House values jumped in January but there are signs of a slowdown
House values lifted in every capital city in January with the CoreLogic national home value index up by 0.9 per cent. However, there are signs of a slowdown.
The property market rebound continued into 2020 as January saw prices rise in every capital city and rest-of-state region, apart from regional South Australia.
Sydney and Melbourne continue to be market leaders as values increased 1.1 per cent and 1.2 per cent respectively. Hobart values increased by 0.9 per cent, while Brisbane jumped by 0.5 per cent. Canberra (0.3 per cent), Adelaide (0.2 per cent), Darwin (0.1 per cent) and Perth (0.1 per cent) also increased. Perth continued to bounce back after a five-and-a-half-year slump with January also marking the first positive change over the quarter (0.4 per cent) since May 2018.
Regional markets also showed strong results during the first month of the year. The strongest conditions were in regional Tasmania (1.3 per cent) and Western Australia (0.9 per cent).
Despite strong national results, the rate of growth is showing signs of slowing. The national dwelling index declined from 1.7 per cent in November to 0.9 per cent in January. Seasonal effects, ongoing affordability issues, an increase in advertised stock and tough economic conditions are all impacting the property market recovery.
Rental rates increased by 0.5 per cent in January however most markets remain relatively weak. Hobart remains the tightest market in Australia, where rental rates have experienced an annual increase of 5.8 per cent. According to CoreLogic, ‘with housing values rising more rapidly than rental rates, gross rental yields are swiftly compressing’.
February figures released by SQM Research revealed national residential property listings increased by 2.2 per cent in January, however, were down 10 per cent compared to the same time last year.
Overall, advertised listing numbers continue to trend below average, though experts are expecting to see numbers lift later in the year. While an increase in listings would offer a wider range of choice for buyers, it could also mitigate property growth as it dampens the urgency to purchase housing.
Finance and interest rates
The Reserve Bank of Australia (RBA) left the official cash rate unchanged at its February meeting. The cash rate remains at 0.75 per cent.
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RBA Governor Philip Lowe said in a statement that:
‘There are continuing signs of a pick-up in established housing markets. This is especially so in Sydney and Melbourne, but prices in some other markets have also increased. Mortgage loan commitments have also picked up, although demand for credit by investors remains subdued. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality. Credit conditions for small and medium-sized businesses remain tight.’
In other finance news, the Commonwealth Bank and National Australia Bank have been inundated with thousands of applications for the First Home Loan Deposit Scheme since it opened in January. The influx of applications is fuelling a FOMO attitude among buyers and lifting property prices as a result.
Construction and commercial property
Investment in alternative real estate assets like student accommodation and petrol stations rose to $8 billion in 2019, a 42 per cent jump year on year. With subdued business conditions, property groups are on the hunt for relative value in the property market.
The same growth cannot be said for the development sector. According to CoreLogic’s Cordell Construction latest report, the number of new developments which have been announced but not yet commenced decreased by 33 per cent. Nationally, the number of new projects fell by around 5 per cent when compared to the previous twelve-month period. In terms of construction, there were 863 projects moving into the construction phase over December, a decline of 14 per cent.
As mentioned in our Property Market Outlook 2020 article, figures from the Performance of Construction Index also showed that overall activity in apartment construction and new developments contracted for a 20th month in December, even as the pace of decline eased.