Melbourne Housing Market Update | October 2017

Melbourne Housing Market Update | October 2017


– Welcome to CoreLogic’s
October housing market update. This month we’re providing an overview of how the housing market performed over the September quarter and we’re reviewing some
of the factors contributing to a slowdown of the
rate of capital gains. CoreLogic’s national home value index edged a 0.2% high over
the month of September, with dwelling values across
the capital cities of 0.3% compared with 0.1% rise across
the broad regional areas of the country. The latest figures take
national dwelling values 0.5% higher over the September quarter. That’s the slowest pace
of quarterly capital gains since June of 2016. Focusing on the capital cities, dwelling prices were 0.7% higher
over the September quarter, which is well below the
recent peak rate of growth, which was recorded back over the three months ending November 2016. Back then the quarterly rate of growth was appreciating at 4.2%. The slowing in the combined
capitals growth trend has been heavily influenced by conditions across the
Sydney housing market where capital gains have stalled. Sydney dwelling values
posted a month on month fall in September, down 0.1%. And the September quarter saw Sydney values edge on 0.2% higher. A far cry from the peak rate of growth recorded over the three
months to October last year when Sydney dwelling values were rising at the quarterly pace of 6.4%. While the Sydney region’s
looking increasing like it’s moved through the peak, conditions across the
Melbourne marketplace have been more resilient. The pace of capital gains have slowed, but dwelling values were still 2% higher over the September quarter. Hobart further cemented its position as the best performing housing market after a recent history of
sluggish growth conditions. The past 12 months have
seen Hobart dwelling values surge by 14.3%, the city’s highest annual
growth rate since 2004. The remaining capital
cities have shown a diverse performance over recent months. Perth dwelling values
look to be moving through the bottom of the cycle, with values edging 0.1%
higher over the month. However, values remain
lower over the quarter and over the year. For Darwin, the housing
market isn’t showing the same signs of bottoming out, with dwelling values slipping
0.7% lower over the month and 4% lower over the September quarter. In Brisbane, the market’s been showing a growing divergence between the performances of houses
compared with units. House values were up 0.2% over the month to be 4% higher over the past year, while unit values showed
an increase over the month but remain 2.5% lower over the past year. Adelaide dwelling values
held firm over the month, but they’ve shown a 5%
rise over the past year. Canberra dwelling values
have increased by 7.8% over the past year with a
fairly significant divergence between the growth in houses and units. Across the regional areas of Australia, growth rates have generally been lower compared to the capital
cities’ performance. The combined regional housing market saw dwelling values unchanged
over the September quarter, compared with a 0.7% rise in
capital city dwelling values. Similarly, over the past 12 months regional values were up 5.6% compared with an 8.5% rise
in capital city values. Despite the overall weaker
performance, growth rates have been remarkably strong
in some regional markets, particularly those adjacent
to the city metro area. The strongest regional performance was the Newcastle and
Lake Macquarie region, where values were up by
15.3% over past 12 months. Southern Highlands and Shoalhaven
values were up by 14.3% and Illawarra, where
values were 13.5% higher, rounded out the top three regional markets based on the 12 month
change in dwelling values. In Victoria, the strongest
regional market was Geelong, where growth was 11.4%. While in Queensland, it
was the Sunshine Coast, with an annual gain of 6.6%. In a demonstration of resilience, Melbourne dwelling values
were almost 1% higher over the month and 2% higher
over the September quarter. Although the quarterly
trend in capital gains has more than halved, from 4.4% over the three months
ending November last year, Melbourne remains as one of the strongest capital city housing markets. A rapid rate of population
growth, strong jobs growth, and less affordability
pressures than Sydney are some of the key reasons
why Melbourne dwelling values continue to trend higher. The slowing in housing market conditions shouldn’t come as a surprise considering the recent history of
dramatic capital gains across the Sydney and Melbourne markets. Since dwelling values
started rising in 2012, Sydney values have surged by 75%, while Melbourne values are up by 57%. Macro-prudential changes, introduced by APRA at the end of 2014 and more recently in March of this year, have played a key role in
curbing the pace of appreciation, particularly in Sydney where investment has been most concentrated. On the back of changed regulations, investors and interest only borrowers now face a premium on
their mortgage rates. Based on the data to the end of August, variable rate investment loans were typically attracting
a 60 basis point premium. While we expect growth rates
to continue moderating, at least from a macro
perspective driven by Sydney, and to a lesser extent Melbourne, there are other factors that are likely to keep a
floor under housing values. Housing demand, fueled by strong migration has risen during 2017, with the Australian Bureau
of Statistics reporting the third highest net
overseas migration result on record over March quarter of 2017. Australia added more
than 86 000 new residents from overseas over the quarter, most of which will contribute to demand for Australian housing. Almost 75% of these migrants arrived in New South Wales or Victoria. While investors are likely to scale back due to disincentives such
as high mortgage rates and low rental yields, first home buyers are a rising presence
in the housing market. Based on July data, first home buyers reached
their highest level since 2013. Stamped to the concessions
that became available in July for first home buyers in New
South Wales and in Victoria helped to push the number higher, but other states where
incentives were unchanged also saw high proportions of
first home buyer activity. Additionally, mortgage rates are likely to remain
close to historic lows. Although the cash rate may rise in 2018, the likelihood of a substantial
lift in mortgage rates remains very low considering household debt levels are at record highs. Overall, we’re expecting the growth rates will continue to moderate across the combined capital
cities of Australia, however the slowdown will likely continue to be influenced by weaker
conditions in Sydney, and to a lesser extent, in Melbourne. We’ll be tracking the movements
in housing market conditions along with other key economic and demographic trends
at www.corelogic.com.au. (smooth music)