We’re into the spring real estate season and our national housing markets have continued to grow throughout the year as the impact of the lowest interest rates in 60 years and strong investor activity.
While the pace of capital growth has slowed over the last month, the overall trend remains strong, however individual performances remain patchy and mixed both between our capital city markets and market segments within them, reflecting the underlying impact of local supply and demand factors.
Over the last year the total value of investor loans have been higher than owner occupier loans, causing strong capital growth, but rents are increasing at their slowest pace on record pushing rental yields to new record lows.
Sydney was the standout performer
In fact it’s really been a two horse race with Sydney the standout performer over the last year (+17.6%), while Melbourne was the best performing market over the last 3 winter months (+10.6% for the year).
The other capital cities lagged behind as can be seen in this chart:
And while some are concerned we’re heading for another property bust, the stats suggest otherwise none of our capital city markets showing extraordinary growth over the last 10 years.
Why Sydney and Melbourne?
The main reasons property values in our 2 big capital cities continue to grow so strongly are their strong economic and jobs growth as well as massive population growth with a round 60% of the immigrants coming to these two cities to chase the jobs there.
At the same time the outflow of residents from Sydney and Melbourne to other states, particularly Queensland and Western Australia, has slowed dramatically since the end of the mining boom.
Also property investors chasing capital growth have been targeting these cities.
Let’s now look at some of our major property markets in a little more detail:
Median house price: $900,000; 18.6% increase in last 12 months.
Median unit price: $670,000; 12.7% increase in last 12 months.
Vacancy Rate: 1.8%
The Sydney market continues to perform strongly with house prices now at record levels and up 42.1% from the previous market peak in 2101.
The Harbour City market is strong because jobs are being created there and its population continues to grow strongly.
“I know some people are asking if it’s too late this property cycle to buy in Sydney, they’re clearly concerned about paying too much,” says George Raptis, director of Metropole Property Strategists in Sydney.
“Sure the market is slowing a little, but with high auction clearance rates, and days on market (how quickly properties are being sold) remaining low I still see the excellent growth potential in Sydney for the remainder of the year.
“There is still strong demand from investors, however with rentals remaining flat, yields have not kept pace with capital growth.
"Homebuyers are selecting more carefully now and their decisions are being driven by lifestyle with many trading backyards for balconies in well-located apartments in Sydney’s gentrifying suburbs.” says Raptis.
Median house price: $620,000; 11.5% increase in last 12 months.
Median unit price: $475,000; 2.9% increase in last 12 months.
Vacancy Rate: 2.3%
The Melbourne market continues to perform strongly with house prices now at record levels and up 18.2% since the previous market peak.
“While Melbourne home values have risen at the second fastest pace of all the capital cities over the last 12 months, it’s really a tale of two cities in the one big capital,” said Kate Cull, of Metropole Property
Strategists in Melbourne.
“There is still a significant oversupply of new apartments in the CBD and in many of our inner suburbs plus a record number of new apartments are still coming out of the ground or on the drawing board. This will undermine capital gains and rental growth.
“Yet there is a shortage of well located established homes and apartments in Melbourne’s middle ring suburbs with demand outpacing supply, keeping auction clearances high and prices strong.
“Currently there are some good investment opportunities buying established apartments in Melbourne’s southern or eastern suburbs and adding value through renovations,” she says.
Median house price: $482,400; 4.3% increase in last 12 months.
Median unit price: $382,20; 0.5% increase in last 12 months.
Vacancy Rate: 2.6%
Having underperformed the combined capital city averages over the last 10 years Brisbane was tipped by many as the property market to be in this year, and while it gathering momentum and market turnover has increased, it is still underperforming Melbourne and Sydney.
Shannon Davis, director of Metropole Property Strategists in Brisbane commented:
“There has been a resurgence of property investor activity over the last six months, with interest being particularly strong in the mid price range, inner and middle ring suburbs of Brisbane.
“Melbourne and Sydney investors are beginning to consider Brisbane where price growth has lagged the southern states.
With property prices around 50% cheaper than Sydney and higher rental yields, there is still a lot of upside for Brisbane properties” said Davis.
Median house price: $520,000; -1.5% fall in last 12 months.
Median unit price: $415,000; -5.2 % fall in last 12 months.
Vacancy Rate 3.8%
After a long period of strong capital growth the Perth housing market has recorded a significant slowdown with home values declining over the last year and these conditions are likely to continue with transaction numbers falling and decreasing confidence.
According to Damian Collins director of Momentum Wealth:
“The Perth median dwelling price dipped in the June quarter. The result can be partly attributed to the higher number of listings on the market with about 13,700 dwellings for sale – a 26% increase on the same time last year and above the market equilibrium of between 12,000 and 13,000.
"This is partly driven by a deceleration in population growth in Western Australia, which has slowed from about 2% to 1.6%, however this still remains the second strongest in the nation behind Victoria.
"We’ve also seen an increase in the vacancy rate, as more renters choose to purchase their own homes on the back of record-low interest rates.
"Despite the softer conditions, properties that hold good upside-growth, usually with development potential, remain highly sought after and are being bought within a fortnight, while more common stock is taking longer to sell.
"Overall the expectation is that the Perth property market will not see much growth in the next 12 months, but the long term prospects are still good. Counter-cyclical investors who have made money in other states might consider adding a Perth property to their portfolio.”
Median house price: $430,000; 1.8% increase in last 12 months.
Median unit price: $350,000; 1.2% increase in last 12 months.
Vacancy Rate: 1.9%
Adelaide’s housing market has essentially remained flat over the last 5 years; in fact it’s fallen behind after taking inflation into account.
While it’s had it’s best year in a while over the last 12 months demand for property remains subdued with activity driven more by necessity than desire to upgrade or invest.
Median house price: $580,000; -4.8% fall in last 12 months.
Median unit price: $450,000; -3.7% fall in last 12 months.
Vacancy Rate 3.5%
The Darwin property market performed strongly a few years ago driven by solid investor sentiment, but their love affair with the Northern Territory seems to be over. It was the worst performing capital city market last year.
I’ve always found investor driven markets more volatile than our big capital cities and that’s why I avoid them.
Median house price: $330,200; 1.7% increase in last 12 months.
Median unit price: $280,000; -0.6% fall in last 12 months.
Vacancy Rate: 1.2%
While home values are improving in Hobart they are still below the levels of 5 years ago. Without a big economic shift to boost employment and sentiment there is little to suggest things will change.
Median house price: $587,800; -1.0% fall in last 12 months.
Median unit price: $415,000; 0.9% increase in last 12 months.
Vacancy Rate: 2.5%
The Canberra market is having a difficult year with house values falling on an annual basis and an oversupply of apartments is holding back unit price growth.
The Canberra housing market has always been affected by the state of the economy and the political cycle more than the big capital cities.
Source of Data: Corelogic, SQM Research
The spring selling season is here and considering the strong market depth, the high auction clearance rates, the rapid sale of properties coming to market, the ongoing low interest rate environment and the fact that consumer confidence is moving in the right direction, it is likely that dwelling values will rise even further over the rest of the year.
But as before Sydney and Melbourne are likely to lead the pack, with Brisbane taking up third place.
Of course the economy will keep putting stumbling blocks in front of us and it won’t be all smooth sailing – but it never is.
While interest rates have recently risen for investor loans and APRA is tightening the screws on investor lending, the market is factoring in another fall in the official RBA interest rate by the first quarter of next year.
However at some time in the future, probably a year or 2 away, house prices will have risen significantly and our economy will have picked up to the point where the RBA will need to raise interest rates.
The bottom line is…you can’t just buy any property.
It’s a myth that property values double every 7 to 10 years.
While they say a “rising tide lifts all ships” clearly there are some property markets and certain properties that have had minimal growth over the last few years while others have enjoyed massive growth.
While the overall property market is comfortable, it's a bit like me putting my left hand in a bucket of cold water and my right hand in the bucket of hot water and saying overall I feel comfortable.
Some segments of the property market are hot and others are cold and the fragmentation of these markets is unlikely to change over the next year or so.
This means home buyers and investors will have to undertake careful due diligence and make sure they buy the right type of property…
One that has a level of scarcity, meaning it will be in continuous strong demand by owner occupiers (to keep pushing up its value) and tenants (to help subsidise your mortgage); in the right location (one that has outperformed the long term averages), at the right time in the property cycle and for the right price.
Then hold it as a long-term investment and reap the rewards.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.