The start to 2019 has seen a continuation of the conditions witnessed at the end of 2018, with almost every capital city recording a month-on-month fall in dwelling values during January.
The weakest housing market conditions continue to be centred in Melbourne and Sydney, where 55 per cent of Australia’s housing market is concentrated, dwelling values fell by 0.3 of a per cent and 0.4 per cent, respectively, according to CoreLogic’s Home Property Value Index.
Both markets have seen an acceleration in the rate of decline over the past three months, with the rolling quarterly fall tracking at the fastest pace since the downturn commenced. Sydney dwelling values were down 4.5% over the three months ending January 2019 and Melbourne values were 4.0% lower.
Nestpick’s 2019 Neighbourhood Price Index identified Sydney as the 25th most expensive city to live in based on its overall percentage of disposable income required to pay rent, which currently sits at 51.77 per cent.
Canberra was the only capital city to defy to downward trend, with values increasing slightly by 0.2 per cent in January and 0.8 per cent over the quarter.
In general, regional markets are showing healthier conditions relative to the nation’s capital cities. Regional NSW values were 1.3% lower, while regional Queensland values were 0.3% lower and regional Western Australia values were down 0.8%. It is regional Victoria that is doing particularly well, with Ballarat seeing the strongest regional price growth in Australia.
CoreLogic’s home value index reflects national property prices overall are now 6.1 per cent lower than they were when the market peaked in October 2017.
With a change of Government possible in the near future, and Labor intending to change negative gearing policy, this could have a further impact on pricing, particularly in Melbourne and Sydney.
The recent trend in housing market conditions, tighter credit conditions and low levels of housing supply are the primary drivers for January’s falling listings.
Houses remained more popular than units across capital city markets, but average time on market for houses continued to rise. Hobart fared best at 44 days for houses and 34 days for units, while Perth claimed last place with 83 days for houses and 92 days for units.
Average vendor discounting sat between 5.8 per cent and 8.6 per cent for houses and between 6.2 per cent and 8.8 per cent for units. Sydney emerged as the high-end exception for houses at 8.9 per cent, while Perth was the high-end exception for units at 9.6 per cent.
Buyers currently are finding themselves in an encouraging position, where they can negotiate harder, take their time in making a purchase decision and be selective in finding a home that is right for their budget and lifestyle.
On the other hand, vendors are facing more challenging selling conditions. Vendor discounting across the combined capitals has increased to a median level of 6.1% over the three months ending January, up from 4.7% at the same time last year and the median selling time has risen to 44 days, up from 37 days a year ago.
The slowdown in buyer activity is evident in the reduced number of settled sales. CoreLogic’s property market update estimates there were 12.3% fewer sales over the twelve months ending January 2019 relative to the same period a year ago, and transactional activity is down 15.8% from the 2015 peak level of activity.
Vacancy and rental rates
Like property values, rental rates also continued to decline. CoreLogic’s Quarterly Rental Review and property market update indicated a 0.1 per cent decline in weekly rents across Australia, dropping the median to $433 per week. Meanwhile, combined capital cities saw a decline of 0.2 per cent to $462 per week.
Across the capital cities, Sydney recorded the largest decline at 0.7 per cent to a median of $583 per week, followed by Darwin at 0.6 per cent to $463 per week and Canberra at 0.2 per cent to $539 per week.
Hobart, Perth, Brisbane and Adelaide, on the other hand, saw rises in rental rates, while Melbourne remained steady.
Meanwhile, rental yields in Sydney increased by 0.9 per cent to 3.24 per cent for houses and 0.1 per cent to 3.87 per cent for units.
As rental rates decline, the supply of rental properties continue to be abundant, ultimately leading to a significant rise in vacancy rates across most capital cities, particularly in Sydney.
According to the REINSW Vacancy Rate Survey, metropolitan Sydney’s vacancy rates rose by 0.2 per cent to 3.2 per cent, with the rise largely driven by middle Sydney and inner Sydney, where rental rates hiked up by 1.6 per cent to 5.1 per cent and 0.5 of a per cent to 3.0 per cent, respectively.
Auction clearance rates
Auction clearance rates also continued to soften over the quarter, with the combined capital city clearance rate declining to 43.6 per cent.
However, select suburbs defied the trend, including Sydney’s Bellevue Hill, which recorded a clearance rate of 80 per cent, Melbourne’s Windsor Hill with 71.4 per cent, Canberra’s Griffith with 58.3 per cent, Adelaide’s Prospect with 57.6 per cent and Brisbane’s Ashgrove with 33.3 per cent.
Finance and interest rates
Between the upcoming federal election and the results of the banking royal commission, the lending landscape is expected to see more changes in 2019.
The Reserve Bank has also decided to keep the official cash rate on hold at 1.5 per cent where it has remained since August 2016.
Apart from being mortgage-ready, investors are encouraged to engage property professionals, where appropriate, in order to understand market movements and ultimately make the most out of the property market despite its softening conditions.