Housing Value

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<p>EXPERT OBSERVER</p>
<p>The CoreLogic Home Value Index results for October out today confirm a 1.2% rise in national dwelling values over the month, delivering the fourth straight month of rising values.  </p>
<p>The October result was the largest month-on-month gain in the national index since May 2015.</p>
<p>The recent gains come after a broad-based decline in housing values, with the national index declining 8.4% between October 2017 and June 2019.  </p>
<p>The positive October result takes national dwelling values 2.9% off their June 2019 floor, however values remain 5.7% below their peak, highlighting that despite the recent gains, home values are at a similar level to where they were three years ago.  </p>
<p><img src="https://www.corelogic.com.au/sites/default/files/2019-11/index_results_as_at_20191031.png" width="600" height="283"></p>
<p>The strongest growth conditions continue to be centered in Melbourne and Sydney, however dwelling values trended higher across most of the capital cities as lower mortgage rates and improved credit availability spurred on buyer demand.  </p>
<p>Dwelling values were up across every capital city apart from Perth over the month, and based on the rolling three-month change, the only capitals where values fell were Perth (-1.7%) and Darwin (-1.2%).  </p>
<p>The stronger rebound in Melbourne and Sydney can be attributed to a blend of factors; tighter labour market conditions and stronger population growth relative to the other capitals, coupled with the stimulatory effect of the lowest mortgage rates since the 1950’s, and improved access to credit.  </p>
<p>Stamp duty exemptions for first home buyers purchasing under specific price points have added additional stimulus to housing demand.  </p>
<p><img src="https://www.corelogic.com.au/sites/default/files/2019-11/change_since_peak_20191031.png" width="600" height="473"></p>
<p>The recovery trend in Melbourne overtook Sydney in October, with dwelling values surging 2.3% higher over the month; the largest month-on-month gain since November 2009.  </p>
<p>Melbourne housing values have recovered 6.0% since moving through a trough in May 2019, while Sydney values are up 5.3% since the recent May low.<br><br>The smaller capitals have delivered a mixed performance, although the general theme is one of improving conditions.  </p>
<p>The rolling three-month change in Brisbane housing values (+1.1%) was the highest since December 2015, Adelaide (+0.1%) posted the strongest rolling quarter since December 2018, while Hobart (+1.0%) and Canberra (+2.4%) recorded the largest three month rise in values since March 2019 and May 2017. <br><br>The downwards trend in Perth and Darwin home values has continued, however both markets are showing an improvement in the trend rate of decline.  </p>
<p>The rolling three-month trend in Perth housing values recorded the smallest decline in fourteen months (-1.7%) and Darwin dwelling values posted a rare monthly rise in October.  </p>
<p>Both cities have seen dwelling values consistently trending lower since mid-2014, with Darwin down a cumulative 31% and Perth values 22% lower.  </p>
<p>Perth is now recording the lowest median house value of any capital city ($451,800) and Darwin house values are a close second with a median of $468,300.  </p>
<p>Unsurprisingly, the Northern Territory and Western Australia are also showing the highest proportion of first home buyer activity, with first time buyers not weighed down by negative equity and with the ability to take advantage of very affordable housing in these regions. </p>
<p><em><strong>TIM LAWLESS</strong> is the CoreLogic Head of Research</em></p>
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tlawless-5VLUrbAk9s

Property values see fourth month of consecutive growth: Tim Lawless

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<p>Pinned to the wall beside my computer is a report I wrote in June 2015 entitled “Top 20 worst predictions about Australian property markets”.</p>
<p>It contains a stunning line-up of doomed forecasts from the previous six or seven years about our property markets. They all have two things in common: they all predicted massive price decline, and none of them was correct.</p>
<p>But they’re still out there and media never tires of them. Forecasts of price collapse are a dime a dozen in mainstream media. </p>
<p>In many cases, I suspect, the forecasters don’t really believe their own statements. The objective is to generate publicity, truth notwithstanding. Apart from anything else, no one (apart from me) ever checks to see how the forecasts of the past have turned out, so the fallout for false prophets is zero.</p>
<p>So if American spruiker Harry S Dent pops up in Australia next year and predicts a 50 percent collapse in property values, he’ll get masses of free publicity for his seminar tour or book launch, despite having made that prediction twice before (in 2011 and 2014) and been proven wrong by subsequent events.</p>
<p>Predictions of real estate Armageddon in Australia have become common. One of the most recent was widely reported around Australia in early September. This headline appeared in <em>The Australian</em>: “Australia six weeks from a housing collapse, US report warns.” Time is well and truly up on that forecast and we do not appear to have a housing collapse.</p>
<p>The Washington-based International Strategic Studies Association said: “We estimate that Australia has about six weeks or so to turn this situation around, otherwise there would be a massive hit on property valuations and the building trades.”</p>
<p>Its president delivered quite a rant on the subject. You have to wonder why serious newspapers would report such nonsense, particularly given the failure of other similar predictions since the start of the century.</p>
<p>Here’s another example: in October 2015 the <em>Sydney Morning Herald</em> made a huge front-page splash with this headline: “7.5 percent - house prices tipped to slump.” The 7.5 percent was in huge type and dominated the page.</p>
<p>The article said “Australian house prices” would fall 7.5 percent in 2016 and the decline risked causing a recession. It quoted reports from several investment banks – Macquarie, Credit Suisse and Bank of America Merrill Lynch – which all made dire forecasts.</p>
<p>One said property investment in Australia was “riskier than the equity market”, especially in Sydney. Another said the RBA would be forced to lift interest rates in 2016 to tackle high inflation. How wrong did they get that?</p>
<p>When will media ever learn that economists are not real estate specialists and seldom get it right when they drift outside their comfort zones (getting it wrong on the economy) and delve into property prognostication? They regard Australia as a single property market and their understanding of the different market dynamics around Australia could be written on the back of a postage stamp – in crayon.</p>
<p>Other media outlets made big of the same material. The <em>news.com.au</em> website ran this headline: “Five months until property bubble bursts”. The article began: “FIVE months. That’s how long before house prices start to fall, according to the latest major investment bank to call the peak in Australia’s housing cycle. ‘Credit growth, auction clearance rates, house prices, settlement volumes and the dollar value of settlements are all showing signs of slowing, albeit from lofty levels,’ analysts from investment bank Macquarie said in a note today, <em>The Australian</em> reports.”</p>
<p class="Body">In November last year the <em>Australian Financial Review</em> ran a major article based on the forecasts of ANZ economists, who predicted that Australian house prices would fall in 2016 by “less than 10 percent”. There, again, we had that fatal formula for failed forecasts: economists, a perspective that Australia is a single market and a gloomy outlook based on a misreading of the signals.</p>
<p class="Body">Around the same time, the clown prince of failed forecasting Professor Steve Keen was at it again, still predicting a property crash – as he famously did in 2008 and every year since – and once gain getting it wrong.</p>
<p class="Body">Also around the same time, <em>Smart Property Investment</em> ran this headline: “Outer suburb markets could halve in value”, referring to the outer ring suburbs of Sydney. A year later, it’s pretty clear than suburban values have not dropped 50 percent.</p>
<p class="Body">In January this year the same magazine reported more dodgy predictions from economists under the headline “Investors warned about looming price declines”. Leading that particular charge was the man with worst record of all in real estate forecasting, AMP Capital chief economist Shane Oliver.</p>
<p class="Body">Oliver is probably the only guy who has made negative forecasts about housing prices than Steve Keen, and with an equivalent track record of success. It was Oliver who famously declared in 2005 that there would be no growth in Australian property prices any time in the next 10 years. Oh dear.</p>
<p class="Body">He’s made many similar statements over the years, with the same level of success. But he was back for more in January this year, stating that the Sydney market had become so stretched that prices were likely to fall. </p>
<p class="Body">Also mentioned in that SPI article was Fitch Ratings, which claimed that “house price growth is set to decline significantly in 2016, with the possibility of entering negative territory …”</p>
<p>According to Fitch Ratings Australia managing director Ben McCarthy, the downturn would be caused by “reduced demand in Sydney and Melbourne as population growth declines and the market reaches limits of affordability and investor demand and interest recedes".</p>
<p>If there’s a group that has even less success at calling property market outcomes than bank economists, it’s the ratings agencies whose track record is just dismal – and whose motivations are particularly shallow.</p>
<p class="Body"><em>Terry Ryder is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a></em></p>
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terryryder-YECXbqmri2

Forecasts of housing price collapse are a dime a dozen

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<p>EXPERT OBSERVER</p>
<p>The combined effect of low rental yields and declining dwelling values has resulted in a rapid reduction in overall returns from housing over the past year.</p>
<p>According to the CoreLogic Total Returns Index, over recent year’s value growth has been much stronger than rental returns, showing that the majority of the returns have been achieved via capital gains rather than rental income.</p>
<p>With dwelling values now falling and gross rental yields close to historic lows, the total returns from residential housing are not looking so attractive and a greater share of returns are coming from the yield component.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%201.JPG" alt=""></p>
<p>National dwelling values fell by -1.6% over the 12 months to July 2018, total annual returns have fallen to just 1.9% and are now at their lowest since June 2012.</p>
<p>The fall in total returns has been substantial given that a year earlier total returns were recorded at 14.2%.</p>
<p>Across the combined capital cities, total returns over the 12 months to July 2018 were recorded at 0.8% - the lowest they have been since May 2012.</p>
<p>Total returns across the combined regional markets were recorded at 6.6% over the past year – again, the lowest they have been since June 2013.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%202.JPG" alt=""> </p>
<p>A year ago, annual total returns were recorded at 14.8% across the combined capital cities and 12.0% across the combined regional markets.</p>
<p>Over the past 12 months, total returns in Sydney have fallen by -2.5%.</p>
<p>This -2.5% fall in returns is the weakest result since February 2009 and represents a substantial slowdown in annual returns from July 2017 when they had increased by 19.0%.</p>
<p>With dwelling values falling -5.4% in Sydney over the past year it highlights that value changes largely dictate total returns in Sydney.</p>
<p>In regional NSW total returns increased by 6.7% over the past year that was the smallest annual increase since February 2013.</p>
<p>Annual returns in regional NSW have slowed from 17.1% a year ago.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%203.JPG" alt=""></p>
<p>Value falls in Melbourne over the past year have seen a substantial reduction in total returns.</p>
<p>Over the past year, Melbourne recorded at 2.4% reduction that was down from 16.6% a year ago and was also the lowest annual return since October 2012.</p>
<p>Total returns in regional Vic have remained much more stable than those in Melbourne.</p>
<p>Over the past 12 months, total returns in regional Vic have been recorded at 9.8% which was only slightly lower than the 10.4% total returns recorded a year ago.</p>
<p>Value growth is only slightly lower than it was a year ago in regional Vic which is a key contributor to fairly steady total returns.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%204.JPG" alt=""></p>
<p>Over the past year, dwelling value growth has slowed across Qld which has contributed to a moderate reduction in total returns.</p>
<p>Over the year, total returns in Brisbane were recorded at 4.8% which was the lowest return since July 2013 and down from 7.5% a year ago.</p>
<p>Regional Qld total returns were slightly stronger than those in Brisbane were at 5.2% however, they too were down from 9.1% a year ago and the 5.2% was the smallest annual return since October 2012.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%205.JPG" alt=""></p>
<p>The rate of dwelling value growth has slowed over the past year in Adelaide and so too have total returns while the rate of value decline in regional SA has slowed, providing a boost to total returns.</p>
<p>Total returns in Adelaide were recorded at 4.9% over the past year compared to a 6.1% return in regional SA.</p>
<p>In Adelaide, returns have fallen from 9.9% a year ago and are the lowest they have been since June 2013.</p>
<p>Total returns in regional SA have increased from 5.2% a year ago and are the highest they have been since January 2017.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%206.JPG" alt=""></p>
<p>Although values have fallen over the past year in both Perth and regional WA, total returns in each region remain positive.</p>
<p>Over the past 12 months, total returns in Perth were recorded at 1.6%, which was an increase from 1.2% a year ago however, annual returns have eased slightly over recent months.</p>
<p>In regional WA, total returns were recorded at 0.6% over the past year compared to 1.8% a year ago.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%207.JPG" alt=""> </p>
<p>With strong increases in dwelling values over the past year, Hobart has recoded the nation’s highest total returns at 17.1%.</p>
<p>Although 17.1% represents much stronger returns than all other capital cities it is lower than the 19.7% a year ago and also lower than the recent peak of 20.2% in September 2017.</p>
<p>Regional Tas has also generated comparatively high total returns over the past year of 12.0%.</p>
<p>The 12.0% annual returns are down from 14.1%, a year ago which was the recent peak.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%208.JPG" alt=""></p>
<p> </p>
<p>There is a big discrepancy between total returns in Darwin and regional NT, which is also reflective of the significant differences in value changes over the past year.</p>
<p>Over the past year, total returns in Darwin were recorded a -0.8% which is down from a positive returns of 2.5% a year ago.</p>
<p>Although total returns are falling, the magnitude of the fall has slowed over the past two months.</p>
<p>In regional NT, total returns were recorded at 12.3%, which was a substantial improvement on the 1.4% annual return a year ago.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%209.JPG" alt=""></p>
<p>Over the 12 months to July 2018, total returns for Canberra dwellings were recorded at 7.0%.</p>
<p>The 7.0% annual return was lower than the 12.8% recorded over the previous 12 months.</p>
<p>As the chart below shows, returns have trended lower over the past year but have begun to stabilize over recent months.</p>
<p><img src="https://www.urban.com.au/images/2018/8/13/PP%20CL%2010.JPG" alt=""></p>
<p>The most recent data shows that there has been a significant fall in investor mortgage demand.</p>
<p>Over recent years most of this demand has been in Sydney and Melbourne, both of which have seen a significant slowdown in total returns over the past year.</p>
<p>Given the decline in returns and an expectation that returns will continue to shrink as values decline further, it is anticipated that investor mortgage demand will also shrink, particularly in Sydney and Melbourne.</p>
<p>Investors could see renewed interest for housing in other regions of the country where total returns remain positive however, however the returns are anticipated to be far inferior to those recorded over recent years in Sydney and Melbourne.</p>
<p><em>Cameron Kusher is a CoreLogic Research analyst </em></p>
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ckusher-ujnxiKuFQs

Returns on residential housing continue to fall: Cameron Kusher

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<p>Australian economist Chris Joye says home owners will see around 20 per cent capital gains in this cycle, assuming no further cuts by the RBA.</p>
<p>The <span>Coolabah Capital Investments fund manager predicted the recent quick turn around in housing fortunes.</span></p>
<p>"When house prices were still in free-fall back in April 2019, we controversially forecast that the record 10 per cent bust (which we predicted in 2017 when prices were still climbing) would promptly end and be superseded by a sharp 10 per cent rebound", the AFR columnist said.</p>
<p>"To the best of my knowledge, no other investors shared this central case."</p>
<p>He said this was based on the assumption the RBA would cut rates twice in quick succession. They then "poured more fuel on the flames with a third cut in October."</p>
<p>Joye suggests the RBA will need to "shunt rates" a lot lower than their current level if they want to achieve its legislated full employment target and boost wage growth back to historical trend.</p>
<p><img src="http://i3.cmail20.com/ei/d/87/BA7/587/160955/csfinal/hp1-9900000000079e3c.png" alt="" width="600"></p>
<p>"Getting the jobless rate down to between 4 per cent and 4.5 per cent (from its current 5.1 per cent mark) will require a large amount of additional monetary stimulus—much more than the RBA will get from the partial pass-through on the next two cuts. And this could easily push house prices 30 per cent beyond their June 2019 trough", Joye said.</p>
<p>Dwelling values are now eight per cent above their mid 2019 bottom, with Sydney and Melbourne leading the way with over 11 per cent gains on a non-annualised basis.</p>
<p>"This is a little stronger than the run-rate we outlined in April 2019 to get to 10 per cent appreciation over the following 12 months, but that analysis banked on two cuts and we have been furnished with three", Joye added.</p>
<p><img src="http://i4.cmail20.com/ei/d/87/BA7/587/160955/csfinal/arrears1-9900000000079e3c.png" alt="" width="600"></p>
<div>
<p class="size-14" lang="x-size-14">"Unfortunately for the RBA, this price action betrays its intellectual hypocrisy. During the 2012 to 2017 boom the RBA repeatedly claimed that the 50 per cent increase in national prices had little to do with its slashing the cash rate from 4.75 per cent to 1.50 per cent."</p>
<p class="size-14" lang="x-size-14">Joye said they blamed inert housing supply and population growth.</p>
<p class="size-14" lang="x-size-14">"Fast forward to 2020 and now the RBA tells us that the sudden boom in prices proves that its "monetary policy transmission mechanism is working", Joye says.</p>
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wdavis-8cCN98p7xp

House prices to rise 20 per cent this cycle: Chris Joye

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<p>EXPERT OBSERVER</p>
<p>We check-in on the regional areas of the country and look at how values have increased over the past year and where they sit relative to previous peaks.</p>
<p>Over the 12 months to April 2018, dwelling values across the combined regional markets have increased by 2.4% compared to a -0.3% fall in values across the combined capital cities.  Although values in regional areas are continuing to rise, the rate of annual growth has slowed from a recent peak of 6.4% in June 2017, although the rolling quarterly rate of growth has shown an accelerating trend over the past six months.</p>
<p>Based on the ‘Statistical Area level 4’ (SA4) geography, there are 42 regions across Australia outside of the capital cities.  Of these 42 regions, 25 have recorded an increase in dwelling values over the past year while the remaining 17 have recorded falls.  Each SA4 region in Western Australia recorded a fall in values over the past year while all of the regional areas of Tasmania and the Northern Territory saw values increase over the past year.</p>
<p class="text-align-center"><strong>Change in values across regional SA4 markets as at April 2018</strong></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/6/4/REGIONAL%20.jpg" alt=""></p>
<p>Geelong recorded the greatest increase in values across regional Australia over the past year with values rising by 9.8%.  At the other end of the scale, the Mackay-Isaac-Whitsunday region of Queensland recorded the greatest value falls, down -9.4%. Generally speaking, values in regional Australia are growing quickest in those regions relatively close to major capital cities while weakness persists in those regions linked to the mining and resources sector.  While dwelling values are lower in most mining related areas over the past twelve months, many areas have seen a noticeable improvement in the rate of decline relative to previous years.</p>
<p>While regional dwelling values are continuing to climb, albeit at a slower pace, values across a number of these markets remain below their historic peaks.  Of the 42 regions, only 16 regions have dwelling values that are currently at historic high levels.  The Outback (North) region of Western Australia has dwelling values that are currently furthest away from the previous peak level, down -59.6% from October 2012 when values hit a record high. <br> <br>Focusing on those regions in which values remain below their peak, regions linked to the mining and resources sector typically have current dwelling values which are furthest away from their peak.  Seven SA4 regions across the country currently have values which are down at least 20% from their peak and all of them, except Bunbury in Western Australia, are directly linked to the mining and resources sector. Each of these seven regions have continued to record a decline in dwelling values over the past year.  Although many of these regions are showing signs they are beginning to recover, it will likely be a long way back to their previous historic peaks.</p>
<p>Although regional markets are continuing broadly to see dwelling values increase, the rate of growth has slowed in a number of major regions.  In fact, 12 months ago Illawarra was the best performing regional market for value growth with values 17.4% higher over the year compared to growth of just 2.7% over the past 12 months.  While no regional market recorded annual growth in excess of 10% over the past year, four regions had a year ago (Illawarra, Southern Highlands and Shoalhaven, Richmond-Tweed and Geelong).  Only 13 of the 42 regional markets have recorded stronger value growth over the past 12 months compared to the previous 12 months.  </p>
<p>While value growth is anticipated to remain stronger in regional markets than in capital cities over the coming year, it is expected that those regions close to Sydney in particular, will continue to experience a slowdown in their rate of value growth as interstate migration outflows trend higher and jobs growth becomes more broadly spread outside of New South Wales and Victoria.  Regional markets nearby to Melbourne, Hobart and Brisbane are the most likely to experience an uptick in value growth thanks to strong migration flows and more affordable housing costs.  Additionally, lifestyle markets are well positioned to see growing demand from cashed up baby boomers who have seen a substantial wealth injection from housing value growth in Sydney and Melbourne. </p>
<p><em><strong>CAMERON KUSHER</strong> is head of research for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/"><span class="s2">here</span></a>.</em></p>
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Geelong ranks the strongest regional housing growth market: CoreLogic's Cameron Kusher

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<p>Dwelling values across Brisbane look to have seen the worst of their declines, suggests CoreLogic-Moody’s Analytics Australia Home Value Index Forecast.</p>
<p>House price values performed steadily last year across Greater Brisbane, with average gains of between three and four percent.</p>
<p>They are expected to continue to remain steady over 2018 and 2019, with small gains of around two to three percent.</p>
<p>The much publicised apartment oversupply affected apartment values last year, with most areas recording three to four percent losses.</p>
<p>But there's good news on the horizon for apartment values, with a sharp increase predicted in 2019, some areas even seeing increases of nearly seven percent. </p>
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<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/6/21/bris-price-falls.jpg" target="_blank">to enlarge.</a></p>
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<p><a href="https://www.propertyobserver.com.au/images/2018/6/21/bris-price-falls.jpg" target="_blank"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/6/21/bris-price-falls.jpg" alt=""></a></p>
<p>After a lull in 2012, house prices in Greater Brisbane have seen strong gains as a result of strong local economies, partly tied to strong activity in finance, retail, construction and other sectors.</p>
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<p>In Brisbane-South, comprising Carindale, Holland Park and Sunnybank, house values have risen 40 percent since mid 2012.</p>
<p>Incomes per capita have risen a much smaller 6.7 percent over the period.</p>
<p>The number of houses approved for building reached 5,468 in mid 2016, more than double its 2010 to 2012 average, although approvals have since nearly halved.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/6/21/bris-approvals.jpg" target="_blank">to enlarge.</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/6/21/bris-approvals.jpg" alt=""></p>
<p>The effects of higher supply of houses and muted income growth mean that home values in Brisbane south are forecast to decline 1.5% in 2018, followed by a 1.2% recovery in 2019.</p>
<p>Overall, apartment values across Greater Brisbane are expected to recover 0.8% in 2018.</p>
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<p>The second housing area comprises more ‘lifestyle’ areas, including Sunshine Coast, Wide Bay, and Cairns.</p>
<p>Areas here are expected to perform better over the forecast period, as income growth remains robust and the degree of supply increase is not as great as in areas of Brisbane.</p>
<p>Housing markets in Queensland outside of Brisbane have also not seen the degree of price growth over the past few years. </p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/6/21/rest-of-qld.jpg" target="_blank">to enlarge.</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/6/21/rest-of-qld.jpg" alt=""></p>
<p>The Sunshine Coast’s housing market has seen its value increase 32% since a slump in 2012.</p>
<p>Housing values are forecast to rise 5.7% in 2018, and close to 2% in 2019. The relatively stable housing market is a result of low unemployment (at 4.4% it is well below the national and state averages) and good income growth.</p>
<p>Building approvals across the Sunshine Coast have risen over the past two years, but at 5,000 annually they remain within historical averages and well below their rate in prior cycles 2002 and 1995. Similarly, home values in the Gold Coast are forecast to rise nearly 4% in 2018 and 6% in 2019.</p>
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<p>The third housing market region in Queensland is in commodity-producing areas. These include Central Queensland, Mackay-Isaac-Whitsunday, and Darling Downs-Maranoa.</p>
<p>Housing markets here have seen significant value declines over the past few years partly as a result of the end of the mining boom.</p>
<p>In Mackay-Isaac-Whitsunday, house values have declined 32% since June 2012. The reduction in mining investment pushed up unemployment to 9% by 2015 and reduced incomes, which per capita have fallen about 16% since 2010.</p>
<p>Slower population growth has also reduced a source of demand, although this is also working to reduce unemployment.</p>
<p>Further declines in house values are expected before a recovery. </p>
<p>Sydney's biggest drops are predicted to be in <a href="https://www.urban.com.au/expert-insights/buying/85602-ryde-and-inner-city-sydney-values-to-be-hardest-hit-moody-s-analytics" target="_blank">Ryde and the inner city and south areas</a>, while in Melbourne it's the <a href="https://www.urban.com.au/expert-insights/buying/85603-melbourne-s-inner-south-property-values-to-fall-the-most-moody-s-analytics" target="_blank">inner south values</a> that are going to take a hit.</p>
<p>Nationally there's set to be a cool, <a href="https://www.urban.com.au/expert-insights/buying/85599-property-values-are-set-to-cool-not-collapse-in-2018-moody-s-analytics" target="_blank">but no crash.</a></p>
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j.ballantyne1990-6AQqhLzZaK

Brisbane's property values have seen off the worst with price falls: Moody's Analytics

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<p>Although dwelling values have started falling in Sydney, the city remains substantially more expensive than the other capital cities.  </p>
<p>In fact, whether you look at the cost of houses or the cost of units, Sydney stands out as being much more expensive.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/26/HOUSE%20VALUE%201.jpg" alt=""></p>
<p>The above table clearly highlights how the cost of a house is substantially higher, despite the recent value falls, than the cost of a house across each of the other capital cities.</p>
<p>The chart also highlights the much greater escalation in house values in Sydney and Melbourne over recent years relative to the other capital cities.</p>
<p> <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/26/HOUSE%20VALUE%202.jpg" alt=""></p>
<p>The above table shows the difference in median house values across the individual capital cities currently compared, to five, 10, 15 years ago.</p>
<p>House values are reasonably similar nowadays in Adelaide, Perth, Hobart and Darwin however, that has not been the case historically.  Sydney also stands out as being substantially more expensive than other capital cities.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/26/HOUSE%20VALUE%203.jpg" alt=""></p>
<p>Another way to look at the difference in housing costs is looking at Sydney’s premium in terms of the value of a house relative to the other capital cities.</p>
<p>Looking at this over time can potentially offer insight into how over/under valued some markets may be.</p>
<p>With Sydney values falling recently most capital cities have seen a narrowing of the gap in house values nevertheless the gaps are currently recorded at:</p>
<ul>
<li>Melbourne – Sydney house values are currently 25.9% higher which is the narrowest gap since late 2013.  The average Sydney house value premium since January 2000 has been 39.5%.</li>
<li>Brisbane – the Sydney median house value is currently 96.9% higher, although the gap has reduced recently, the gap was previously this great in early 2003.  The average premium for Sydney houses compared to Brisbane has been 64.7% which is much lower than the current gap.</li>
<li>Adelaide – the median Sydney house currently costs 128.7% more than the Adelaide median house with a gap this wide never previously seen.  The average Sydney premium over time has been 86.4%.</li>
<li>Perth – Sydney median house values are currently 116.7% greater than those in Perth.  The last time the differential was so great was early in 2004.  The average premium for Sydney houses has been recorded at a much lower 62.1%.</li>
<li>Hobart – Sydney’s median house value is currently 142.7% higher than Hobart’s with the gap having narrowed recently however, before the recent period the last time the gap was this wide was late 2003.  Since 2000, the average premium for Sydney has been 122.7%.</li>
<li>Darwin – a Sydney house typically costs 121.7% more than a Darwin house compared to a long-term average premium of 66.2%.  The last time Sydney’s premium was this large was mid-2004.</li>
<li>Canberra – Sydney median house values are currently 56.1% higher than those in Darwin with the gap previously this large back in early 2003.  Since 2000, the average premium for a Sydney house relative to Canberra has been a lower 36.3%.</li>
</ul>
<p> <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/26/HOUSE%20VALUE%204.jpg" alt=""></p>
<p> It is a similar story when looking at unit values, with Sydney values falling recently yet remaining much higher than those across the remaining capital cities.  Again, values have increased over recent years in Sydney and Melbourne while there has been minimal change elsewhere.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/26/HOUSE%20VALUE%205.jpg" alt=""></p>
<p> </p>
<p>Sydney’s current median unit value of $762,509 is noticeably higher than in all other capital cities.  In fact, the median unit value in Sydney is higher than the median house value in all other capital cities except Melbourne which highlights just how expensive housing is in Sydney.</p>
<p>Even in Melbourne, the current median unit value ($572,115) is greater than the current median house value in all cities other than Sydney, Melbourne and Canberra.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/26/HOUSE%20VALUE%206.jpg" alt=""></p>
<p>Looking again at the Sydney premium it should be noted that there has been a recent decline in some of the differentials due to the declines in Sydney values.  Nevertheless, the premium for Sydney units relative to other capital cities remain well above long-term average levels:</p>
<ul>
<li>Melbourne – over the long-term the average premium for a Sydney unit has been recorded at 28.5% while the current premium is a slightly higher 33.3%.  Before the recent period, the last time the gap was so large was in early 2005.</li>
<li>Brisbane – Sydney’s median unit value currently sits 98.3% higher than Brisbane’s which is the largest premium since late 2002.  The average premium for a Sydney unit over Brisbane has been recorded at 54.1%.</li>
<li>Adelaide – the median unit value in Sydney is currently 128.5% higher than in Adelaide which is widest differential in values since early 2003.  The long-term average premium for a Sydney unit is 97.9%.</li>
<li>Perth – Sydney median unit values are currently 88.7% higher than those in Perth which is much greater than the average premium of 48.4%.  In fact, the last time the premium was lower than the average was the middle of 2015 and the last time the gap was so wide was late 2003.</li>
<li>Darwin – a Sydney unit typically costs 121.3% more than a unit in Darwin currently which is the widest differential since mid-2004.  The average premium for a Sydney unit has been recorded at 65.7%.</li>
<li>Canberra – over the long-term, the premium for Sydney units to those in Canberra has been recorded at 38.9% compared to 76.8% currently.  Before the recent period, the last time the gap was so wide was late in 2001.</li>
</ul>
<p>With house and unit values starting to decline in Sydney we should see a further fall in the premium that houses and units experience relative to the other capital cities.  Despite an anticipated fall in the Sydney premium, it shouldn’t necessarily be expected that the gap will revert to longer-term average levels.</p>
<p>Over recent years, housing costs in Sydney and Melbourne have become demonstrably more expensive than those elsewhere.  Some drivers of this have included but not been limited to an undersupply of new housing (Sydney more so than Melbourne), high rates of migration to each of these cities, stronger economic performances of NSW and Vic relative to other states and territories and significantly greater employment opportunities in Sydney and Melbourne than in other capital cities.  Although values are starting to fall in Sydney and Melbourne, most of these drivers remain for both Sydney and Melbourne.</p>
<p>In fact migration is picking up into Qld but to-date there has been only moderate increases in values.  </p>
<p>We would expect the Sydney premium to reduce over the coming years as values decline however, we also believe that historical premiums for Sydney relative to other capital cities don’t reflect the likely differentials in the cost of housing going forward.  That is to say we expect that the cost of housing in Sydney and Melbourne will continue to be higher relative to other capital cities than it has been in the past.</p>
<p><em>Cameron Kusher is head of research for CoreLogic. You can contact him <a href="https://www.propertyobserver.com.au/https://www.corelogic.com.au/taxonomy/term/28"><span class="s2">here</span></a>.</em></p>
<p><em> </em></p>
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Monitoring the housing value gap: Cameron Kusher

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<p>GUEST OBSERVER</p>
<p>The CoreLogic Home Value Index of capital city home prices rose by 1.4 percent in February and was up 11.7 percent over the year.</p>
<p>Prices rose in five of the eight capital cities with Canberra up the most (up 3.2 per cent). Regional house prices rose by 0.6 per cent in January (latest available).</p>
<p>The Performance of Manufacturing index rose by 8.1 points to 59.3 in February – the strongest result since 2002. A reading above 50.0 indicates that the sector is expanding. This was the fifth consecutive month of expansion.</p>
<p>Home price data is important for retailers, especially those focussed on consumer durables. The manufacturing data provides guidance for companies in the Industrials sector.</p>
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<div class="column"><a href="https://www.propertyobserver.com.au/images/2017/03/1/Screen%20Shot%202017-03-01%20at%2011.55.01%20AM.png" target="_blank">Click to enlarge</a></div>
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<div class="column">What does it all mean?</div>
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<div class="column">It might just be one of the better days when it comes to economic data. Stronger home prices and the strongest expansion in manufacturing in 15 years. In addition the just-released economic growth data confirmed the momentum shift across the Australian economy.</div>
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<div class="column">It may be no surprise to see that home prices continue to lift across most capital cities. But what was clearly surprising was the size of the lift in prices. Across the nation home prices rose by a substantial 1.4 per cent in February, matching a similar result in December - the fastest monthly growth in 9 months. In fact over the three months to February home prices have accelerated by 3.5 per cent.</div>
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<div class="column">Across the capital cities, Sydney and Melbourne featured heavily but what was more encouraging was the strength in Canberra and Hobart home prices. Canberra prices rose by 3.2 per cent in February to be up 10.4 per cent over the year. Interestingly the key resource states continued to see significant weakness, with substantial falls in home prices across Darwin and Perth. The sustained lift in commodity prices may help to alleviate some of the weakness in coming months.</div>
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<div class="column">Overall policymakers will keep a close eye on the housing sector the early part of 2017, and will prefer to see more balanced house price growth across the nation. In particular, a lift in regional house prices would be a positive outcome. Annual growth in home prices across regional centres was just 1.1 per cent over the past 12 months.</div>
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<div class="column">What do the figures show?</div>
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<div class="column">Home prices</div>
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<div class="column"> The CoreLogic Home Value Index of capital city home prices rose by 1.4 per cent in February and was up 11.7 per cent over the year.</div>
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<div class="column">  In regional Australia, house prices rose by 0.6 per cent in January and were just 1.1 per cent higher than a year ago. (Regional prices cover just houses and data is up to the end of January).</div>
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<div class="column">In capital cities, house prices rose by 1.5 per cent in February while apartment prices rose by 1 per cent. House prices were up 12.0 per cent on a year ago and apartments were up by 9.2 per cent.</div>
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<div class="column">The average Australian capital city house price (median price based on settled sales over quarter) was $600,000 and the average unit price was $495,000.</div>
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<div class="column"><a href="https://www.propertyobserver.com.au/images/2017/03/1/Screen%20Shot%202017-03-01%20at%2011.55.07%20AM.png" target="_blank">Click to enlarge</a></div>
<div class="column"><img src="https://www.urban.com.au/images/2017/03/1/Screen%20Shot%202017-03-01%20at%2011.55.07%20AM.png" alt=""></div>
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<div class="column">Dwelling prices rose in five of the eight capital cities in February: Canberra (up 3.2 per cent), Sydney (up 2.6 per cent), Melbourne (up 1.5 per cent), Hobart (up 1 per cent), and Adelaide (up 0.6 per cent). Prices fell the most in Darwin (down 4.3 per cent), Perth (down 2.4 per cent), and Brisbane (down 0.4 per cent).</div>
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<div class="column">Home prices were higher than a year ago in six of the eight capital cities. Prices rose most in Sydney (up 18.4 per cent); followed by Melbourne (up 13.1 per cent), Canberra (up 10.4 per cent); Hobart (up 5.8 per cent); Adelaide (up 3.5 per cent); and Brisbane (up 2.2 per cent). Prices fell in Perth (down by 4.5 per cent) and Darwin (down 5.3 per cent)</div>
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<div class="column">Total returns on capital city dwellings rose by 15.4 per cent in the year to February with houses up 15.7 per cent on a year earlier and units up 13.8 per cent.</div>
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<div class="column">Performance of Manufacturing\</div>
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<div class="column"> The Performance of Manufacturing index rose by 8.1 points to 59.3 in February – the strongest result since 2002. A reading above 50.0 indicates that the sector is expanding. This was the fifth consecutive month of expansion.</div>
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<div class="column">AIG notes “Six of the seven activity sub-indexes in the Australian PMI® expanded in February (seasonally adjusted). Encouragingly for the outlook, new orders (60.6 points) and sales (55.3 points) grew strongly. Production jumped from stable conditions in January to a strong expansion (65.3 points), as did employment (57.5 points). Deliveries lifted out of contraction (56.3 points) while exports strengthened further (57.0 points). Reflecting this surge in demand, inventories contracted mildly in the month (48.3 points.”</div>
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<div class="column"> “Comments from manufacturers in February indicate that demand looks to be increasing and confidence returning to some of the larger sub-sectors such as food processing and machinery and equipment (other than auto). Exports are continuing to provide a good source of growth, as are large transport infrastructure projects and increased activity in parts of mining and agriculture in response to the recovery in prices for bulk commodities, wool and some grains. On the inputs side, energy costs and energy reliability are posing a significant threat to ongoing profitability and viability for some manufacturers.”</div>
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<div class="column">What is the importance of the economic data?</div>
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<div class="column">The CoreLogic Hedonic Australian Home Value Index is based on Australia’s biggest property database. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.</div>
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<div class="column">The Australian Industry Group compiles the Performance of Manufacturing Index (PMI) each month. The Australian PMI is the Australian equivalent of the US ISM manufacturing gauge. The PMI is one of the timeliest economic indicators released in Australia. The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.</div>
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<div class="column">What are the implications for interest rates and investors?</div>
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<div class="column">Activity in the manufacturing sector is encouraging especially the lift in new orders that has been identified in recent months. All the published data and anecdotes indicate that business conditions have markedly improved since the flat spot recorded for the economy in mid-2016.</div>
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<div class="column">Investors are once again driving key housing markets such as Sydney and Melbourne. But there are more risks, with investors relying on expected capital appreciation for returns on their investment rather than rising rents. More apartments are being built, supply will catch up to demand and growth of home prices will ease over the next few years. Investors need to be aware of the risks including further actions by regulators to slow housing demand.</div>
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<div class="column">The broad-based health of Australian housing markets reduces the potential for further rate cuts. While fixed-term lending rates have lifted, it is still too early to canvas possible rate hikes from the Reserve Bank. </div>
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<div class="column"><em>Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a></em></div>
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