Rebound

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EXPERT OBSERVER
The performance of the housing market can vary dramatically from region to region, but also across the different product types and value ranges. 
Splitting the market into quartiles can provide a better understanding of which sectors are firing and which ones are lagging.
In Sydney and Melbourne its clearly the prestige end of the market that is driving the strongest capital gains, with values up 4.2% and 4.6% over the September quarter across the top quartile of the market.
This was also the sector that recorded the largest decline during the down phase, with Sydney’s top quartile properties remaining 13.6% below their previous peak while Melbourne’s top quartile properties are still 11.9% below their peak.
<img src="https://www.urban.com.au/images/2019/10/4/Lawless%20dwelling%20values%201.JPG" alt="">
Brisbane is showing stronger growth conditions across the middle to lower valued properties where values are 0.8% and 0.7% higher over the quarter.
During the downturn the middle to lower priced segments of the market were also more resilient to falls than the top end.
Similarly, Adelaide is showing better resilience to falling values across the more affordable end of the market while the top quartile records the largest declines over both the quarter (down 1.2%) and cumulatively (down 3.5% since peaking). The opposite is true in Perth were the high end of the market has been a little more resilient to falling values.
While each of the broad valuation cohorts has recorded a sustained drop in values, the reduction has been less severe across Perth’s top quartile where values are down 16.5% since peaking compared with a 27.8% decline across the lower quartile.
Hobart has been one of the strongest markets over the past few years, however with affordability constraints becoming more pressing, the lower quartile properties are showing a better performance relative to more expensive properties.
The lower quartile saw a 1.4% rise in housing values over the September quarter after posting a smaller loss relative to the top quartile.
<img src="https://www.urban.com.au/images/2019/10/4/Lawless%20dwelling%20values%202.JPG" alt="">
Darwin’s housing market has been doing it tough since 2014, however the September quarter has seen the lower and middle quartiles actually record a subtle increase in housing values while the upper quartile continues to record heavy loss.
All three of the broad valuation cohorts have recorded material declines in values since peaking, demonstrating the broad based declines across Darwin's housing market.
Canberra’s upper quartile housing is the only broad housing segment across the capital cities where values were at a record high at the end of the September quarter.
Values are rising across all three of the broad market segments, however it’s the top quartile where growth is strongest.
The different performances of the housing market across broad valuation groups highlights how diverse conditions can be below the surface.
Factors such as housing affordability, lending policies, market cycles and local economic and demographic conditions can have a significant baring on market activity
TIM LAWLESS is the CoreLogic head of research
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Expensive properties are driving the market rebound: Tim Lawless

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EXPERT OBSERVATION
An increase in investor activity in the latter half of 2019 has stirred the interest of first home buyers and owner-occupiers as they return to the property market.
Last year, RiskWise Property Research detailed the effect investors had on the market and how their response to market forces affected that of owner-occupiers.
When the “investor bulls” left the market so too did the energy which drives it.
Investors were always significantly more sensitive than owner-occupiers to changes in out-of-pocket expenses, driven by interest rate fluctuations, changes in legislation or other events.
At the moment investor interest is aroused, and we are seeing more activity. And when this market is going up this has a very material impact on the residential market, particularly in Sydney and Melbourne.
The impact of investor activity on the housing market has been clearly demonstrated over a prolonged period which included the global financial crisis, the boom and subsequent downturn in resources construction, and increases and decreases to mortgage rates.
Right now, thanks to low interest rates, more relaxed credit restrictions, the election results (ruling out the feared taxation changes), APRA's changes to the floor assessment and tax cuts, we are seeing a return in confidence in the market and, consequently, for higher clearance rates and higher prices.
Improved auction clearance rates and consumer confidence are creating a very clear trend, that will consequently lead to price increases and a rise in auction clearance volumes, as sellers expect stronger demand for their properties and, therefore, are more confident to put them on the market.
The Westpac Consumer Confidence Index on House Price Expectations Index saw a dramatic rise from October last year to October 2019 of 36.1 per cent. Since May it has risen a whopping 54.4 per cent, with a 5.9 per cent rise in October alone. The biggest gains over the last two months were in NSW at 12.5 per cent and Victoria at 16.6 per cent.
Investor activity reached its recent peak in NSW at 46.6 per cent in Jan 2017 and over the past two years has fallen to 32 per cent. In Victoria it went from 35.5 per cent in March 2017 to 26.7 per cent in August 2019. And while these state figures are well correlated with those in Sydney and Melbourne, investor activity is slowly recovering.
The RBA's three interest rate cuts and other improvements have led to improved serviceability and lower out-of-pocket costs for investors and this is likely to drive a significant increase in investor activity.
CoreLogic figures for October show the nation's median dwelling value lifted 0.9 per cent to $524,744 in September, with median property values in Sydney and Melbourne jumping 1.7 per cent last month, reaching $805,424 and $634,913 respectively.
While the potential of taxation changes had diminished investor activity in the market, the election results ensured this particular risk had been removed.
However, construction defect faults in Sydney and Melbourne high rises meant investors were targeting more family-suitable homes.
Also, the potential taxation changes put forward by Labor exposed investors to a tangible risk over investment properties not suitable for owner-occupiers, especially as they would also have created primary and secondary markets, significantly impacting dwelling prices.
We must also take into account that some areas in Sydney and Melbourne have significant unit oversupply and underperform the market which again drives investors towards properties that enjoy a more stable demand, particularly properties which are more suited to families.
He said the number one indicator for market sentiment was investor lending finance (excluding refinancing).
If you see a material increase in investor activity, you will also see the annual rate of dwelling price growth accelerate significantly.
The bottom line is that the more investors there are in the market, the stronger price growth.
DORON PELEG is the RiskWise CEO
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Investors return to the market provides a much-needed boost: RiskWise's Doron Peleg

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The latest CoreLogic home value data shows the national housing market moving out of its correction, led by Sydney and Melbourne, according to Moody's Analytics.
The national index for home values has fallen for almost two years but now house values have begung to rise starting in the September quarter.
National house values are on track to fall by 7% in 2019, before rising by 5.4% in 2020. Apartment values are forecast to fall by 3.8% in 2019, before rising by 5.1% in 2020.
The RBA has reduced the cash rate by 75 basis points so far this year to 0.75% and a further 25-basis point reduction is expected for early 2020, according to Moody's Analytics.
Katrina Ell, Economist at Moody’s Analytics said that for 2019 and 2020 Moody's has individual City and state forecasts, "drilling into the details, house values across Sydney are on track to fall by 8.4% in 2019, before a forecast 7.7% expansion in 2020. Apartment values are set to decline by 5.9% in 2019, followed by a forecast 7.9% expansion in 2020."
"House values began rising from July, while apartment values began improving from June."
"House values in Melbourne are set to fall by 9.2% in 2019, building on the modest 0.3% decline in 2018. Like Sydney, the correction has largely passed and house values are forecast to rise by 7% in 2020 and a further 7.8% in 2021," she said.
"House values in Brisbane will see a modest full-year correction in 2019, with values estimated to fall by 1.8%, with particular weakness in South Brisbane house values. A relatively mild correction is forecast for apartment values in 2019, with a 1.3% forecast decline in 2019, following a 1% fall in 2018. This year is predicted to be the worst for Brisbane’s apartment market before it transitions to a projected 5.4% rise in 2020."
"House values in Perth will likely decline 7.8% in 2019, followed by a further 0.7% decline in 2020. Meanwhile, Adelaide’s housing market will continue its stable run, with house values forecast to fall by a modest 0.5% in 2019 after a 1.9% gain in 2018."
"House values in Hobart are on track to grow by 4.1% in 2019 and a further 1% in 2020. Similarly, the Hobart apartment market will likely decelerate from 12.2% growth in 2018 to 2.7% in 2019, before a small 0.4% drop is forecast for 2020."
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The housing market correction has passed: Moody's Analytics

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EXPERT OBSERVER
The value of home loans committed to by investors has recorded a sharp rise since June, rising a cumulative 11.6% over the three months ending August 2019; the fastest rate of growth in the value of investment loan commitments since November 2016.
The rise in investment activity comes after a period of relative inactivity, with investor participation falling from 43% of market activity in mid-2015 to a recent record low of 25.8% in July this year.
The slump in investment activity was attributable to a range of factors, including macro-prudential policies which limited the speed of investment credit growth and capped interest only lending.
Also, investors have been paying a mortgage rate premium over and above owner occupier rates which averaged 58 basis points in September. The slowdown in housing market conditions was another factor in slowing investment activity, as prospects for capital gains evaporated.
More recently, housing market conditions have turned a corner, with values rising across five of the eight capital cities over the September quarter and three of the broad ‘rest of state’ region.
The improved prospects for capital gains are no doubt one of the attractions bringing investors back to housing. Additionally, credit policies have loosened and lenders are becoming more competitive for investment borrowers.
Another incentive for a rise in investment is the narrowing spread between mortgage rates and rental yields.
The average interest rate on a three year fixed mortgage product for investors was 3.8% in September; only one basis point higher than the combined capital city gross rental yield (3.7%). The spread between fixed rate mortgages and gross rental yields hasn’t been this narrow since at least 2005, which is when CoreLogic yield data commences.
With such a narrow gap between rental yields and mortgage rates, more properties are likely to be in a positive cash flow scenario from the outset of the purchase. Every state and territory has seen a lift in the value of investment loans, with the largest rise over the three months ending August in Victoria and Queensland, where the value of investment home loan commitments was up 19.1%.
Proportionally, investment activity is most concentrated in NSW where investors comprise 31.2% of mortgage demand based on the value of loan commitments (excluding refi’s), followed by Victoria (26.4%) and Canberra (26.0%). Western Australia, where housing values have been falling since 2014, shows the lowest share of investors at 15.4%.
Looking forward there is a strong likelihood that investor activity will increase further. The long term average shows investors are typically around one-third of mortgage demand, implying investors are currently under-represented in the market. As investment activity rises we could see increased price pressures as this sector of the market tends to be more competitive in setting new price benchmarks.
A bi-product of higher investment activity is likely to be fewer first home buyers. The trend in these two segments of the market is typically counter to each other; more investors / less first home buyers and vice versa.
TIM LAWLESS is CoreLogic Australia's head of research
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Housing investment rebounding on improved market conditions: Tim Lawless

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The turn in the housing market has been remarkable, with the rebound in prices considerably stronger than expected, the latest ANZ Australian Housing Update has stated.
They found auction clearance rates bottomed in December and have been rising since. But the improvement became much more marked from May onwards, while the change in sentiment was driven by the combination of lower rates, easier access to credit, and increased certainty around housing taxation.
The recovery in prices has been driven by Sydney and Melbourne.
<img src="https://www.urban.com.au/images/2019/10/18/ANZ%20Forecasts%201.JPG" alt="">
Prices in the two cities stabilised in June after a period of decline, leaving them down 15% and 11%, respectively, from their peaks.
Prices are up 3% in both cities in the past three months, and ongoing buoyant auction clearance rates point to more gains.
In Brisbane and Adelaide prices appear to be stabilising after a period of modest weakness (-3% and -1% from the respective peaks).
Perth prices are falling, bringing the cumulative decline to 21% since the top in 2014.
Hobart prices now look to be stabilising after big jump since early 2016 where prices have risen a cumulative 34%. 
The report said, "easier credit is helping to drive the quick rebound."
"We had thought that the easing of the mortgage serviceability floor would be at least partly offset by other tightening measures such as the updated Household Expenditure Measure (HEM) and the introduction of comprehensive credit reporting. But that has not been the case. We do, though, see credit conditions remaining tighter than they were pre-Royal Commission."
"Nationwide, we expect prices to continue to rise strongly through Q4, driven by Sydney and Melbourne, after which we expect gains to moderate.
"We have annual price growth for Sydney and Melbourne peaking in mid2020 in the low double digits.
"Through 2020 we look for growth of 6% nationwide with a further gain of 4% through 2021. The risks seem tilted to the upside, alongside the risks for further monetary easing," they added.
The high volume of recent completions has not been replaced by new approvals and work yet to be done is falling sharply. 
Building approvals have dropped sharply, driven by a renewed decline in major apartment building approvals. 
<img src="https://www.urban.com.au/images/2019/10/18/ANZ%20Forecasts%202.JPG" alt="">
Property developers are increasingly confident about access to credit, they found, while reduced rates and APRA easing have increased demand.
While strong population growth, low unemployment and relatively low vacancy rates will support the recovery of construction activity, quality concerns may delay the timing.
ANZ forecast activity to trough in mid-2020 before picking up modestly. 
Declines in house prices over the past few years have improved a range of affordability measures.
ANZ Economists said, "the recent sharp turnaround in prices, however, will ultimately reduce affordability, in Sydney and Melbourne in particular."
"Housing loan arrears rates have risen, mostly in WA. Excluding WA, arrears rates in Australia are below 1% and have decreased slightly in recent months."
"Australia’s arrears rate remains low by international standards."
"While mortgage repayments generally are affordable given low interest rates, high household debt leaves householders vulnerable."
"A negative shock driving unemployment higher would be amplified by the high level of debt," they concluded.
<img src="https://www.urban.com.au/images/2019/10/18/ANZ%20Forecasts%203.JPG" alt="">
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The Australian housing market is on the rebound: ANZ

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EXPERT OBSERVER 
The boost from the election result which removed the threats to negative gearing and the capital gains tax discount, RBA rate cuts, and positive headlines around the relaxation of the 7% mortgage rate serviceability test and tax cuts have helped provide a bounce in home buyer demand at a time of low listings.
This is clearly evident in a continuing rebound in auction clearance rates where August saw the best monthly average clearance rates in Sydney since March 2017 and in Melbourne it was the best month since August 2017.
While this has come on very low volumes, its usually the case that improved clearance rates lead a pick-up in volumes and this may already be starting to be seen with listings picking up in recent weeks and is likely to become more evident through the Spring selling season.
As can be seen, the rebound in auction clearance rates points to a rebound in home prices in Sydney and Melbourne and this is already starting to be seen. Based on past relationships the current level of clearances points to annual house price growth rising to around 10 to 15% over the next 9 to 12 months.
Our base case remains that house price gains will be far more constrained than this. Compared to past recovery cycles household debt to income ratios are much higher, bank lending standards are much tighter such that a return to rapid growth in interest only and investor loans is most unlikely, the supply of units has surged with more to come and this has already pushed up Sydney’s rental vacancy rate well above normal levels and unemployment is likely to drift up as overall economic growth remains weak.
So notwithstanding the bounce in Sydney and Melbourne prices seen in August we don’t see a return to boom time conditions and expect constrained gains through 2020 – eg around 5% or so (which we have revised up slightly).
However, the rapid rebound in Sydney and Melbourne property prices to annualised gains around 15% in August has raised the risk that we may see much stronger gains. There are three key things to watch going forward:
First and most immediately the Spring selling season is worth watching - if auction clearances remain elevated as listing pick up then it will be a positive sign that the pick-up in the property market has legs. Second, housing finance commitments - so far its remained weak despite the pick-up in clearances.
This may be because the many of the buyers who have come back into the market so far already had finance lined up and were waiting to buy. And in any case it has come on low volumes. For 10-15% price gains in Sydney and Melbourne housing finance will have to pick up significantly.
Finally, unemployment will be important beyond the next few months. If it picks up significantly in response to slow economic growth then it will be a big constraint on house prices and could result in forced property sales and another leg down in property prices.
This is not our base case but is the key risk in terms of the property outlook.
Much higher unemployment is something the RBA is keen to avoid – in fact it wants unemployment to fall to 4.5% or below – so our view remains for further cash rate reductions in November and February next year taking the cash rate to 0.5%.
An obvious issue though is whether the rebound in the Sydney and Melbourne property markets will present a problem for the RBA in terms of cutting interest rates further. This will no doubt cause some consternation at the Bank. But as we saw over the 2011-17 period the RBA will do what it believes is right for the “average” of Australia as opposed to one sector or a couple of cities.
However, it may have to return to tighter regulatory controls again if it needs to cool the Sydney and Melbourne property markets once more for financial stability reasons.
In other words, we don’t see the rebound in the Sydney and Melbourne property markets as a barrier to further monetary easing, but if it continues to gather pace then expect a tightening of the screws again from bank regulators.
SHANE OLIVER is the Head of Investment Strategy and Chief Economist at AMP Capital 
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Australian capital city home prices rebounded 1% in August but don't expect a boom: Shane Oliver 

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GUEST OBSERVER
Dwelling approvals posted a better than expected rebound in Dec with a surprisingly strong rise in detached house approvals aiding an expected partial recovery in units from a big fall in Nov. Total approvals rose 9.2%, well above the consensus expectations of +4%. While approvals are still down 4.3% over the 2mths, the Dec detail was positive.
In particular, private detached house approvals posted a surprisingly strong 5.4% gain (+4.5%yr). This segment is typically more stable than total approvals and for most of 2015 was drifting lower at 0.6% a month. The gain accounted for the upside surprise vs expectations in Dec.
In contrast, the ‘other housing’ segment, i.e. units, posted a solid 12.8% rebound in line with expectations following the 22% slump in Nov (approvals down 6.5%yr). The detail shows a ‘modest’ partial rebound in high rise approvals (we estimate +12% in seasonally adjusted terms vs a 33% drop in Nov) with a slight gain in ‘low-mid-rise’ approvals. Interestingly, on a combined basis, detached housing and non-high rise units are now showing a reasonable uptrend running around +4% in annualised terms.
<a href="/images/2016/02/04/Screen%20Shot%202016-02-04%20at%2011.21.39%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/02/04/Screen%20Shot%202016-02-04%20at%2011.21.39%20AM.png" alt="">
Looking by state, the bulk of the monthly volatility was in Vic which whipped around ±35% in Nov-Dec. Approvals posted a solid 2.1% gain in NSW, pulled back 4.6% in Qld (though following a strong gain in Nov) and jumped in WA (though still down 29%yr). The state detail on detached houses showed gains in all states with a very strong 13.9% surge in Qld. The latter suggests some of the Dec gain in total detached housing could be an anomaly (Qld accounted for 2.1ppts of the 5.4%mth surge). 
The value of renovation approvals rose 3.5% in Dec to be up 11%yr, a reasonably solid uptrend in place albeit heavily concentrated in NSW where approvals recorded a big jump in Dec (+9.8%mth, +28.6%yr).
<a href="/images/2016/02/04/Screen%20Shot%202016-02-04%20at%2011.23.34%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/02/04/Screen%20Shot%202016-02-04%20at%2011.23.34%20AM.png" alt="">
In stark contrast, the value of non res building approvals continues to bump around a weak level with unconvincing momentum. A 6.1% fall in Dec left approvals flat vs a year ago with quarterly results suggesting activity will pull back sharply once current projects start to wind down.
Looking at 2015 as a whole, the calendar year saw a record 232k dwellings approved, a 13.7% jump on 2014 and blitzing previous records (prior to 2014, the record high was 201k in 1973). For the first time ever there was virtually a 50:50 split between detached houses and unit approvals with the latter accounting for almost all of the growth in the year.
The Dec report showed a better than expected finish to the hear, also hinting at some residual momentum in non-high rise sectors holding the construction cycle up. More generally, the concentration of units and longer time required for these projects points to another significant leg higher in actual construction work before an eventual peak comes in late 2016.
Matthew Hassan is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
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