for the 12 months to May. As you can see from the table below, Melbourne was the outstanding performer over the last year:

But if you look at month-to-month growth there is evidence our property markets are cooling and falling auction clearance rates around the country show the winter chill has set into the Australian property markets.

Melbourne recorded a clearance rate of only 67% this week, down from its boom time highs of 80%+ clearance rates. But many have forgotten that a clearance rate of around 70% is normal for Melbourne.

In Sydney, 149 of the 216 properties put to auction sold, giving a clearance rate of 64%. In Adelaide, 25 properties were put to auction with a clearance rate of 69%. Brisbane saw just 16 auctions, with six selling, giving a clearance rate of 35%.

But it’s more than the cold weather that has slowed down buyer demand. Rising prices, higher interest rates and a slide in confidence with all the mixed messages in the media has meant that some buyers are holding back their purchases.

In a recent report David de Garis, senior economist with the global markets research division of the National Australia Bank also commented that our housing markets are cooling, but clearly not collapsing like many had anticipated.

The report showed that after rising by 0.2% in April the RP Data-Rismark (hedonic) home values index rose by a slightly faster monthly rate of 0.6% in raw terms in May, with the annual rate virtually steady at 12.1% in May (the annual rate of house price growth around Australia to April was 12.2%).

The NAB concluded that while it is certainly true that the rate of growth in house prices is slowing, it is nevertheless still rising. At the end of last year house prices around Australia were growing at more than 1% per month; but that growth has since halved to around 0.5% per month.

However, while capital city prices continued to grow, regional prices fell in May by 0.2% with annual growth at a slower 5.8% to May, down from 6.7% to April.

De Garis says our market cooling but not collapsing should show the Reserve Bank of Australia (RBA) that there’s more resilience across most capital city markets than might have been anticipated given reports of increased supply and rate rises. And particularly since these latest rises occurred against a background of another RBA rate rise, some further decline in consumer sentiment and a ramp up of global market volatility.

Not surprisingly the property markets performed differently across the various price categories. The bottom 20% of capital city suburbs have seen virtually no growth, while the top 20% has seen price growth cool markedly in the past two months from more than 2% per month to barely positive growth.

At the same time the middle market (the other 60% of suburbs) held up much better with prices still growing at 0.8% per month.

I see our housing markets softening further in coming months. By this I mean price growth will slow. It doesn’t mean prices will fall, but they may in some areas, particularly at the bottom-end of the market if interest rates rise again too soon.

If you are in the market for a home or an investment this means it’s a good time to take advantage of keen sellers. The market has moved from a seller’s market to a buyer’s market, but you can only take advantage of it if you buy.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.