State by state: A February update on Australia’s property markets

Australia’s housing markets rebounded strongly last year, and this strength has continued into 2020.

In fact, the property upturn which started in our big two capital cities in the middle of last year has become more widespread, with housing values rising across every capital city in January according to the latest stats from Corelogic.

While Sydney and Melbourne continue as the leaders for property value increases, the speed of growth has lost some momentum over recent months as can be seen in the chart below.

The following chart shows how a number of states are at the market peak in prices, while Sydney and Melbourne property values have made up much of the ground they lost in 2018-9 and will reach new peaks sooner rather than later.

Looking deeper into the CoreLogic stats, it is clear the more expensive end of the Melbourne and Sydney markets are the primary driver of rebounding capital gains.

Sydney

The Sydney property market is on the move having recorded its quickest turnaround in decades.

Since bottoming out after the election in May, Sydney dwelling values have recovered by 11.2%.

Sydney house prices increased 1.5% over the last month (6.7% over the last quarter), while apartment values increased by 0.3% over the last month (3.2% over the last quarter).

The recovery is most concentrated across the premium end of the housing market where values were previously falling more rapidly.

The top quartile of the market is up 6.9% over the past three months and 10% higher over the year, while values across the lower quartile were 3.2% higher over the quarter and are only 3.4% higher over the past year.

The following metrics confirm the increased strength of the Sydney housing market:

• The average selling time of a home is 33 days (57 days a year ago);
• Vendors are discounting their properties an average of 3.5% to affect a sale (7.3% a year ago); and
• 17% more properties sold in Sydney in the last 12 months compared to the previous year.

Currently investors and homebuyers are abandoning the off-the-plan apartment sector for many reasons, including concerns about construction standards. Many of those who purchased off-the-plan a few years ago are now having trouble settling with valuations coming in on completion at well below contract price at a time when banks are more reluctant to lend on these properties.

In the background, strong economic growth and jobs creation is leading to population growth and ongoing demand for property in Sydney.

At the same time international interest from migrants continues.

The beginning of this new cycle is a great time to look at buying an investment-grade property in Sydney, which is currently offering investors an opportunity to buy established apartments in the eastern suburbs, lower North Shore and inner west at a slight discount to what they would have paid a number of years ago.

Melbourne

Melbourne property prices are surging with dwelling values up 8.2% higher over the last year taking them to only 1.2% below their October 2017 peak.

House values are rising faster than unit values across Melbourne, up 1.4% over the last month (5.6% over the last quarter) while apartments rose in value by 0.7% (3.5% over the last quarter). 

At the current rate of growth, we are likely to see Melbourne home values reach a new record high over the next month or so.

But the Melbourne property market is very fragmented, with values of more expensive properties rising considerably more than affordable houses.

The following metrics confirm the increased strength of the Melbourne housing market:

• The average selling time of a home is 31 days (45 days a year ago);
• Vendors are discounting their properties an average of 3.5% to affect a sale (6.7% a year ago); and
• 7.9% more properties sold in Melbourne in the last 12 months compared to the previous year.

The Melbourne property market is moving from strength to strength, after exhibiting the strongest rebound in modern history.

Buyers are back, sellers are back, and auction clearance rates are high despite rising volumes of properties for sale.

Overall property values will be underpinned by a robust economy, jobs growth Australia’s strongest population growth and the influx of 35% of all overseas migrants.

Remember, Melbourne rates as one of the 10 fastest-growing large cities in the developed world, with its population likely to increase by around 10% in the next four years.

Brisbane

Brisbane’s property downturn was quite shallow compared to the big two capital cities and following its recent upturn property values have reached a new peak.

Brisbane house prices increased by 0.7% over the last month (2.3% over the last quarter) while apartments in Brisbane dropped in value by 0.6% over the last month (+0.4% over the last quarter).

However, Brisbane property prices are still about 55% of Sydney’s while household incomes are only about 12% lower, making Brisbane a very affordable alternative for home buyers and investors.

A recent report by valuers m3property showed there is still a significant oversupply of new Brisbane apartments, with about one in four new apartments in the Brisbane CBD remaining unsold.

The following metrics show how the Brisbane housing market is improving:

• The average selling time of a home is 50 days (49 days a year ago);
• Vendors are discounting their properties an average of 4.0% to affect a sale (4.9% a year ago); and
• 6.5% fewer properties sold in Brisbane in the last 12 months compared to the previous year.

With migration rates lifting, supply under control and generally healthy levels of housing affordability, the Brisbane housing market fundamentals are looking healthier compared to most other capital cities.

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.

Brisbane’s economy is being underpinned by major projects such as Queen’s Wharf, HS Wharf, TradeCoast, Cross River Rail, the second airport runway and the Adani Coal Mine, but jobs growth from these won’t really kick-off for a few more years.

Adelaide

Adelaide housing values were up 0.2% in January, continuing a trend of modest growth that’s been evident since October last year.

The latest month of growth has seen Adelaide home values reach a new record high, after recovering the 1.6% decline recorded between late-2018 and mid-2019.

House prices in Adelaide rose 0.2% over the last month (+1.3% over the last quarter) and unit prices rose 0.5% (+1.3% over the last quarter).

Signs of the improving Adelaide property market include:

• The average selling time for a home is 40 days (down from 44 days a year ago);
• Vendors are discounting their properties an average of 4.3% to affect a sale (5.0% a year ago); and
• 0.8% fewer properties sold in the last 12 months compared to the previous year.

While things look good for Adelaide property in the short term, with sales activity starting to trend higher, based on improving buyer demand, over the next few decades the bulk of Australia’s long-term jobs growth, economic growth and population growth will occur in our three big capital cities, meaning there are better locations for long term wealth creation that Adelaide.

Perth

Housing values are slowly emerging from a slump that lasted five-and-a-half years.

House prices in Perth rose 0.1% over the last month (+0.4% over the last quarter) while unit prices rose 0.3% (+0.7% over the last quarter).

However, Perth property values are still 5.7% lower over the past 12 months taking values 21.3% lower than their peak in June 2014.

Perth values are now among the most affordable amongst the capital cities, but it’s much too early for a countercyclical investment in the west. I can’t see prices rising significantly for a number of years.

Signs of the slowly improving conditions in the Perth housing market include:

• The average selling time of a home is 42 days (57 days a year ago);
• Vendors are discounting their properties an average of 5.4% to affect a sale (6.6% a year ago); and
• 6% more properties sold in Perth in the last 12 months compared to the previous year.

Hobart

Hobart has been the best performing property market in the last few years, and while dwelling values are at a record high, its boom is now over.

The Hobart market lost momentum over the last year but house prices in Hobart rose 0.9% over the last month (+2.9% over the last quarter) while unit prices rose 0.8% (+5.4% over the last quarter).

It’s likely the Hobart market will continue to lose its momentum over the year.

Signs of the slowing Hobart property market include:

• The average selling time for a home is now 25 days compared to 17 days a year ago);
• Vendors are discounting their properties an average of 2.7% to affect a sale (3.8% a year ago); and
• 9.9% fewer properties sold in the last 12 months compared to the previous year.

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.

And Hobart is too small a market to be a long-term investment-grade proposition. 

Only 5,510 property transactions occurred in Hobart last year, compared to Melbourne (76,840) Sydney 74,740 and Brisbane (48,830). 

Darwin

The Darwin property market peaked in August 2010 is still suffering from the effects of the end of our mining boom with a very soft employment market and lack of migration and infrastructure spending.

Currently, values are 31.8% below their historic peak, and it is unlikely we’ll see these types of house prices again in the next decade.

House prices in Darwin rose 0.6% over the last month but fell -1.4% over the last quarter, while unit prices fell -1.1% over the last month (-2.1% over the last quarter).

The following metrics confirm how sluggish the Darwin property market is:

• The average selling time for a home is 68.5 days (69 days a year ago);
• Vendors are discounting their properties an average of 7.6% to affect a sale ( the same as 12 months ago); and
• 2% fewer properties sold in Darwin in the last year than 12 months 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 has been a ‘quiet achiever’ with dwelling values having reached a new peak after growing 3.1% over the last year .

House prices in Canberra rose 0.3% over the last month (+1.6% over the last quarter) while unit prices rose 0.1% (+1.6% over the last quarter).

Signs of the strength of the Canberra housing market include:

• The average selling time for a home is now 35 days (45 days a year ago);
• Vendors are discounting their properties an average of 2.9% to affect a sale (2.7% a year ago); and
• 5.7% more properties sold in Canberra in the last 12 months compared to the previous year.

Overall, the Australian housing markets are striding along

Vendor metrics have generally improved over recent months with the number of days to sell a property decreasing (a sign of the tight supply situation), vendor discounting decreasing (it’s easier for them to sell), and auction clearance rates starting the year on a very strong note.

While sellers went on strike for a year or two realising that it wasn’t a great time to sell, vendors now seem to be slowly re-entering the market and while new listings (properties for sale) are lower than recent years they are lifting more rapidly than over recent years pointing to renewed vendor confidence.

One sign of increased confidence, especially in the Melbourne and Sydney property markets are the strong auction clearance rates which have persisted despite more properties coming onto the market.

Our rental markets

Following a number of years of sluggish rental growth, rents are starting to rise.

Other market indicators

The trend in population growth has eased as both the rate of net overseas migration and the rate of natural increase fell.

Net overseas migration is forecast to average a net inflow of 243,000 people per annum in the next three years and most of these people have jobs and are at household formation age.

But new dwelling approvals are trending lower and expected to fall further as presales become tougher which means that we’re likely to have an undersupply of properties in 2021.

Latest ABS data reveals that total value of home lending seasonally adjusted increased by 4.9% over December compared to the previous month — the third consecutive monthly increase. 

All sectors reported rises in lending over December with owner-occupiers (excluding first home buyers) up 5.3%, first-home buyers up 6.2% and investors up by 2.8% over the month. 

Compared to 2018 however, lending totals for 2019 remained lower, with overall owner-occupiers down 5.2% and investors still down 19.2% — for a total annual lending decline of 9.2%. 

Lending for first-home buyers, however, bucked the trend, increasing by 4.6% over 2019 compared to the previous year.

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