Australian dwelling values fell by half a percent during May, as the pace of decline continues to improve.
According to CoreLogic’s May 2019 Home Property Value Index, Adelaide was the only Australian capital city where dwelling prices increased, with values 0.2 per cent higher during the month. While Adelaide remained firm throughout May, values were 0.2 per cent lower for the quarter.
Canberra performed well, slipping by only 0.2 per cent during the month and increasing by 0.2 per cent during the three months to May. Annually, Canberra’s dwelling values have increased by 2.4 per cent.
In Sydney the dwelling values slipped by 0.5 per cent, marking a 10.7 per cent drop over the past 12 months. Melbourne followed a similar trend, with values declining by 0.3 per cent in May and trending 9.9 per cent lower annually. While property values fell, the rate of decline eased considerably, signalling improvement in the market.
Hobart values have tracked lower for two consecutive months, taking the quarterly rate of change (-0.7 per cent) into negative territory for the first time since 2016.
Dwelling values fell in Perth also fell by 1 per cent over the quarter and Brisbane by 0.5 per cent.
Darwin was the worst performing capital city, with values declining by 1.6 per cent during the month and 3.3 per cent for the quarter.
Nationally, dwelling values were down by 0.4 per cent during May, the smallest month-on-month decline since May 2018.
Listing numbers remained elevated across all capital city markets, providing buyers with a diverse selection of properties and strong bargaining power.
According to SQM Research, national residential listings increased by 4 per cent in May.
Hobart proved to be the best performing city, with listings experiencing an upward trend of 7.1 per cent. Adelaide closely followed with an increase of 6.4 per cent and Canberra not far behind with 5.6 per cent.
The only capital city to record a negative change in listing numbers was Darwin, with a yearly decrease of 1.5 per cent.
While total listing numbers remain high, there are fewer new listings being advertised for sale.
Vacancy and rental rates
Rental rates held firm in May however annual national growth continues to slow, largely due to declines in Sydney (-2.9 per cent) and Darwin (-5.2 per cent).
While the market remains sluggish, gross rental yields are recovering from record lows.
Hobart has seen the highest increase in rental yields, up 4.9% over the past twelve months. According to the ANZ-CoreLogic Housing Affordability Report, Hobart is now the most unaffordable capital city rental market. This is a result of relatively low household incomes and surging rental prices. According to SQM Research, Hobart’s vacancy rate for May was 0.5 per cent.
Since peaking, Sydney dwelling values have reduced by almost 15 per cent, pushing rental yields higher. Sydney’s average weekly rent for houses stands at $550, a 3.2 per cent increase, and $520 for units, a 4.1 per cent increase. Sydney has a vacancy rate of 3.3 per cent during May.
Vacancy rates were also recorded for Darwin (3.3 per cent), Perth (3.1 per cent), Brisbane (2.4 per cent), Melbourne (1.8 per cent), Canberra (1.2 per cent) and Adelaide (1.1 per cent).
Nationally, the vacancy rate for May was 2.2 per cent, while Australia’s gross rental yield (4.1 per cent) was the highest it’s been since May 2015.
Auction clearance rates
Auction clearance rates have increased and are holding around the mid-50 per cent range across the major markets following the Federal election. As the rate of decline continues to improve, there’s indication the worst of the housing downturn could be over.
Auction clearance rates suffered notably in Sydney during the long weekend, despite the Reserve Bank of Australia cutting interest rates. During that weekend, only 800 properties were taken to auction across the combined capital cities, with the clearance rate at 51 per cent.
Though the last week of May saw improvement, with Sydney clearance rates breaking the 60 per cent mark for the first time in over a year and Melbourne’s auction volumes holding firm. During that same week, SQM Research reported a clearance rate of 62.6 per cent across the combined capital cities.
Finance and interest rates
The Federal election and the Reserve Bank of Australia’s (RBA) decision to cut interest rates were the two key events that impacted housing market activity throughout May.
Proposed negative gearing and Capital Gains Tax were dismissed when Coalition was re-elected and removed vendors’ uncertainty surrounding potential taxation reform.
The government also introduced the First Home Buyer Guarantee, set to come into effect in January next year. The introduction of the guarantee is expected to have a positive impact on housing activity and provide stimulus for those looking to enter the property market.
The RBA cut interest rates to a record low, moving the official cash rate down 25 basis points to 1.25 per cent. This cut marked the first change since August 2016. Economists are predicting a further cut to 1 per cent in the coming months. Historically, lower interest rates have generally had a positive effect on housing demand.
In addition to low interest rates, CoreLogic believes accessing a home loan could become easier, with a possible reduction in the interest rate serviceability test in late June. Lower interest rates coupled with lower borrower serviceability assessments is likely to improve housing market activity.
While there are signs of recovery, housing credit is increasing at an historically slow pace, largely due to tighter lending conditions. Lenders continue to scrutinise incomes and expenses and are further reducing their exposure to high-risk borrowers.