Home Prices Breakthrough to New Highs
Property Market Update
for Week Ending 13 August 2017
- Auction volume surged to a six-week high.
- Clearance rates in Sydney and Melbourne may fall below 70 percent.
- Sydney and Melbourne’s home prices set record highs again this week.
- The latest wage growth stats point to a lower RBA cash rate.
- APRA may be getting new powers to focus on post codes.
This Week’s Preliminary Auction Activity (Week Ending 13 August)
The number of sellers rose significantly, with auction volume increasing from 1,857 last week to 2,011 this week.
The increase in supply put a damper on clearance rates. The nationwide preliminary clearance rate fell to 70.5 percent, one percentage point lower than last week’s preliminary result.
Expect the final figure released tomorrow to be lower than 70 percent. In fact, we may see the first week in over a year that both Sydney and Melbourne clearance rates remain in the 60s.
Here are all the capital city preliminary results for this week:
Last Week’s Final Auction Results (Week Ending 6 August)
Last week’s final results looked a lot like the week before. Only auctions in Melbourne and Canberra cleared above 70 percent.
Here are all the final capital city results for last week, followed by a breakdown of the sub-regions and key regional areas:
For the historical data of weekly auction clearance rates, click here.
Recent Home Price Movements
Even though auction volume surged, home prices rose, pushing both Sydney and Melbourne prices to new highs. The median house price in Sydney rose 0.53 percent on the week and Melbourne was up 0.15 percent. Looking at the daily price changes, Sydney has only had one down day in the past two weeks.
Brisbane is the only city where home prices have fallen quarter-on-quarter, as you can see in the following chart.
Property Market Analysis
Over previous weeks, as supply has increased, prices have fallen. This week though, home prices in Sydney and Melbourne rose, even though auction volume increased.
That means one of two things: either demand increased at a greater rate than supply, or the increase in auction volume is not reflective of an increase in supply in the overall market.
Either way, demand remains strong, despite falling auction clearance rates and tougher lending standards for investors.
We did see a notable shift in momentum from Melbourne to Sydney. Auction clearance rates were similar but Sydney pulled ahead this week. Prices also rose at a greater pace than in Melbourne.
What It Means For Investors
The ABS just released its latest wage growth statistics and the data was not particularly encouraging. Wages grew by a meager 0.5 percent in the June quarter. That amounts to a record-low 1.9 percent for the year.
When wages grow at a slower pace than consumer prices, household budgets get squeezed. Inflation remains low at about 2.2 percent, but that’s still higher than wage growth.
The real squeeze is coming from housing costs. Melbourne’s median house price has increased more than 1.9 percent in the last month alone.
The RBA desperately wants to boost wage growth, so I expect to see a cash rate cut in the next few months. Investors shouldn’t get too excited about the prospect of lower borrowing costs, at least not in Sydney and Melbourne.
The word on the street is APRA now has new powers to focus their lending standards on post codes where home prices have been growing rapidly. That could mean either higher interest rates, tougher serviceability standards, or perhaps lower LVR requirements in our two largest capital cities.