Now that we’re half way through 2017 it’s a good time to check on how our property markets are performing.
We started the year with a tug of war. On the one hand home buyers and investors were clamouring to buy real estate.
But on the other hand, the Australian Prudential Regulation Authority (APRA) and the Reserve Bank were trying to hose down the booming Sydney and Melbourne property markets.
They pulled the welcome mat out from under the feet of foreign investors, as well as making it more difficult for local investors through stricter lending criteria.
At the same time the banks have delivered an out-of-cycle interest rate increase for real estate investors.
The combination of these factors has moved us on to the next phase of the property cycle, with the latest statistics from CoreLogic suggesting that our markets are slowing down and showing minimal price growth around Australia in the June quarter.
Over the past three months, values rose in Sydney, Melbourne, Brisbane and Perth. However, Perth was the only capital city in which the quarterly change was stronger than it was over the first quarter of the year.
Source: CoreLogic
Source: CoreLogic
What the chart above doesn’t really show is how fragmented our property markets are.
Looking back over the full year, overall Sydney house prices grew by 13% and apartments grew in value by 8.6%.
Melbourne price growth was 15% for houses and 1.5% for apartments.
Source: CoreLogic
Rental rates have continued to fall in Brisbane, Perth and Darwin, however, rental growth has accelerated over the year in all other capital cities, delivering an overall capital city rents increase of 1.6%.
Source: CoreLogic
APRA and governments have implemented further measures aimed at improving housing affordability and financial stability.
It seems these macro prudential controls are slowing down investor lending and making it difficult for owner-occupiers to refinance.
Source: CoreLogic
However, as you can see from the chart below, investors still make up 45.9% of lending in New South Wales and a high proportion in Victoria.
Source: CoreLogic
Even though there was minimal overall growth over the last quarter in Sydney, property values grew 12.2% in the last 12 months.
The market is just taking a well-deserved breather after its massive run up and price growth is likely to moderate over the balance of this year, but the lower end of the market will benefit from the first home owner’s incentives that came into effect on July 1.
Source: CoreLogic
The Melbourne property market was, once again, the top performing market over the last year growing a very respectable 13.7%.
Strong population growth (around 2.2% per annum) and a strong economy that’s creating more jobs than anywhere else in the country (72,786 new jobs last year – most of them full-time) have underpinned the Melbourne property market.
While Melbourne has taken a breather, the market will pick up in the second half of this year as the first home buyers’ grant works its way through, creating an established home owner’s boost as the raft of new home buyers enter the market buying up established apartments.
Source: CoreLogic
While the overall Brisbane property market only rose 2.0% over the last year, its market is very fragmented and there are still some areas that are performing respectably, have good investment prospects and are great places for young families to live cheaply.
On the other hand, there is a significant oversupply of new high rise off the plan apartments overshadowing the inner city area and nearby suburbs, with owners now giving significant incentives to attract tenants.
Recently one developer who was giving four weeks rent free and $1,000 cash to attract tenants received significant negative publicity.
Source: CoreLogic
The Adelaide property market continues to languish, with home values up 2.4 % over the last 12 months and less than 18% since the end of 2008.
There are few growth drivers in Adelaide, with fewer than 8,000 new jobs created there last year.
Source: CoreLogic
While some have called the bottom for the Perth property market, our research suggests it is still in its slump with a significant oversupply of properties for sale.
As opposed to the eastern states where jobs are being created, Perth lost around 4,406 jobs last year.
At the moment there is 8.3 months of established housing stock available for sale in Perth.
Source: CoreLogic
The Hobart property market had a short lived growth spurt last year causing some of the hot spotters to say “I told you so!”
Even though some commentators are suggesting it’s a good place to invest, I don’t agree and the latest figures show the property run in Hobart was short lived.
Source: CoreLogic
The Darwin property market is still suffering from the effects of the end of our mining boom. Prices are still falling and they’re likely to keep falling for much of this year.
I’ve always found investor driven markets more volatile than our big capital cities and that’s why I avoid them.
Darwin had a net increase of 153 jobs last year, showing how its economy is languishing.
Source: CoreLogic
Canberra’s property market is a “quiet achiever”, having performed well over the last year, but home values have fallen over the last quarter.
Source: CoreLogic
Don’t write off the property markets yet, because even though they are taking a breather, it’s too early to call the peak of this cycle.
The markets remain stubbornly strong, as evidenced by auction clearance rates, which even though they have eased from their previous boom time highs, are still strong.
Despite our low interest rate environment, Australia’s property markets are very fragmented and driven by local factors, including jobs growth, population growth, consumer confidence and supply and demand.
The Melbourne and Sydney property markets are continuing to outperform the other states due to strong demand from investors and wealthy home owners drives capital growth.
Although house price growth has lost momentum, we are yet to see any signs of a material downturn. On the other hand, the rental growth turnaround will be welcomed by property investors.
I’ve now been investing for over 40 years and every property cycle I’ve experienced has come to a halt because of finance or difficulty getting it.
In general, booms are stopped when the Reserve Bank increases interest rates to slow down the economy, and in the past it’s been quite effective at doing this.
Over recent years, the APRA has also attempted to put the brakes on investment lending, in particular by putting investor limits on lenders creating a ‘credit squeeze’.
I recognise that each peak is accompanied by a chorus of voices who deny the top is anywhere in sight, and it’s while impossible to predict with any accuracy the moment when the cycle turns, I think it’s a little early to call yet.
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Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.
