Value Growth

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The moderation in the rate of growth across our combined capital cities index in September is likely to be a positive development for Australian regulators such as the Reserve Bank and APRA who have been highlighting concerns about the strong rate of value growth in Sydney and Melbourne.
Of course it is only one month and it will be interesting to see whether the slowing trend will persist, particularly as we head into the busy spring selling season. 
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The annual expansion in investor-related housing credit has continued at a pace that is higher than APRA’s mandated 10% growth per annum however, July figures from the Reserve Bank show credit for investment housing has increased by 10.8% over the year, down from growth of 11.1% the previous month.
Furthermore, in June investor housing credit rose by 0.6% which was its slowest monthly increase since October 2013. With many banks now placing a premium on investment mortgage interest rates and also increasing serviceability limits on all mortgages we may be starting to see the first evidence of a cooling in investment housing demand.
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The cumulative effect of tighter lending conditions, more expensive mortgage rates for investors and lower yields, as well as natural affordability constraints and higher levels of new housing supply, is likely to dampen some of the exuberance we have seen across the Sydney and Melbourne housing market. Listing numbers are already showing their seasonal spring climb which will provide a timely test of the housing markets strength through spring.
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Furthermore auction clearance rates have been trending lower in both Sydney and Melbourne over the past couple of months potentially highlighting a moderation in the rate of home value growth in these cities.
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Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/author/cameron-kusher/" target="_blank">here</a>.
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Potential cooling in investment housing demand: Cameron Kusher 

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Over the 10 years to January 2016, home values across the combined capital cities have increased by a total 72.0% which is well short of values doubling over the decade. 
If we look at the split between houses and units, house values are 73.1% higher compared to a 64.3% increase in unit values.
Although combined capital city home values haven’t doubled over the past decade, the previous decade was quite a different story. Between January 1996 and January 2006 combined capital city home values increased by 151.7% with house values up 159.6% and unit values 110.1% higher. Based on this data, the most recent decade of capital city home value growth has been half that of the previous decade. 
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At a combined capital city level, the index is weighted so it is therefore heavily influenced by the performance of the larger capital cities. Taking a look at value growth over the past decade across individual capital cities shows a diversity in results.
Melbourne is the only capital city housing market where home values doubled over the past decade. In fact, many cities are a long way from having doubled with values in Brisbane, Adelaide, Perth, Hobart and Canberra having all increased by less than 50% over the past decade. Home values in Sydney and Darwin have each recorded increases of more than 75% over the past decade however, they too fell well short of seeing values double over the decade.
Over the previous decade (10 years to January 2006) home values more than doubled across each capital city (note that Hobart values are for houses only and data is not available for Darwin). 
In fact, value growth over the previous decade was more than three times greater than over the most recent decade in Brisbane, Adelaide, Perth, Hobart and Canberra while nationally it was more than double the rate of value growth over the past 10 years. Even Sydney and Melbourne recorded much stronger home value growth over the previous decade compared to the past decade. 
Looking at value growth over the five years to January 2016, it looks unlikely that by the time January 2021 rolls around that home values would have doubled over the decade in any of the capital cities. Over the past five years, Sydney and Melbourne are the only capital cities in which home values have increased by more than 10% with values lower in Hobart and Darwin.
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While there was a time when home values doubled over a 10 year period the data suggests that the days of such rapid value rises are behind us. It’s important to remember that in recent times we have had record low mortgage rates yet that has failed to spark any substantial home value growth outside of Sydney and Melbourne. 
With little wage growth and ongoing economic uncertainty it is clear that in most areas of the country there are limits to what people can pay for housing. Subsequently there has been little impetus for any significant value growth outside of the two largest capital cities. Even in Sydney and Melbourne value growth has been substantially lower over the past decade than over the previous decade.
Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/about/" target="_blank">here</a>.
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Property values – do they double every decade? Cameron Kusher

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GUEST OBSERVER
The CoreLogic Quarterly Housing &amp; Economic Review is a breakdown of the activity across each of the capital cities over the quarter to June 2017 and also dives into the economic factors that contribute to the overall performance of the market.
June 2017 marked the fifth anniversary of the current housing market growth phase. Over the second quarter of 2017, combined capital city dwelling values had increased by 0.8% which was their slowest quarterly growth rate since December 2015.
The June quarter has historically shown seasonal weakness, however, despite a slower rate of growth over the quarter, the combined capital cities still recorded value growth of 9.6% over the past 12 months. With values continuing to rise, the total value of residential property nationally was estimated at $7.1 trillion at the end of the quarter.
Sydney and Melbourne were the only capital cities to have recorded double-digit value growth over the past year with values increasing by 12.2% and 13.7% respectively. Although values have risen swiftly in these two cities over the year, the annual trend rate of growth has slowed since the March 2017 quarter.
Across the remaining capital cities, values have increased over the past year in Brisbane (2.0%), Adelaide (2.4%), Hobart (6.8%) and Canberra (9.6%) while values are lower in Perth (-1.7%) and Darwin (-7.0%).
In 2008 during the financial crisis, combined capital city dwelling values fell by around 6%. The combination of state and federal government stimulus and aggressive cuts to the cash rate by the Reserve Bank saw values rise from the end of 2008 and since then, over two growth cycles, combined capital city dwelling values have increased by 69.8%.
The rates of growth since 2008 have been substantially greater in Sydney (110.9%) and Melbourne (95.3%) than across all other capital cities. Canberra (39.1%) is the only other capital city to have seen values rise by more than 20% since the end of 2008. Growth in Sydney and Melbourne has been due to a range of factors, including but not limited to: rapid population growth, much stronger economic conditions driving employment growth and a relatively low supply of established stock available for sale.
The ongoing rises in home values are being supported by a low cost of borrowing.
As values have increased over recent years, so too has supply with new housing construction, particularly construction of units, recently passing through a new historically high level. New construction activity has been driven by the low cost of borrowing and the elevated level of activity from the investor segment of the market, including demand emanating from overseas.
It is reasonable to conclude that many of the new units constructed in particular, have been purchased by investors. It has also been widely reported that the level of purchasing by offshore buyers has increased dramatically over recent years which has also supported the heightened level of new housing construction. The surge in unit construction is already leading to units increasing in value at a slower pace than houses across a number of capital cities.
Although new housing construction has started to slow, a substantial volume of units remain under construction and will continue to ensure completions remain elevated over the next few years.
A year ago the rental market was showing clear signs of slowing with the surge of new housing stock causing rental growth to slow. Over the past nine to 12 months, rental growth has started to pick-up noticeably. It is difficult to know exactly what has driven this however, rapid population growth and the sheer lack of affordability of owning a home are most likely drivers.
Furthermore, the rising popularity of AirBNB is potentially resulting in some level of stock removal from the long-term rental market and increasing supply in the short-term market. Additionally, as mortgage rates edge higher, particularly for investment mortgages, it is likely that landlords will be doing their best to recoup their higher cost of debt by pushing rents higher.
Capital city dwelling values have now been rising for five years and the rate of growth in Sydney and Melbourne has been significantly greater than that outside of these two cities. While lower mortgage rates have improved mortgage serviceability, for those that don’t own a home it is increasingly difficult for them to firstly save a large enough deposit and secondly to compete with the equity that current home owners have built over recent years.
The housing market conditions prevalent in Sydney and Melbourne are not prevalent across the rest of the country however, these cities are being supported by strong economic and demographic conditions which are fuelling mortgage demand.
Mortgage rates have clearly played a role in driving housing demand in Sydney and Melbourne but the relatively weaker economic conditions outside of these two cities have dampened housing demand elsewhere. With affordability becoming stretched we are seeing increasing pushes for housing market reform from Government. These calls are expected to only grow louder the longer the current growth conditions persist.
Cameron Kusher is research analyst for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.
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Sydney, Melbourne record double-digit value growth

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COVID-19 pressures on the real estate industry has seen the nationally dwelling value growth slow over April, according to data firm CoreLogic's Hedonic Home Value Index.
Nationally, the monthly pace of growth more than halved, dropping from 0.7 per cent in March to 0.3 per cent in April, the smallest month to month movement since June last year when values started rebounding.
Despite many forecasters predicting widespread declines, dwelling values only dropped in Melbourne and Hobart, down -0.3 per cent and -0.1 per cent respectively.
Sydney kept a firm hold of the strongest real estate market, with dwelling values up 0.4 per cent to be 14.3 per cent up annually. Adelaide's 0.4 per cent growth in April saw their annual value growth rise to six per cent.
The surprise figure was in the Northern Territory where the dwindling Darwin market, with values down -2.7 per cent annually, jumped 1.7 per cent over the month.
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CoreLogic head of research Tim Lawless said that although housing values were generally slightly positive over the month, the trend has clearly weakened since mid-to-late March, when social distancing policies were implemented and consumer sentiment started to plummet.”
Sydney's April gains were driven largely by the unit market, up 0.6 per cent, compared to houses up the 0.3 per cent.
Melbourne too saw a stronger performance from their unit market, up 0.1 per cent, while their housing values was down -0.4 per cent.
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Lawless says Australia’s largest cities have a higher level of downside risk.
“Sydney and Melbourne arguably show a higher risk profile relative to other markets due to their large exposure to overseas migration as a source of housing demand, along with greater exposure to the downturn in foreign students, stretched housing affordability and already low rental yields that are likely to reduce further on the back of rising vacancy rates and lower rents," Lawless says.
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Hobart was the only other major region to record a decline in home values over the month
“Hobart has the most exposure of any capital city, at least proportionally, to the industry sectors most heavily impacted by COVID-19 in terms of employment, with 12.7% of the workforce employed within accommodation &amp; food services, and arts &amp; recreation services sectors," Lawless added. 
 
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House values still on the up, but not in Melbourne and Hobart: CoreLogic April update

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Gross unit rental yields across Sydney and Melbourne are teetering on heading to new record lows, according to new research.
The CoreLogic RP Data Hedonic Home Value Index named Hobart as the only capital city over the last 12 months where rental growth kept up with value growth.
CoreLogic RP Data’s head of research Tim Lawless said capital city rents increased by just 0.9% over the past twelve months, the slowest pace on record.
"A lack of any meaningful rental growth at a time when dwelling values are rising by more than 11% over the year has pushed gross rental yields to new record lows across the combined capital city measure," Mr Lawless said. 
“When you consider that Sydney rents have increased by just 2.5% over the past twelve months while values have climbed 18.4 per cent higher, it is easy to see how yields are getting squashed.
“With value growth once again accelerating across Sydney and Melbourne, the market evolution in mortgage lending policies will will provide a timely test for housing demand, particularly from investors. The combined effect of tighter lending parameters with more focus on serviceability and low LVR’s, potentially higher mortgage rates for investment loans as well as limitations on the pace of investment lending imposed by APRA on Australia’s banks should conspire to slow investor demand in the market."
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Sydney, Melbourne gross unit rental yields teetering on fall: CoreLogic RP Data

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Recent CoreLogic RP Data questions whether or not a recent pick up in Adelaide's housing value growth is near or short term. 
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Adelaide value growth climb near or long term? CoreLogic RP Data

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Annual home value growth in Sydney has ramped up and is now increasing quicker than in July 2014, according to CoreLogic RP Data's Housing and Economic Market Update for July 2015.
Capital gain for the past 12 month on houses came in at 17.8% and units 9.5%.
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