16/11/2018
This was another interesting month in our real estate markets.
At a time when it has been shown that Australians are the world's number one wealth leader and that all economic fundamentals are moving in the right direction, we seem to be experiencing a crisis of confidence in our property. markets.
While many are struggling to secure funds, other homeowners and property investors are frightened by the media delaying the purchase of real estate. The value of domestic housing fell 0.5% last month, pushing the overall market down 3.5% from its recent peak.
This is explained by the 34% increase in the value of national housing on this growth cycle.
Although it's not a "crash," national housing values ​​have not declined as much in a year since February 2012.
According to the latest Corelogic statistics, while the weakest conditions continue to be felt in Sydney and Melbourne, where investors have been most concentrated and where affordability is most tight, the slowdown in the housing market has been amplified in recent years. month – sign of a tightening of credit availability.
But of course, there are many sub-markets in Australia, some offering much better results than others.
In fact, many regions are still experiencing real estate price growth, so let's review our monthly roundtable in Australia and look at the latest Corelogic charts.
According to their latest findings, the annual decline of the national index was reduced to 3.5%, the index of the value of their hedonic home indicating a 0.5% decline in value housing nationwide in October.
High-value housing markets continue to be at the root of the market slowdown.
Nationally, the quarter with the highest value was behind the decline as values ​​fell 6.6% in this segment in the past year, while values ​​below the quartile increased by 0.5%.
This reflects the weaker conditions in capitals, including Sydney and Melbourne.
In the Melbourne real estate market, the value of the top 25% of the market has fallen by nearly 9% in the past year; in Sydney, the top quartile of market values ​​declined by 8.6%.
As you can see below, the combined values ​​of the Australian regions joined the capitals during the economic downturn.
SYDNEY HOUSING MARKET
The Sydney real estate market peaked in mid-2017 and the value of real estate in Sydney has steadily fallen, now recording its lowest conditions since 1990 – the latest annual decline in housing values ​​of 7.4% at least.
It is interesting to note that the value of Sydney homes has declined more sharply (-7.4%) than in apartments in Sydney. However, unit values ​​fell slightly from home values ​​last month, which could indicate early cracks. in the apartment market as a record number of new units move from construction to the settlement phase.
But remember all of this in the context where median housing prices have risen 51.0% in Sydney over the last 5 years.
It is clear that some segments of the Sydney real estate market may fall considerably more than this average (we exclude you from plan properties), while some segments of the market hold firm.
The first homebuyers are active in Sydney, creating stronger markets for the bottom quarter of the market.
Strong economic growth and job creation are driving demographic growth and continued demand for real estate in Sydney. At the same time, the international interest of tourists and migrants continues to grow.
Investors abandon the off-plan apartment sector and many of those who bought it a few years ago have difficulty accepting valuations with a much lower completion price. at the contract price, at a time when banks are more hesitant. ready on these properties.
At present, Sydney offers investors the opportunity to purchase well-established apartments in the eastern suburbs, in the northern part of the north coast and in the west-central of the country, on a "Buyer market" with few disadvantages and the prospect of a new market evolution at the end of 2019.
MELBOURNE'S HOUSING MARKET
The Melbourne real estate market peaked in November 2017 and has a soft landing after 5 years of strong price growth.
Property values ​​are now 4.9% below their peak.
According to Corelogic, the Melbourne property market has been the worst performing capital in the last three months. The value of dwellings fell 2.1% in the last quarter. The top quarter of the Melbourne real estate market (properties over $ 920,000) was affected. economic slowdown
However, over the last five years, median home prices in Melbourne have increased by 41.5% and have increased by 77.3% over the last decade.
But now, auction liquidation rates in Melbourne have fallen below the 50% magic mark, it takes a little more time to sell a house (39 days vs. 31 a year ago) and sellers are updating a little more their asking prices. 12 months ago (-6.1% vs. -4.6% a year ago)
While real estate prices in Melbourne are likely to drop a bit more, there is no crash in sight.
The value of properties will be based on a robust economy, employment growth, the highest population growth in Australia and the influx of 35% of migrants abroad.
Do not forget that Melbourne is one of the 10 fastest-growing major cities in the developed world, and that its population will probably increase by about 10% over the next four years .
While housing values ​​are trending down, rents in Melbourne are rising moderately.
BRISBANE HOUSING MARKET
The growth of real estate prices in Brisbane has been slow in recent years, but all indicators suggest that the Brisbane property market offers significant growth potential over the next three years, Queensland being the country with the highest number of interstate migration in the past year.
While the overall value of dwellings remained unchanged from last month, some segments of the Brisbane property market are outperforming, particularly homes located within 5 km of the CBD.
There remains an oversupply of flats in Brisbane and the values ​​remain 11.2% lower than their previous record in 2010; however, with high supply levels returning to equilibrium and rising demand, we could begin to see a steady improvement in this sector.
One of the positive signs that is emerging is the strong job creation in Queensland, in part because of the development of all infrastructure underway.
The large-scale development of Brisbane's main employment hubs is associated with many smaller-scale developments that will further enhance the city's quality of life.
These projects will significantly boost the growth of employment in Brisbane, as well as economic sluggishness and demand for properties are likely to skyrocket around these downtown neighborhoods.
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 are receiving more and more applications from interstate investors for many years.
ADELAIDE MARKET MARKET MARKET
In Adelaide, real estate price growth has been steady and moderate over the last few years: the value of homes has increased by 1.8% over the course of the year and the value of apartments has increased 1.7%.
This was supported by low interest rates and a relatively positive affordability compared to other capitals, despite the difficult economic conditions of Adelaide.
At the present time, interstate investors view Adelaide as a future "hotspot," but I want to point out that there are some long-term growth factors in Adelaide.
At present, Adelaide has above-average unemployment rates and low employment growth.
Like many other capitals, Adelaide is experiencing an oversupply in the unit housing sector, and lower demand for this type of housing will dampen apartment price growth.
While Adelaide may be a liveable and affordable city, our research suggests that investors should look elsewhere.
For example, the Brisbane real estate market offers better long-term growth drivers.
PERTH MARKET HOUSING
The Perth property market has been down since its peak in June 2014.
Although stocks continue to fall, many other indicators now suggest that the Perth real estate market is collapsing, although it has not yet found any soil.
Recently, QBE released its Australian Real Estate Market Outlook – 2018-2021, which suggests a further 2% decline in the median home price from 2018/19, before prices rose slightly in 2016. 2019/20. 2020/21.
Although the outlook for the state economy has become more positive, the housing surplus in Perth is expected to remain in place for some time and it appears that the market has resumed fold.
While the Perth market is likely to stabilize over the next year, it is far too early for a countercyclical investment in the West – I can not see prices rising significantly for several years.
Due to reluctant investor demand and the large supply of new apartments, the prospects for capital growth and rents in the Perth apartment market are slim or non-existent for many years.
Like other states, the demographic evolution of Western Australia has a significant impact on the overall performance of its real estate market.
For people to find their way back into the state, more jobs will have to be created.
HOBART MARKET UPDATE
Hobart has been the best performing capital in the last 3 years, but the indicators suggest that this market has now reached its peak.
Given the relative strength of the rental market, the recovery of the Tasmanian economy and continued population growth, house prices are expected to continue to increase in the near term, but as new apartment projects will be completed, price growth is expected to slow down.
Over the past five years, median house prices have increased about double the rate of growth in household income, leading to a deterioration in housing affordability in Apple Isle.
This, along with the fact that investors are shifting their focus to the next "hot spot," is another reason why the growth phase of Hobart's property prices is nearing its peak.
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 8 years later, registering a further 3.7% decline compared to the previous year. last year, and our research suggests that housing prices should continue to fall for some time. .
Darwin is the housing market in Australia's most affordable capitals because of its high wages as housing prices continue to fall and rents fall.
The small size of the Darwin 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.
Unlike the East Coast capitals, where many jobs are created, Darwin recorded a net job loss last year, which shows how much of its economy is withering away.
Darwin does not have significant growth relays on the horizon and would be best avoided by investors.
UPDATE OF THE CANBERRA MARKET
The Canberra real estate market is a "silent market", the value of housing has increased by 4.3% over the past year, with housing price growth (+ 5.1%) well above that of apartment market (+ 1.5%)
Economic growth in Latin America is expected to begin to slow down in fiscal 2019, while remaining above the national average.
Population growth is expected to remain strong, supporting the underlying demand for housing.
Public sector employment accounting for more than 40% of jobs in the Australian Capital Territory, though history repeats itself, the uncertain political climate that led to the federal elections in the United States. Next year will reduce the confidence of local consumers and slow down the demand for housing. 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.
THE RENTAL MARKET
Our rental markets remain reasonably well under control, as rents in the capital have increased only 0.8% over the past year.
On the other hand, weekly rents from regional rental markets rose 2.7% over the year.
Of course, as rent growth has outpaced capital growth, rental yields have continued to rise from record lows, but yields are still well below their average of 4.31% recorded in December. during the last ten years.
It is clear that our real estate markets are slowing down
Our quieter markets resulted in lower real estate sales with transaction volumes 10% lower than last year.
Vendor statistics have generally eased, with the number of days required to sell a property and the amount needed for sellers to update their initial asking price upwards.
And, of course, the auction liquidation rates are at the lowest level in a long time.
These factors have weakened supplier confidence, which has reduced the number of new properties for sale in the market, but announced inventory levels are on the rise, due to a Slower absorption.
The trend of population growth has slowed during the twelve-month period ending in March 2018, the net overseas migration rate and the natural rate of increase both having decreased.
Of course, slower population growth has a negative impact on housing demand.
The excess supply of housing will be gradually absorbed by the slowdown in the activity of developers. New housing approvals are down 13.6% over the twelve months to August 2018, with apartment approvals dropping nearly 24% while home approvals down 4.4% .
HOUSING FINANCE
Although official interest rates remain at 1.5%, variable mortgage rates edged up 0.5% in September, reflecting an off-cycle rise by some lenders during the month.
Data on housing finance and credit aggregates highlight the slowdown in investment loans, while homeowner loans have slowed but remain relatively healthy, rising 7.6% over 12 months to July 2018.
THE LOWER LINE …
We are clearly in the next phase of the real estate cycle, that of moderate growth in some regions and the near absence of growth in others and falling prices in others.
Australian real estate markets are highly fragmented due to local factors such as employment growth, population growth, consumer confidence, and supply and demand.
It is therefore a good time for homebuyers and investors to buy property at a time when they will be less competitive.
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 Charts and Data: CoreLogic
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Michael Yardney is the CEO of Metropole Property Strategists, which creates wealth for its 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 real estate and writes the Property Update blog.
Disclaimer: if one takes the precautions that are required, the views expressed by the contributors do not necessarily reflect the opinions of your real estate investment.
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