Total Members: 140,867

NEWS: Property Investing and Real Estate In Australia

Winter Property Market Chill Sets In

Date: 05/06/2018

Australian Property Market Update 
5th June, 2018 

 

Housing Supply and Demand

Sellers were left out in the cold last week, as only 56.2 percent of auctions across the country found a winning bidder. The combined capital city clearance rate has grown progressively worse over the past month, falling to its lowest levels since the beginning of 2013.

This week’s preliminary result wasn’t much better, and once the final reporting from agents comes in, the numbers will likely look even worse again. It seems Adelaide performed the best, while the Melbourne market continues to look brighter than Sydney’s, at least on the surface.

Here are the latest preliminary auction market stats, as reported by CoreLogic:

Source: CoreLogic

While supply remains relatively strong in the auction market, meaning plenty of homeowners are looking to sell, it seems there may be many other properties, especially in Sydney, available “off market.” Here’s what one buyer reported on Twitter:

 

 

As more and more vendors bring their properties to market, agents may choose to keep some listings under the radar, to give an impression of scarcity. The last thing agents want is the media catching wind of rapidly rising supply while demand is waning.

Also keep in mind that our auction clearance rate data comes directly from agents. As Lindsay David of LF Economics recently pointed out, and one of this Twitter followers confirmed, sometimes what’s reported doesn’t exactly line up with the reality in the trenches.

 

 

Recent Changes in Home Prices

If Sydney (and Melbourne???) supply is indeed far more than the official data indicates, that will not bode well for house prices, especially with clearance rates falling into the 50s.  

But come on, was anyone really expecting Sydney house prices to remain flat after increasing nearly 75 percent in five years? Even to maintain an average of home prices doubling every ten years, we would expect to see prices fall by about 15 percent over the next year, before continuing their rise again.

So, what does the official data say about recent changes in home prices? That depends on who you ask, and how you measure it.

According to CoreLogic, declines in dwelling prices are still fairly moderate. Their data for the month of May suggests less than a quarter percent fall over the month for Sydney and half a percent fall for Melbourne. Sydney is down 4 percent year-on-year, and Melbourne is still 2 percent higher than it was twelve months ago.

But according to Morgan Stanley’s analysis, things are looking a little bleaker. They claim Melbourne has now replaced Sydney as the worst performing capital city market, with prices falling by 5 percent in the Victorian capital in that last three months alone.

 

 

However you measure it, real estate prices are falling, unless of course you’re in Brisbane or Adelaide. Adelaide especially has come on strong over the past month, with an increase of .50 percent, according to CoreLogic.

Here’s all of CoreLogic’s latest median house price data:

 

 Source: CoreLogic

 

Where to From Here?

As I shared in last month’s market update, the future of house prices depends primarily on the availability of cheap credit. How much credit is available to homebuyers is a function of both the cost of borrowing (interest rates) and bank serviceability calculations (how high of a bar lenders set to qualify for loans).

Thanks to the Banking Royal Commission, lenders now want to see evidence of actual household expenses in mortgage applications and are no longer happy to apply a general median estimate of household expenses. Our resident mortgage broker, Chris Berry posted a great article yesterday called, “How the Royal Commission May Impact Your Borrowing Power”. In it, he shares an interesting example of how one investor was impacted by this recent change.

The point is, the lending market at the moment seems to be pointing to tighter credit, which means house prices likely have more to fall in our most expensive capital cities. With investors qualifying for lower borrowing limits, that may mean more demand for cities like Brisbane, and especially Adelaide.

Unless regulators step in to turn the tide, don’t be surprised to see house prices fall in Sydney and Melbourne by as much as 10 percent over the next year, and that’s assuming borrowing costs remain low.

Even if prices in our largest two cities retreat, I would expect Brisbane and Adelaide to continue to gently tick upward over the coming months. But if interest rates are forced higher through a reckless RBA move or rising bond yields overseas, all bets are off.

As for Perth, well, that’s an interesting one. If anyone cares for my assessment on WA, leave a comment below and I’ll happily share my thoughts.

Otherwise, be careful out there; and if you haven’t yet enrolled in Steve McKnight’s Property Apprenticeship course, get in touch with me at the link in my bio below. If you’ve been thinking of enrolling, this will be your last chance. At the end of this month, we’re closing enrolments for good.

 

Profile photo of Jason Staggers

By Jason Staggers

Jason is a personal mentor for Steve McKnight's Property Apprentices. He has helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. To learn more about Steve McKnight's Property Apprenticeship course, click here to set up a complimentary Jumpstart Strategy Session with Jason.

Comments

  1. Jo Lindo

    Hi Jason,

    Wld be interested in your thoughts on the Perth market going forward…..see if they confirm my thoughts and where the opportunities will be moving forward.

    Catch up with you in Melb.

    Jo

    • Profile photo of Jason Staggers

      Hi Jo! Sorry for the delayed reply. Since you’re an agent on the West Coast, I would also be quite keen to hear your thoughts on the Perth market.

      From my perspective working with clients searching for properties in Perth, it seems that vendors are unwilling to meet the investor market on price, even when reasonable offers are made. Sellers seem quite happy to keep their properties on the market for longer to hold out for the lifestyle motivated buyer who will pay a little more. They may also be anticipating a turnaround in coming months, as some have predicted.

      Owner-occupiers still see properties in Perth as far less expensive than Melbourne or Sydney, and reasonably affordable on that standard. These comparison sales are providing encouragement to sellers, and since they’re not desperate to sell, they are holding out.

      However, if rental demand is any indication of demand for housing in general, we may see prices fall further. Some of the buy and hold investors I’m talking to have had to lower their rents to keep tenants or gain new ones quickly. Obviously, some areas are better than others, but if yields fall (due to rent prices declining) and sellers become more desperate (rising interest rates), some voluntary sellers will become forced sellers and prices will fall.

      In summary, if I had a negatively geared property in Perth, I’d be a seller, even if it meant taking somewhat of a loss. From my perspective, the downside outweighs the upside.

      What are your thoughts?

Got something to say? Post a comment...

Your email address will not be published. Required fields are marked *

Step 1 - 0% Complete

Fill Out Your Member Profile Below

Fill in the required fields below to complete your registration.

Registration not only grants you full access to this website, but will also enable us to send you our newsletter, latest investor tips, strategies and information about events/products relevant to investors. You can opt out at any time.

For correspondence purposes. Will not be visible to anyone.

The name that will show up when you interact with the PropertyInvesting.com community.

Used to log in to the website and for targeting with messages. Alphanumeric characters only. No spaces allowed..

Member Login
Lost your password?
×
140,867

Register Free To Unlock Unrestricted Access To PropertyInvesting.com