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

Property market sentiment has changed over the past month, buoyed by the results of the Federal election, falling interest rates and APRA loosening its restrictions on lending.

However, there was still a decline in property values in our national housing markets in the month of May.

National dwelling values fell for the 19th consecutive month in May 2019, recording a 0.4% decline – the smallest monthly decline since August 2018.

CoreLogic reports that, over the month, combined capital city values fell by 0.4%, while the combined regional markets recorded a 0.2% fall.

Over the past year, national dwelling values have fallen by 7.3%, which is their largest annual fall since January 2009.

Combined capital city dwelling values were 8.4% lower over the year, and combined regional market values were 3% lower.

Over the past year, values have fallen in all capital cities except for Adelaide, Hobart and Canberra. However, each capital city has a lower rate of annual value change over the past year, compared to the previous year.

The Australian housing market remains in a geographically broadly-based downturn.

Monthly price declines are now moderating, suggesting we are probably past the worst, and prices should begin to stabilise by late 2019.

Sydney

Sydney dwelling values continued to trend lower in May, down a further 0.5% over the month. They are now down 14.9% from their market peak in July 2017.

The good news is that this was the smallest month-on-month decline since March last year.

Auction clearance rates in Sydney have been rising into the high 60% range, albeit on lower volumes.

An interesting change in trend is that apartment values (down 2.3% over the past three months) are currently falling faster than home values in Sydney (down 1.9% over the past three months).

Currently, there is a significant number of new apartments coming onto the market in Sydney. It is estimated that 54,000 apartments will be completed in the city in 2018 and 2019, and this will obviously put pressure on prices and rentals.

Sydney homes now take an average of 50 days to sell, compared to 33 days a year ago. However, vendors are discounting their properties by an average of 6.7%, compared to 5.3% a year ago, to effect a sale.

Over the past 12 months, 20.2% fewer properties sold in Sydney than in the 12 months previous.

The fact that days on market and vendor discounting are increasing and auction clearance rates are rising are all positive signs.

So is the fact that first home-buyers’ interest is increasing, with 25% of home loans approved in NSW in March going to first-time buyers.

It is a great countercyclical time to look at buying an investment-grade property in Sydney.

Melbourne

Melbourne dwelling values continued to trend lower in May, down 0.3% over the month to become 11.1% down since peaking in November 2017. But, according to Corelogic Melbourne, dwelling values remain 25% higher than they were five years ago.

Although values are still falling, this was the smallest month-on-month decline since March last year, and continues a trend of diminishing declines that have been evident since February this year.

Over the past 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 took an average of 44 days to sell over the March quarter, compared to 29 days a year ago. However vendors are discounting their properties by an average of 6.3%, compared to 4% a year ago to effect a sale.

Over the past 12 months, 27.4% fewer property sold in Melbourne than in the previous year.

The resilience across the apartment sector, despite higher supply levels, probably comes back to a combination of affordability constraints in the market. Also, more first-home buyers are supporting housing demand across the lower price points of the market, thanks to the first home-owner incentives.

Brisbane

Brisbane property values were down 0.5% in May, with falls confined to the detached housing sector.

CoreLogic reports apartment values actually rose 0.1% over the month, breaking a long-running trend of falling values.

While Brisbane apartment values remain 12.5% below their 2010 peak, the unit oversupply has slowly been absorbed due to rising population at a time when less supply is coming onto the market.

The slower Brisbane housing market means that:

• The average selling time of a home is 55 days (36 days a year ago);
• Vendors are discounting their properties an average of 5% to effect a sale (4.3% a year ago); and
• 12.7% fewer properties sold in the past 12 months, compared to the previous year.

With migration rates rising, 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, is putting a floor under property prices.

Adelaide

Adelaide was the only capital city to avoid a fall in housing values throughout May, with the CoreLogic index rising 0.2% over the month to be 0.4% higher over the past twelve months.

Adelaide is the most affordable capital city in Australia, with dwelling values falling 0.2% over the past three months. However, they are up 0.4% over the past year.

Signs of the slower Adelaide property market include:

• The average selling time for a home is 43 days – much the same as last year (42 days);
• Vendors are discounting their properties an average of 5.3% to effect a sale (4.9% a year ago); and
• 2.3% fewer properties sold in the past 12 months, compared to the previous year.

While things look good for Adelaide property in the short term, over the next few decades the bulk of Australia’s long-term jobs growth, economic growth and population growth will occur in our four big capital cities, meaning there are better locations for long-term wealth creation than in Adelaide.

Perth

Perth has recorded a further reduction in dwelling values, down 1% over the month and 8.8% over the past 12 months, taking values down a total of 19.2% since their peak in June 2014.

The ongoing weakness in the Western Australian housing market can be attributed to mix of weak economic and demographic conditions, overlaid with a tight credit environment.

Perth properties are now among the most affordable of the capital cities, with a median dwelling value of $436,000, only $4,500 higher than Adelaide’s median dwelling value.

Signs of the slow Perth housing market include:

• The average selling time of a home is 57 days (49 days a year ago);
• Vendors are discounting their properties an average of 6.9% to effect a sale (6% a year ago); and
• 7.2% fewer properties sold in the last 12 months, compared to the previous year.

It’s much too early for a countercyclical investment in the west – I can’t see prices rising significantly for a number of years.

Hobart

Hobart has been the best performing property market over the past three years, but it looks like the boom is now over, with prices peaking in March this year.

CoreLogic figures show a 0.4% slide in dwelling prices last month.

Further signs of the slowing Hobart property market include:

• The average selling time for a home is 32 days (9 days a year ago);
• Vendors are discounting their properties an average of 4.3% to affect a sale (3.3% a year ago); and
• 10.1% fewer properties sold in the last 12 months compared to the previous year.

Darwin

The Darwin property market peaked in August 2010, and 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 29.5% below their historic averages, and it is unlikely we’ll see these types of house prices again in the next decade.

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.

Darwin does not have significant growth drivers on the horizon and would be best avoided by investors.

Canberra

Canberra’s property market is a ‘quiet achiever’, with dwelling values having grown 2.4% over the past year and house price growth (3.4%) much stronger than the apartment market, where prices fell 1.1% over the past 12 months.

With the Federal election now over, confidence is likely to return to the Darwin market, and population growth is expected to remain strong, which will support underlying demand for dwellings.

Our property markets are still easing

Vendor metrics have generally improved over recent months, but are still weaker than a year ago.

CoreLogic report the number of property transactions is down 16.6% nationally year-on-year. Darwin was the only city 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 are more properties available for sale then there are active buyers; and also the increased 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 in recent years, while total advertised stock levels are tracking much higher, due to a slower rate of absorption.

One sign of increased confidence, especially in the Melbourne and Sydney property markets are rising auction clearance rates.

If these continue to remain in the high 60% range, this could lead to rising property values.

Our rental markets are also doing it tough

Rental markets continue to trend lower.

CoreLogic reports that national rents were unchanged over the month and 0.4% higher over the past year. This remains their slowest annual rate of growth on record (data from 2005).

Other market indicators

The trend in population growth has eased over the 12 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 investment lending, while owner occupier lending has slowed, but has risen by 5.5% over the 12 months to April 2019. Investor credit has increased at an historically slow rate of 0.6%.

Official interest rates were cut to 1.25% in June, and the expectation from the market is that cuts are more likely than increases from here.

The bottom line

We’re at an interesting stage of our property cycle, with signs we’re nearing the bottom.

While there may be a little more downslide in our big two capital city markets, it looks like it’s the best time to buy countercyclically in Sydney and Melbourne for over a decade, or to ride the Brisbane property cycle.

Canberra property should continue to perform well, and Adelaide should hold its own. But, it’s likely Hobart will now slowly move to the slump phase of its own property cycle, and there is still more downside for Perth and Darwin.

Of course, property will remain a sound asset for long-term wealth creation. But now more than ever correct asset selection will be critical, so only buy in areas where there are multiple long-term growth drivers such as employment growth, population growth or major infrastructure changes.

Similarly, suburbs undergoing gentrification are likely to outperform.

NOW READ: Purplebricks leaves Australia: Was it a complete misunderstanding of the market that caused the British startup to fail?

NOW READ: Beat your landlords: 12 tips for those negotiating a commercial lease