We Just Saw Thirty-Five Straight Days of Rising Home Prices
Property Market Update for Week Ending 16 July 2017
- Auction volumes have been steadily declining for four weeks.
- Until today, we were on a five-week run of consecutive daily home price growth in Sydney and Melbourne.
- Barring something crazy happening overseas, low interest rates are likely here to stay.
- Don’t be too quick to speculate on ever-increasing home prices.
This Week’s Preliminary Auction Activity (Week Ending 16 July)
For the last four weeks, auction volumes across the combined capital cities have been on the slide. This week, 1,612 homes were auctioned, down from 1,766 last week. Lower supply typically means buyers are competing for fewer properties, which tends to boost clearance rates and drive prices higher.
This week, the combined capital city preliminary clearance rate was 72.4 percent, up from the final clearance rate of 68.4 percent last week. It’s tough to give much credence to preliminary clearance rates, as the final results lately have tended to be several points lower than the preliminary results. As last week’s preliminary result was about 2 percentage points lower than this week’s, we can expect this week’s final result to approach 70 percent.
The Melbourne auction market was the strongest again this week, in terms of both supply and demand. The preliminary clearance rate was 77.4 percent across 753 auctions. Last week, 818 homes were auctioned and 72.9 percent were successful, indicating a similar number of sales to this week, yet with lower supply. Over the same weekend one year ago, 76.1 percent of 667 auctions drew a winning bid.
In Sydney, the preliminary clearance rate was 72.9 percent on auction volume of 600. Last week 656 homes were offered at auction and 68.6 percent were successful. It’s important to note the preliminary result last week was a full four points higher than the final result, so expect a final result around 69 percent this week. Last year at this time, only 470 homes were auctioned in Sydney with a clearance rate of 74.9 percent.
Canberra managed to post a preliminary clearance rate back above 70 percent and Adelaide had a killer week. Brisbane’s result is also noteworthy, with less than 45 percent of auctions clearing.
Last Week’s Final Auction Results (Week Ending 9 July)
With auction volume declining, clearance rates are rising slightly. This week’s combined capital city final auction clearance rate of 68.4 percent was just over one percentage point higher than the previous week.
Here are all the final capital city results for last week:
Taking a closer look at the sub-regions last week, in Sydney, the Eastern Suburbs were the standout across the city, clearing almost 90 percent. In Melbourne, it was the North East with the strongest demand relative to supply, as the clearance rate hit 81.4 percent.
For the historical data of weekly auction clearance rates, click here.
Recent Price Movements
Sydney and Melbourne home prices continued their run higher this week. Until today’s decline in the median house price, both cities have had about five weeks of consecutive daily house price growth.
Sydney home prices are now 1.59 percent higher than the city’s previous price peak on April 11th, and the Melbourne median house price is now 3.49 percent higher than its peak on April 18th. That means Sydney climbed a half percent this week, and Melbourne is over 1 percent more expensive than last week.
As you can see in the data below, Adelaide remains the only city in the red for the quarter, down nearly 1 percent. Perth is about even for the quarter, and still down for the year, while Melbourne buyers have been working the hardest to lift the five capital city aggregate growth to over 11 percent for the year.
Property Market Analysis
Looking back over the past five weeks of rising prices, we can see that at the same time, supply has been trending down. As I already mentioned above, when demand remains constant and supply falls, buyers compete more aggressively for fewer properties, causing prices to rise.
It’s primarily in Melbourne where we’re seeing demand hold steady. Sydney demand has been falling slightly, but not falling as fast as supply, so prices have been rising slower there than in Melbourne.
Auction volume for next week is expected to be on par with this week, so with supply steady, it will be interesting to see how demand moves.
What It Means For Investors
As I’ve been saying for years, the ultimate reason home prices are rising is the availability of cheap credit. Demand remains high quite simply because interest rates are low and plenty of people can still afford to finance the purchase of an expensive home.
Although less credit has been flowing into the hands of property investors, there are still plenty of property speculators able to borrow; not to mention the owner-occupiers picking up the slack APRA has created. Banks will always need lending growth in order to make money, so don’t expect them to cut off investors completely.
While APRA may yet further tighten up on investors, I see no need to worry about a rate rise from the RBA anytime soon. The RBA minutes released earlier today did strike a rather hawkish tone, leading currency traders to speculate on a rate hike, driving the Aussie dollar up to nearly 80 US cents.
But let’s not forget that wage growth is remarkably low, and while I believe it would be a good thing long-term for the RBA to lift rates, it would also be counter-productive to their stated goal of inflation in the 2 to 3 percent range. To boost inflation, they will likely need to cut rates.
To keep the economy buzzing along, the RBA needs a weaker dollar to stimulate demand for our goods around the world. Philip Lowe also can’t risk crashing the housing market, which has become addicted to cheap credit as many have leveraged up over the past few years.
In the short term, investors can expect business as usual – relatively easy money leading to stable demand, and short supply as we head deeper into winter. As we approach the warmer months, new measures from APRA may kick in and more sellers will be coming to market, which could spell the end of the latest mini-boom in Sydney and Melbourne.
With the outlook for generic capital growth continuing to look a little shaky, your best bet may be to venture into the world of manufactured growth deals. Of course, be sure to skill up first. You’d be better off not buying than to buy without the proper foundation of knowledge and education.
If you could use a little help working out your ideal investment strategy, feel free to get in touch.