House price growth grinds to a halt month on month in Australia

Growth in property prices in Australian has ground to a halt with values unchanged month on month in October, the latest index report shows.

But while both capital cities and regional cities saw no growth on a monthly basis prices are still up year on year. In capital cities prices have increased by 7% since the same period in 2016 to a median of $650,930 while the regions have recorded growth of 4.9% year on year to $350,919.

A breakdown of the data from real estate firm CoreLogic shows that month on month there was no price growth in Adelaide and Perth while prices fell by 1.6% in Darwin, by 0.5% in Sydney and by 0.1% in Canberra. But prices increased by 0.9% in Hobart, by 0.5% in Melbourne and by 0.2% in Brisbane.

The data also shows that compared with a year ago the weakest markets are Perth and Darwin with prices down 2.5% and 5.7% to $462,624 and $437,910 respectively. The strongest annual growth has been in Hobart with a 12.7% rise to $396,393, followed closely by a rise of 11% in Melbourne to $710,420.

Sydney recorded annual growth of 7.7% to a median value of $905,917, while Canberra saw price growth of 6.4% to $582,882, Adelaide growth of 4.6% to $430,303 and Brisbane annual growth of 2.7% to $490,525.

According to CoreLogic’s head of research Tim Lawless, the slowdown in the pace of capital gains can be attributed primarily to tighter credit policies which have fundamentally changed the landscape for borrowers.

‘Lenders have tightened their servicing tests and reduced their appetite for riskier loans, including those on higher loan to valuation ratios or higher loan to income multiples. Additionally, interest only borrowers and investors are facing premiums on their mortgage rates which are likely to act as a disincentive, especially for investors who are generally facing low rental yields on investment properties,’ he explained.

‘In fact, the peak rate of growth in dwelling values lines up closely with the peak growth rate for investment lending in late 2016. We saw the housing market respond in a similar fashion through 2015, and the first half of 2016 as investors faced tighter credit conditions following the announcement from APRA that lenders couldn’t surpass a 10% speed limit on investment lending,’ he said.

‘Of course, housing market conditions rebounded swiftly through the second half of 2016 once the investment related credit limits were achieved and the cash rate was adjusted lower in May and August last year,’ Lawless added.

He also pointed out that it is significant that Sydney has joined Perth and Darwin as the only cities to record a fall in prices over the past three months. Quarter on quarter prices fell by 0.6% in Sydney, by 0.7% in Perth and by 4.4% in Darwin.

Lawless said that it is the first rolling quarterly fall recorded in Sydney prices since May 2016, when the first round of macro-prudential changes were still working their way through credit policies and mortgage rates were only just starting to reduce in line with the first cut to the cash rate. Despite the recent downshift, however, prices in Sydney are up 74% since the growth cycle commenced in early 2012.

Lawless said that in Melbourne’s housing market conditions have remained much stronger relative to Sydney, recording a rise of 1.9% quarter on quarter. He indicated that this resilience is due to Victoria’s record breaking migration rate which is creating unprecedented housing demand.

Additionally, strong jobs growth and a healthier level of housing affordability relative to Sydney are also supporting continued growth in housing values in Melbourne, he explained, but added that despite the stronger growth profile, Melbourne dwelling values are now rising at their slowest quarterly pace since the middle of 2016.

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