Residential property prices in Australia have continued to rise over the past year but there are increasing signs that the housing market has turned with Sydney leading the slowdown.
Over the third quarter of 2017 prices increased by 0.5%, the slowest quarterly rate of growth since the second quarter of 2016 quarter, according to the latest quarterly report from CoreLogic.
It also that that the annual 8% rise in prices was the slowest rate of growth since February 2017 and although values are continuing to rise, they are doing so at a slow rate.
There is a growing disparity between the growth performance of the two largest capital cities. In Sydney prices increased by 0.2% in the third quarter, the slowest quarterly rate of growth since May 2016. At the same time, Melbourne prices by 2%, well above Sydney but still down from the recent peak rate of quarterly growth of 4.8% in November 2016.
Elsewhere prices increased on a quarterly basis by 3.4% in Hobart, by 1.3% in Canberra, by 0.5% in Brisbane, and by 0.3% in Adelaide but fell by 1.3% in Perth and by 4% in Darwin.
Over the past 12 months price growth has been led by a rise of 14.3% in Hobart, followed by a rise 12.1% in Melbourne, a rise of 10.5% in Sydney, with prices up 7.8% in Canberra, up 5% in Adelaide and up 2.9% in Brisbane. Prices fell by 2.9% in Perth and by 4.7% in Darwin.
The Core Logic report points that the recent slowing of value growth nationally comes on the back of a strong phase of growth which has been led by Sydney and Melbourne. ‘The surge in values has occurred against a back-drop of low inflation, low mortgage rates and historically weak income growth and as a result, housing affordability has deteriorated substantially in Sydney and, to a lesser extent, in Melbourne,’ it points out.
‘The past few years have also been characterised by high rates of population growth nationally and a heightened level of new housing construction activity, particularly for units. The construction boom has facilitated an increase in dwelling accommodation however, it has also occurred at the same time as historic high levels of investment activity in the housing market, with investment largely focused within Sydney and Melbourne,’ it explains.
‘Developers have built new product on the back of strong demand for their stock with much of this demand coming from investors that have been attracted by the strong capital gains on offer in Sydney and Melbourne and tax deductibility of investment costs,’ it says.
‘More recently investment has slowed due to a combination of credit rationing and higher mortgage rates for investors as well as those not paying down their principal. This has also occurred in line with a pullback in new housing construction. Although both investment and construction activity is slowed both have recently stabilized at levels well above the long-term average,’ the report adds.
CoreLogic previously had concerns that heightened levels of new housing construction and investor participation would cause rents to fall and a year ago rental growth was slowing across most regions of the country.
However, over the past year though, there has been an acceleration in rental growth with the rents increasing by 2.9% compared to an increase of 0.9% at the same time last year. A similar trend has been evident across all capital cities.
But the report says what has driven this acceleration is unclear and it is probably due to a number of factors including rapid population growth and the sheer lack of affordability of owning a home.
Furthermore, the rising popularity of AirBNB is potentially resulting in some level of stock removal from the long term rental market and increasing supply in the short term market. Additionally, as mortgage rates edge higher, particularly for investment mortgages, it is likely that landlords will be doing their best to recoup their higher cost of debt by pushing rents higher.
‘Capital city dwelling values have now been rising for more than five and a half years and the rate of growth in Sydney and Melbourne has been significantly greater than that outside of these two cities. While lower mortgage rates have improved mortgage serviceability, for those that don’t own a home it is increasingly difficult for them to firstly save a large enough deposit and secondly to compete with the equity that current home owners have built over recent years,’ the report adds.
‘The housing market conditions prevalent in Sydney and Melbourne are not prevalent across the rest of the country however, these cities are being supported by strong economic and demographic conditions which are fuelling mortgage demand. There is now some clear evidence that growth conditions have slowed in each of these cities with Sydney’s housing market slowing much more rapidly than Melbourne’s,’ it concludes.
