Australian property market set to stabilise
The property market continued to show signs of life throughout July and is tipped to stabilise by the end of the year following lower mortgage rates, improved housing affordability and increased confidence post federal election.
Tides appear to be turning for the Australian property market, with dwelling values holding firm throughout July, according to the latest CoreLogic Hedonic Home Value Index.
Five out of the eight capital cities recorded a slight increase in values over the month. Sydney, Melbourne and Brisbane all recorded a 0.2 per cent rise, marking the first month-on-month rise for Brisbane since November 2018 and signalling a positive trend overall.
Sydney house values were 0.2 per cent lower over the quarter, but unit values increased by 0.02 per cent. The latest forecast from BIS Oxford Economics is predicting inner Sydney’s new apartment market to return to balance in 2020, putting the central city back into undersupply as population growth picks up and a lack of new supply starts to push rents and prices higher.
Melbourne is following a similar trend, with house values down 0.3 per cent over the three months to July and unit values up 1.1 per cent. Hobart (0.3 per cent) and Darwin (0.4 per cent) dwelling values increased over the month, while Adelaide (-0.3 per cent), Canberra (-0.3 per cent) and Perth (-0.5 per cent) declined.
Regional markets remain varied. The best performing regions throughout July were in Tasmania’s south east and north-west, with New South Wales’ Riverina region also showing solid gains. On the other end of the property spectrum, the weakest regional sectors were in the outback regions of Queensland, Western Australia and South Australia, where drought conditions continue to bite.
Residential property listings
New residential listings are a significant 22 per cent lower than they were a year ago, while total stock advertised for sale is 3.5 per cent lower. While listing numbers are partly seasonal, recent falls are indicative of weak vendor confidence and tough market conditions. According to CoreLogic, the recent improvement in housing market conditions should support a rise in vendor sentiment as we approach spring.
Vacancy and rental rates
National rents were down 0.1 per cent in July, led by negative trends in Sydney, Perth and Canberra. According to CoreLogic, Sydney remains the lowest yielding market, tracking at 3.43 per cent, down from a recent peak of 3.51 per cent two months ago. The strongest conditions were in Hobart where rental prices have experienced an annual increase of 5.5 per cent.
On average, Australia recorded a 0.3 per cent increase in rents over the second quarter of 2019, which is softer growth than the 1 per cent recorded in the previous quarter. Capital city rents were 0.1 per cent higher over the quarter however remain down year-on-year. Further, gross rental yields for the last quarter decreased in Sydney and Canberra, while increasing everywhere else.
Auction clearance rates
Combined capital cities recorded a preliminary auction clearance rate of 68.3 per cent in the first week of August.
Sydney has the highest clearance rate of all capital cities, with 74.8 per cent of auctions returning a successful result. Melbourne was close behind, returning a result of 73.3 per cent. Outside of Sydney and Melbourne, auction volumes increased across all cities excluding Hobart.
The latest data mirror the positive results felt throughout July. Auction clearance rates held above 70 per cent for most of the month across Sydney and Melbourne, indicating a better fit between buyer and seller pricing expectations. At the same time, advertised housing stock was reduced.
The low number of houses going to auction is creating heightened competition among buyers, many of whom are eager to buy following the RBA’s consecutive interest rate cuts.
Finance and interest rates
The Reserve Bank of Australia (RBA) has announced its decision to leave interest rates on hold at 1 per cent following back-to-back cuts in June and July. The pause from lowering interest rates will give the RBA time to assess the economic effects of the consecutive cuts however, a further reduction is widely anticipated.
Citing a weak inflation outlook and a deteriorating global growth outlook, RBA Governor Philip Lowe said, “the increased uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy remain tilted to the downside.”
Along with the RBA’s interest rate call, the Australian Prudential Regulation Authority removed the 7 per cent interest rate buffer for residential mortgage lending. The relaxed restrictions eliminate the need for a ‘stress test’ on home loan applications, which typically determines whether borrowers can afford to repay residential home loans with an interest rate of at least 7 per cent.
There is healthy buying appetite at commercial auctions across the country although buyers are cautious as conditions remain tight. Capital values surged 7.1 per cent nationally, led by Melbourne and Sydney, while commercial rental yields tightened across all capital city markets except Melbourne. Along the east coast, the overall vacancy rate for industrial property declined to 2.3 per cent during the second quarter of 2019, according to analysis by Urbis.
In other commercial news, agricultural property is forecast to decline as drought conditions worsen. Increased property availability and decreasing farm operating profits are expected to further slow price growth in agricultural regions in the coming eighteen months.