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EOFY property round-up

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The end of the financial year gives us a chance to assess how the property market is changing across the country and especially what’s happening in the boom cities of Sydney and Melbourne.

Latest quarterly statistics from CoreLogic indicate that Sydney and Melbourne might be slowing down.  Recent auction clearance rates have also softened, so when you put these two indicators together, we either have a seasonal glitch or perhaps the first definitive sign that the boom is over in these two cities.

Price growth continued in Sydney in FY17 at a rate of 13% for houses and 8.6% for apartments. Melbourne price growth was 15% for houses and 1.5% for apartments.

What is more notable though is the change between the March and June quarter results for both cities. Overall dwelling values in Sydney went from 5% growth in March to 0.8% growth in June. Melbourne dwelling values went from 4.2% in March to 1.5% in June.

The media is always quick to declare booms over the moment statistics turn but in reality, property markets don’t change that quickly. There isn’t a single point in time when the market turns. What usually happens is a bit of ‘up and down’ price movement before a prolonged period of softer market conditions. So, I wouldn’t be surprised if quarterly price growth stays subdued in Winter but fires up again in Spring. Time will tell.

The biggest elements that will end the boom is affordability and lending restrictions to investors.

Affordability is always a factor at the end of booms – prices get too high and people exit the market, with many giving up and deciding to stay put and renovate instead of trading up.

The other big influence is investor activity. Investors tend to start and end booms. They get in when they see opportunity and they get out when that opportunity has eroded.

Investors are after two things – capital gains and rental yields. Both Sydney and Melbourne are likely to have several years ahead with far more moderate gains. Yields are also low, which makes it harder for investors to cover their mortgage. Average yields for Sydney houses are 2.8% and apartments 3.7%. In Melbourne, it’s 2.6% and 4.2% respectively.

On top of this, lenders are making it harder to borrow money. So even if there were still many investors out there keen to buy, a significant proportion will find it too difficult due to stricter serviceability, a crackdown on interest-only lending and higher mortgage rates on investment loans.

Looking at the national picture, here’s what happened across the capital cities in FY17. 

House prices

  • Sydney – house prices up 13% to a median $1.050 million
  • Melbourne – house prices up 15% to a median $755,000
  • Brisbane/Gold Coast – house prices up 3.3% to a median $555,000
  • Canberra – house prices up 9.7% to a median $693,000
  • Adelaide – house prices up 2.7% to a median $465,000
  • Perth – house prices down -1.9% to a median $500,000
  • Hobart – house prices up 7.4% to a median $375,000
  • Darwin – house prices down -6.2% to a median $500,000

Apartment prices

  • Sydney – apartment prices up 8.6% to a median $750,000
  • Melbourne – apartment prices up 1.5% to a median $542,800
  • Brisbane/Gold Coast – apartment prices up 1.2% to a median $400,000
  • Canberra – apartment prices up 7.6% to a median $439,500
  • Adelaide – apartment prices down -1.3% to a median $380,000
  • Perth – apartment prices up 0.5% to a median $400,000
  • Hobart – apartment prices up 1.5% to a median $313,800
  • Darwin – apartment prices down -10.5% to a median $440,000

Source: CoreLogic Home Value Index June 2017, median prices based on settled sales over June quarter

So, what’s in store for FY18?

Right now, I do think the Sydney and Melbourne markets are at or near their peak for this growth cycle, so a slowdown is expected in FY18.  Whether this has already begun is something we don’t know yet – the peak only becomes clear months after it has happened.

In FY18, I do think we’ll see a consistent moderation in the rate of price growth over several quarters.  We should see more first home buyers in the NSW and VIC markets due to stamp duty cuts, which might go some way in off-setting an expected reduction in investor activity.  

South East Queensland remains the most appealing market in the country for both investors and young families. As the price gap widens between the region and Sydney and Melbourne, South East Queensland is well positioned to take up re-directed demand. I expect this region to be Australia’s strongest performing market over the next three years.

 

Published: Tuesday, July 11, 2017


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