The media has a busy day with gloomy house price forecasts, is not it?
But what are our real estate markets really preparing for?
This is one of the most common questions I've been asking myself for a few days.
And my answer is, "It depends."
Of course, it depends on the market you're talking about – some of them have a lot better results than others.
It depends on whether you are a long-term buyer, seller or investor.
Yes, our real estate markets are in decline, Corelogic reporting that the value of national housing fell for the 16th consecutive month in February 2019, but that the rate of decline has eased.
The national index of the value of their home again fell -0.7% in February, bringing the total decline to 6.8% nationally since the peak of the market registered in October 2017.
The current slowdown is related to various factors, including: –
• Decline in investor activity as local investors face difficulties in obtaining financing due to the "tighter credit of the bank", while the supply of new and out-of-pocket properties was higher
• Fewer foreign investors because of the difficulty in getting money from their home country at a time when we removed them the welcome mat with an increase in taxes and fees
• Decline in consumer confidence, prompting homebuyers to go on strike
• Uncertainty about the outcome of the next federal election.
Just to put things in perspective …
Overall, Corelogic reported that Australian residential values ​​had returned to levels last seen in September 2016, but that they were still 18% lower than those of five years ago. years.
In February 2019, with the exception of Hobart, the value of housing was lower in all capitals, but it is nowhere near as bad as some pessimistic media commentators suggest.
In the past year, the combined capital city housing values ​​were 7.6% lower and the combined regional market values ​​-1.4%.
The top of our markets suffers the most
As usually happens when the market is changing, the upper segment of the real estate market suffers more.
It's really an area of ​​discretionary spending.
Maybe you do not need to upgrade your $ 5 million home to install it at this $ 7 million mansion for now.
The cheapest and most affordable areas will also suffer because wage growth is likely to be low in these suburbs.
Sydney Housing Market
The Sydney real estate market peaked in mid-2017 after housing values ​​rose nearly 80% since the start of the last cycle in 2012.
The value of real estate in Sydney has been steadily declining since then as housing values ​​fell by 4.1% in the last three months and the decline rate fell to 1% in February.
It is interesting to note that the value of homes in Sydney has declined more than that of apartments in Sydney and that the more expensive properties are shrinking more sharply than cheaper properties.
This is explained by affordability factors, as well as by the boom in the activity of first-time homebuyers, which supports demand on the more affordable segment of the market.
The first home buyers are active in Sydney, which creates stronger markets for the bottom quarter of the market, especially for apartments.
The housing market in Sydney is expected to remain weak for the first half of this year partly due to the slowdown in investor activity, while the supply of new apartments on the market is in surplus, but that things are likely to recover in the second half of the year. of the year after the federal election.
It is clear that some segments of the Sydney real estate market are likely to fall significantly more than this year's average (we do not consider the properties of the plan), while some market segments hold firm.
Investors abandon the off-plan apartment sector and many of those who bought it a few years ago are now having a hard time accepting valuations that end at a price well below the price of contract, at a time when banks are more hesitant. lend on these properties.
But against the backdrop of strong economic growth and job creation, population growth and constant demand for real estate in Sydney are growing.
Meanwhile, the interest of tourists and migrants for the world continues.
At present, Sydney offers investors the opportunity to purchase well-established apartments in the eastern suburbs, the north coast and the west-central, in a "buyer's market" little disadvantageous and in the perspective of a new market evolution at the end of 2019.
Melbourne Housing Market
The property market in Melbourne peaked in November 2017 and registered a 1% decline in value, bringing the annual decline to -9.1% and the total decline from the market to -9.6%.
But the Melbourne property market is highly fragmented, with the value of single-detached homes falling more (-11.5%) than that of apartments (-3.7%) in the last twelve months.
The most expensive quarter of Melbourne properties recorded a 13.1% decline in value over the past year, while the least expensive quarter fell by only 2.1% in during the same period, thanks to the first buyers who benefited from stamp duty concessions.
The overall value of the properties will be underpinned by a robust economy, employment growth, the highest population growth in Australia and the influx of 35% of all migrants to the country. # 39; abroad.
Do not Forget … Melbourne is one of the 10 fastest-growing cities in the developed world, and its population is expected to increase by about 10% over the next four years years.
Brisbane Housing Market
Many have predicted that it was now the time when the Brisbane property would finally be in the sun, but despite performing better than most of Australia, Corelogic has reported that market conditions are good. were recently relaxed and the annual change in values ​​had become negative. for the first time since 2012.
However, the markets are highly fragmented, with single-detached houses located in the central and central suburbs of the ring (up to 5 to 7 km from the CBD) gaining value.
At present, the excess supply of new apartments is gradually absorbed, but rents and values ​​have not yet increased.
However, we do not expect the Brisbane market to experience a substantial correction, as Melbourne and Sydney are considering, given the strong underlying demand from homebuyers and investors from the southern states, to a when returns are attractive and the affordability of housing relatively healthy.
Brisbane's economy relies on large projects such as Queen's Wharf, HS Wharf, TradeCoast, Cross River Rail, the second airport runway and the Adani coal mine, but the growth of job will not start for a few years
Meanwhile, good affordability at a time marked by increased interstate migration between Sydney and Melbourne and the return of local and interstate investors in search of high rental yields and capital growth should help make 2019 a good year for Brisbane property.
Our Metropole Brisbane team has seen a significant increase in local consumer confidence as many other buyers and investors have expressed interest in real estate.
At the same time, we have been receiving more and more applications from interstate investors for many years.
Adélaïde Housing Market
Values ​​on the Adelaide property market have increased 1% over the last twelve months.
And the property in Adelaide should work well again this year, as in recent years, because of affordable housing prices, a good balance of demand and supply, and slightly positive economic conditions.
Numerous new projects, such as the Royal Adelaide Hospital and Port Adelaide's $ 2.4 billion defense contract, focus on the manufacture and maintenance of military 39, improve migration rates.
While Adelaide remains the most affordable capital for homes and if things look good in the short term, over the next few decades, most of the long-term growth of the country's economy will come as a result. employment, economic growth and population growth of Australia will occur in our country. the big capitals mean that there are better places for long-term wealth creation than Adelaide.
Housing Market in Perth
Housing market conditions remain challenging in Western Australia as the Perth property market is on a downward trajectory, and is now down 17.8% since its peak in June 2014.
The median value of houses in Perth is today the lowest of all capitals, but affordability is the best in a long time, local confidence is low, economic conditions are poor, relatively high unemployment and moderate levels of migration. ]
To bring people back into the state, it will create more jobs.
It is far too early for a counter-cyclical investment in the west – I can not see prices rising significantly for many years.
Hobart Housing Market
Hobart has been the best performing real estate market in the last three years.
Over the past year, the value of homes has increased by 6.8% and that of apartments by 8.8%
But it is likely that 2019 will be the year of change and that the Hobart market loses its momentum.
In recent years, too many investors have been looking for the Hobart "hotspot" at a time characterized by a shortage of employment engines, insufficient population growth, and spending sprees. insufficient infrastructure.
Do not forget that homebuyers create a real estate market (they make up 70% of it) and investors create a real estate boom – like what happened in Hobart.
And Hobart is too small a market to be a long-term investment grade proposition.
Darwin's Housing Market
The Darwin real estate market, which peaked in August 2010, still suffers from the effects of the end of our mining boom today with a very sluggish job market, a lack of migration, and spending. 39; infrastructure.
Current values ​​are 27% lower than the historical average and it is unlikely that we will see these types of real estate prices over the next decade.
The small size of Darwin's market makes it more sensitive to local events and Darwin generally has a higher and more variable vacancy rate, resulting from a large and transient population.
Darwin has no significant growth engine on the horizon and it would be best to avoid investors.
Canberra Housing Market
The Canberra real estate market is a "quiet market", the value of housing has increased by 3.4% over the past year. The growth of housing prices (+ 4.1%) was significantly higher than that of the apartment market (+ 1.1%)
While economic growth in Latin America is expected to slow down during the 2019 fiscal year, it is expected to remain above the national average.
Population growth is expected to remain strong, supporting the underlying demand for housing.
Public sector employment accounting for over 40% of jobs in the Australian Capital Territory, if history repeats itself, the uncertain political climate that led to federal elections later this year will reduce the confidence of local consumers and slow down the demand for housing.
But, as always, this will be corrected after the elections and the Canberra real estate market will probably continue to perform well in the medium term.
Our real estate markets slow down
Corelogic estimates that the value of stabilized real estate sales is down 12.8% nationally, with Darwin and Canberra being the only cities in which sales volume has increased over the course of the year.
Our rental markets face the challenge
Rental markets continue to show a downward trend, but rents tend to increase at this time of the year.
National rents rose 0.3% in the month and 0.4% in the past year, the lowest annual growth rate ever recorded (2005 data).
Rental yields continued to rise from their historical lows, with rent growth outpacing value growth, but yields remain well below the long-term average of most cities.
Other Market Indicators
Supplier statistics have generally decreased:
• the number of days of sale of a property and discount rates of sellers tend to increase
• Sellers seem to have realized that it was not the right time to sell, with fewer new listings added to the market than in recent years, while announced inventories are rising sharply, as a result of slower absorption.
Bid settlement rates began the year at levels higher than those recorded at the end of 2018, but much lower than a year ago and the volumes also much lower.
While the volume of new inventory offered for sale nationwide is declining (discretionary sellers are holding back), the total number of properties for sale is higher than there is a year because the sale of properties takes longer.
The trend in population growth was moderate during the twelve-month period ending in March 2018, the net migration rate from overseas and the rate of natural increase has decreased. Slower population growth is having a negative impact on housing demand.
Housing approvals have a downward trend and are expected to continue to decline, despite a slight increase over the month.
Data on housing finance and credit aggregates highlight the slowdown in investment lending, while homeowner leasing has slowed but remains relatively healthy, rising 6.2% year-over-year up to January 2019, while investment credit increased at a historically low 1.0%
Official interest rates remain at 1.5%, but the market is expecting the cuts to be more likely than the increases here.
While real estate investors struggle to secure financing, first time buyers are back on the market, taking advantage of the lack of competition between buyers and government incentives.
THE LOWER LINE …
We are clearly in another interesting year for real estate, a year with moderate price growth in some places, virtually no growth in others and a drop in prices in others.
Australian real estate markets are highly fragmented, driven by local factors such as employment growth, population growth, consumer confidence, and supply and demand.
So it's a good time for both homebuyers and investors to buy property at a time when they will face less competition.
Do not forget that our real estate markets behave as they always do and that some of the best profits are being made by investors at this stage of the cycle.
Indeed, these slowdowns are only temporary while the long-term increase in the value of capital property well located is permanent .
However, the correct selection of assets will be more important than ever, so only buy in areas where there are many long-term growth drivers, such as employment growth, the population growth or major infrastructure changes.
Similarly, the suburbs being gentrified are likely to outperform.
Source of all graphs and data used in the article: CoreLogic
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Michael Yardney is the CEO of Metropole Property Strategists, which creates wealth for his clients through independent and impartial advice and defense of property rights. A successful author, he is one of Australia's leading experts in wealth creation through property and has written the Property Update blog.
Disclaimer: If one takes the necessary precautions, the views expressed by the contributors do not necessarily reflect the opinions of your real estate investment.
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