The Great Australian Property Dream – Annual HPL Newsletter

Welcome to the first Annual Harvest Property Loans – The Great Australian Property Dream Newsletter. At Harvest, we truly believe Property Ownership can lead to a better life. If you are as passionate about property as we are, continue reading. The last 19 months have seen national property values decline but the new financial year we have just entered may well be the turning point.

Australian Property Market

The general consensus seems to be that the housing downturn is losing steam and that we may be reaching the bottom end of the market soon, there are plenty of reasons for this to be happening like the Federal Election results, falling interest rates and the news that APRA is loosening its restrictions on lending. So, when will property values rise? According to CoreLogic, the 0.4% total dwelling values decrease experienced in May was the smallest month on month decrease since May 2018.

State by State Australian Property Maket Update

Sydney

Sydney property values continued to trend lower in May, down 0.5% over the month and are now down 14.9% from their market peak in July 2017. The good news is that this was the smallest month on month decline since March last year. Auction clearance rates in Sydney have been rising into the high 60% range, although on lower volumes.

What has been interesting to see is that apartment values (-2.3% over the last 3 months) are currently falling faster than home values in Sydney (-1.9% over the last three months).

Currently there is a significant number of new apartments coming onto the market in Sydney where it is estimated that 54,000 apartments will be completed in Sydney in 2018 and 2019 which will obviously put pressure on prices and rental returns.

There were 20.2% fewer properties sold in Sydney than in the previous year which is a trend that has been seen in most capital cities. With the lower prices, less people are willing to sell and are waiting for better market conditions.

First home buyers’ interest is increasing with 25% of home loans approved in NSW in March going to first-time buyers who are taking advantage of the buyers’ market we are currently in.

Investors are abandoning the off the plan apartment sectors and many of those who purchased off the plan a few years ago are now having trouble settling with valuations coming in on completion at well below contract price at a time when banks are more reluctant to lend on these properties. However, in the background strong economic growth and jobs creation is leading to population growth and ongoing demand for property in Sydney.

Sydney is currently offering investors an opportunity to buy established apartments in the eastern suburbs, lower north shore and inner west in a “buyer’s market” with little further downside and the prospect of the market going up again late this year or early 2020.

It is a great time in the property cycle to look at buying an investment grade property in Sydney.

Melbourne

Melbourne dwelling values continued to trend lower in May, down 0.3% over the month to be 11.1% lower since peaking in November 2017, but according to Corelogic, Melbourne dwelling values remain 25% higher than they were five years ago. Although values are still falling, this was the smallest month on month decline since March last year and continues a trend of diminishing declines that have been evident since February earlier this year.

Over the last 12 months, 27.4% fewer property were sold in Melbourne than in the previous year.

The Melbourne property market is very fragmented, with values of detached houses having fallen more than apartments. The resilience across the apartment sector, despite higher supply levels, probably comes back to a combination of affordability constraints in the market as well as more first home buyers supporting housing demand across the lower price points of the market, thanks to the First Home Owner incentives. The Melbourne property market is slowly regaining its confidence and the underlying fundamental growth drivers remain strong. For example, auction clearance rates are rising, albeit on much smaller volumes.

Overall property values will be underpinned by a robust economy, jobs growth, Australia’s strongest population growth and the influx of 35% of all overseas migrants.

Melbourne is one of the 10 fastest growing large cities in the developed world, with its population likely to increase by around 10% in the next 4 years.

Brisbane

Brisbane property values were down 0.5% in May, with falls confined to the detached housing sector.

Corelogic report that apartment values actually rose 0.1% over the month, breaking a long-running trend of falling values.

While Brisbane apartment values remain 12.5% below their 2010 peak, the unit oversupply has slowly been absorbed due to rising population at a time of less new supply coming on to the market.

Over the last 12 months, 12.7% fewer properties sold in Brisbane than in the previous year. Strong demand from home buyers and investors from the southern States, at a time when yields are attractive and housing affordability is relatively good, is helping keep prices from falling.

Brisbane’s economy is being underpinned by major projects, but jobs growth from these won’t really kick off for a few more years.

Adelaide

Adelaide was the only capital city to avoid a fall in housing values through May, with the CoreLogic index showing a 0.2% rise over the month, to be 0.4% higher over the past twelve months.

Adelaide is the most affordable capital city in Australia with dwelling values falling -0.2% over the last 3 months but they are up 0.4% over the last year. There were 2.3% fewer properties sold in the last 12 months compared to the previous year.

While things look good for Adelaide property in the short term, over the next few decades the bulk of Australia’s long-term jobs growth, economic growth and population growth will occur in our 4 big capital cities meaning there are better locations for long term wealth creation than Adelaide.

Perth

Perth has recorded a further reduction in dwelling values, down 1% over the month and 8.8% lower over the past twelve months taking values 19.2% lower since peaking in June 2014.

The ongoing weakness in the Western Australian housing market can be attributed to mix of weak economic and demographic conditions and a tight credit environment.

Perth values are now amongst the most affordable of the capital cities with a median dwelling price of $436, 000 which is only $4,500 higher than Adelaide’s median dwelling price. 7.2% fewer properties sold in the last 12 months compared to the previous year.

Hobart

Hobart has been the best performing property market in the last three years, but it looks like the boom is now over with prices peaking in March this year.

The Real Estate Institute of Tasmania’s March 2019 Quarterly Report showed sales numbers had decreased for the third consecutive quarter and median prices retracted for the first time in several years, with 8.6 per cent fewer property transactions than in 2018, and an 18 per cent increase in the number of properties advertised for sale.

CoreLogic figures show a 0.4% slide in property prices last month. And it’s likely the Hobart market will continue to lose its momentum over the year.

10.1% fewer properties sold in the last 12 months compared to the previous year.

Over the last few years too many investors chased the Hobart “hot spot” at a time when there was a lack of employment drivers, insufficient population growth and not enough infrastructure spending.
Remember home buyers create a property market (they make up 70% of buyers) and investors create property booms – which is what’s happened in Hobart.

Darwin

The Darwin property market peaked in August 2010 and is still suffering from the effects of the end of our mining boom with a very soft employment market and lack of migration and infrastructure spending.
Values are 29.5% below their historic averages and it is unlikely we’ll see these types of house prices again in the next decade.
Darwin had a slight increase in number of sales in Darwin (0.4%) than in the last 12 months.
Darwin does not have significant growth drivers on the horizon and is not really a property investors best choice.

Canberra

Canberra’s property market is a “quiet achiever” with dwelling values having grown 2.4% over the last year with house price growth (+3.4%) much stronger than the apartment market where prices fell – 1.1% over the last 12 months.

Summary

We’re at an interesting stage in our property cycle with signs we’re nearing the bottom.

While property prices may still lower in the two major capital cities, it looks like this is the best time to buy in Sydney and Melbourne for over a decade and to ride the Brisbane property cycle.

Canberra property should continue to perform well, and Adelaide should hold its own, but it’s likely Hobart will now slowly move to the slump phase of its own property cycle and there is still more downside for Perth and Darwin.

Of course, property will remain a sound asset for long term wealth creation, but now more than ever, correct property selection will be critical, so only buy in areas where there are multiple long-term growth drivers such as employment growth, population growth or major infrastructure changes.

Interest Rate Outlook

Many economists are now predicting two more rate cuts this year which would further fuel the property market and would attract even more First Home Buyers.

Last month, the RBA lowered the cash rate for the first time in over 2 years, reducing it by 25 basis points to 1.25%. Many economists are now predicting another cut sooner rather than later, perhaps in August. Research published by ANZ goes one step further, forecasting a “very real” chance of 3 rate cuts in a row.

This is reinforced by the RBA’s own Board papers discussing the likelihood of further cuts to the cash rate amid low GDP growth and weaker than anticipated employment conditions. JP Morgan has been vocal in its support of further cuts, saying they are necessary to boost inflation.

Have lenders passed on the full rate cut?

Believe it or not, more than half of all lenders have refused to pass on the full value of the last rate cut to borrowers. For example, ANZ and Westpac only passed on 0.20% and 0.25% respectively. However, there are plenty of other lenders on our panel that have passed on the the full savings to their clients.

Get the right advice

Your mortgage needs to work for you! That means your loan should have the features, flexibility and fees that are most appropriate for your needs and personal situation. Why not have an obligation free chat with Tedy Ferreira, our Harvest Property Loans Mortgage Broker, who can point you in the right direction!