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7 Signs That the Australian Housing Market May Be Peaking- Part 1

There are mounting signs that Australia’s housing market may be moving through the peak of the cycle.

Tim Lawless    |    International

 

There are mounting signs that Australia’s housing market may be moving through the peak of the cycle, however it is important to remember that strong housing market conditions have been evident in Sydney and Melbourne while every other capital city has shown relatively sedate conditions. CoreLogic’s September indices results, released two weeks ago, showed that Sydney dwellings values remained flat over the month and other data flows are also pointing to a moderation in growth conditions across Australia’s largest city and the broader housing market.

The factors that hinting at a market peak (and outlined in subsequent blogs) include:

  • Auction results have been consistently moderating, especially in Sydney where clearance rates have been sub 70% consistently over the past five weeks
  • Listing numbers are rising, which is normal during the Spring season, but a higher than normal number of homes are being added to the market in Sydney which is contributing to higher stock levels than a year ago and rising months of supply.
  • Investment demand is moderating due to both tougher lending from the banks as well as market disincentives such as low yields, affordability constraints and a mature growth cycle.
  • Mortgage related activity has fallen across CoreLogic platforms. Although activity remains higher than a year ago, mortgage related events are down from heights seen over the first half of 2015 and aren’t seeing their normal spring bounce.
  • Rents are hardly moving which has pushed rental yields to historic lows in Sydney and Melbourne. Paying a landlord is likely becoming more affordable than paying a mortgage despite the low interest rate setting.
  • The cost of debt is rising outside of any upwards movement in the cash rate. Higher debt servicing costs can only act as a disincentive.
  • Supply levels are set to rise further as the pipeline of approvals moves through the commencement phase and onto completed housing product. Inner city apartment markets are most exposed to higher supply.

While conditions may be starting to slowdown, particularly in Sydney, the coming months will provide further clarity about housing market conditions. Picking the turning point in the housing market is easy in retrospect, but as the market evolves it can be hard to separate short term movements from the beginnings of a longer term trend.   The coming months of data flows through to the end of the year will provide a great deal more perspective.”

Mature growth cycle
The current growth cycle broadly commenced in June 2012, with dwelling values shifting almost 32% higher since this time across the combined capital cities. The rate of capital gains has been led by Sydney where values are almost 50% higher, and Melbourne where dwelling values have shifted 35% higher over the cycle to date. Brisbane has seen the third highest rate of value growth over the period at a comparatively modest 14.5% showing the multi-tiered nature of the capital city housing market at present.

Dwelling values do fall.
Capital city dwelling values retreated by 7.2% over the previous down phase which lasted from October 2010 through to the end of May 2012, and previously during the GFC period of 2008 capital city dwelling values shifted 6.1% lower.

Auction results are moderating but remain historically high
The auction market peaked over the last week of April this year with a combined capital city clearance rate of 82%. Since that time, clearance rates have been consistently falling, with weekly clearance rates holding below the 70% mark over the past five weeks.

Sydney has shown a similar trend, with clearance rates peaking at 90% over the last week of April. Sydney’s clearance rate was recorded at 63% last week, the lowest clearance since March 2013. The lower clearance rate comes on substantially higher volumes compared with a year ago. The Spring season to date has seen 7,193 auctions held across Sydney which is 1,609 (29%) higher than over the same period a year ago.
The slump in clearance rates hasn’t been as sharp in Melbourne where the weekly clearance peaked at 87% over the last week of April and has consistently reduced to the current level of around 73%. Melbourne clearance rates haven’t slipped below 70% since February this year. Auction volumes across Melbourne are at roughly the same level as a year ago, with 7,394 auctions held so far this Spring (7,381 at the same period a year ago).
Outside of Sydney and Melbourne, auction sales are only a small proportion of all sales. Over the year to date, Sydney and Melbourne account for 84% of all auctions held across the capital cities.

Click these links to read Part 2 or Part 3 of this blog.

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