Brisbane Housing Market Update | August 2017

Brisbane Housing Market Update | August 2017


– Welcome to this month’s
update on housing market conditions brought to
you by onthehouse.com.au. CoreLogic’s combined capital cities index recorded another rise in
July, taking dwelling values 1.5% higher over the
month to be 10.5% higher over the past 12 months. The strong month-on-month
results was largely attributable to a 3.1%
increase across Melbourne which is now recording the
highest annual growth rate with values 15.9% higher. Canberra also showed a substantial gain in dwelling values over the month, with the index value up 2.4%. In fact, Canberra is now
showing the second highest annual pace of capital
gains after Melbourne, pushing Sydney to the third
place on the capital gains leads tables with an annual
growth rate of 12.4%. While growth rates remain
high in these cities, there’s been some
moderation in the trend rate of growth since the first quarter of 2017, especially in the Sydney housing market. Sydney’s quarterly growth
trend has eased from 5% over the March quarter to
2.2% at the end of July. Melbourne and Canberra
conditions have been more resilient to a slowdown though, with a riding quarterly
growth rate holding reasonably firm around
the 5% mark in Canberra and 4% in Melbourne. Other capital cities
aren’t showing the same level of exuberance though. Dwelling values continue to
slip lower in Perth and Darwin and were also slightly down
in Brisbane during July. The silver lining around
the weak housing market conditions in these areas is
that housing affordability is far less problematic
relative to the larger cities. Better housing
affordability can be seen in first home buyer trends,
with activity across this segment of the marketplace
proportionally higher than other states and trending upwards. While capital gain
conditions remain diverse, so, too does housing turnover. Broadly, the number of
transactions across the combined capitals has reduced by
4.3% over the past 12 months and annual transaction
numbers are now 16% lower compared with the cycle peak
which was back in mid 2014. The largest year-on-year
falls in settled sales have been in Brisbane and Melbourne, with sales down 9.7%
and 7.6% respectively. At the other end of the
spectrum, Hobart and Darwin have both seen a lift
in turnover by about 11% over the past year. Housing turnover is being
affected by a range of factors including inventory shortages,
tighter credit policies, higher mortgage rates, and
lower consumer sentiment. However, many of these
factors vary substantially from region to region. Another facet of the
housing market is that houses are substantially
outperforming units. The combined capital city
index shows that over the year, house values have risen by 10.9%, while unit values have increased by 7.3%. The performance differential
is most significant in Melbourne and Brisbane,
which are the two marketplaces where concerns around an over-supply of unit construction are most pronounced. According to the CoreLogic
Hedonic Home Value Index, house values in Melbourne are
17.2% higher over the year compared with a 4.6% rise in unit values. While in Brisbane house
values are 2.6% higher while unit values have actually reduced by 1.4% over the past 12 months. The weak performance can
probably be attributed to both higher unit supply levels around the inner city regions,
which has led to tighter credit policies from lenders
and heightened caution from investors in these areas. Brisbane’s housing market
has continued along a surprisingly weak trajectory
with dwelling values slipping by 0.6% over the month, and rising by only 2.2%
over the past year. With annual growth only
slightly higher than inflation and wages growth,
Brisbane’s housing market remains affordable relative
to the larger capital cities and rental yields are substantially higher than what’s being achieved
in Sydney and Melbourne. With interstate migration now ramping up and the labour market
improving, we may start to see the Brisbane housing market
experience an improved rate of capital gain over
the second half of 2017. Slower growth conditions,
at least at a macro level, are being brought about
by several factors. Firstly, it’s clear that investment in the housing market is now tapering. Growth in investment-related credit peaked in November last year and since that time the pace of lending
for investment purposes has been moderating. Considering investment
activities heavily skewed towards the Sydney housing market, less activity across this
segment is likely to have more impact compared with
the other capital cities. Investor appetite is
being dampened by higher mortgage rates as well as
tighter credit policies and low rental yields. Since bottoming out in November last year, discounted variable mortgage rates for investment purposes have
risen by 35 basis points and they’re now 60
basis points higher than the same product for owner-occupiers. Mortgage rates for interest-only terms have also moved higher in response to the March announcements from
APRA that Australian lenders should limit the interest on their lending to 30% of new settlements. These two factors have
created a substantial disincentive for real estate investors. Add to this the fact that rental yields slipped to new record lows
in Sydney and Melbourne during July, and it becomes clear why investment credit growth is trending down. While these factors are working
to slow the housing market, there are other factors that
are stoking housing demand. Population growth has rebounded higher, creating more demand for housing. Based on data to the end of 2016, the number of net overseas
migrants into Australia was up by 16.5% with 76%
of these overseas migrants arriving in New South Wales and Victoria. Interstate migration
flows are also changing, which is impacting on housing demand. The net outflow of residents
from New South Wales is now gathering some pace, while net migration into Queensland is the highest in 10 years. The rise in interstate
migration is likely to be a key driver of housing
demand, particularly across the southeast corner of Queensland, while the outflow from New
South Wales is probably another reason that the housing market is starting to slow down. Labour market conditions have
also tightened during 2017. The past five years saw
75% of Australian jobs created in Victoria and New South Wales, which has supported the high rate of population growth in these regions. More recently, jobs growth has
become more broadly spread, picking up across most
states and territories. Another factor to consider in
New South Wales and Victoria is the effect of new first home buyers’ stamp duty concessions. As of July first, first home
buyers in New South Wales were exempt from stamp
duty when purchasing a home under 650,000 and stamp duty is discounted up to $800,000. In Victoria, stamp duty
exemptions became available for properties purchased
with a price tag of less than $600,000 with
concessions on stamp duties up to $750,000. While it’s still too early
to gauge the extent of first home buyer reactions, historically first home buyers have
been very responsive to these types of incentives. Overall, growth in
residential property values remains healthy, but at a
combined capital city level it’s not quite as strong
as what it was a year ago. Although it’s anticipated the market will continue to see values rise, it’s expected that the rate
of growth will continue to slow throughout the remainder of 2017. Of course the latest research and updates of the housing market
can always be found at the CoreLogic website located
at www.corelogic.com.au.