Home Prices – Page 78 – Digital Finance Analytics (DFA) Blog

Foreign Property Buyers Still Active – NAB

The NAB Residential Property Q2 Report shows that the index is weighed down by slowing rents. Eastern states out-performing, with NSW and Victoria expected to lead price and rental growth over the next 1-2 years. Foreign buyers less active in new property markets, but despite tougher restrictions on foreign investment, increase their presence in established markets, especially in Victoria. For the first time the Survey also distinguishes between foreign buyers in apartment and housing markets.

The NAB Residential Property Index fell -4 to +17 points in the June quarter as a slowdown in rents offset continued capital growth.

But, the picture remains mixed across the country.

NAB Group Chief Economist Alan Oster said: “Overall sentiment improved in Victoria and remained solid in NSW, but fell in all other states and quite heavily in SA and WA, with both states printing their weakest index result since the survey began”.

Looking forward, property professionals in NSW are now the most optimistic in the country (replacing QLD), closely followed by Victoria. In contrast, WA is the most pessimistic in the country and more so than in the last survey.

Expectations for national house price growth over the next 1-2 years were unchanged at 2.1% and 2.3%, but improved outlooks for capital growth in NSW and Victoria are offsetting weaker expectations in all other states.

“The survey also suggests that faster capital growth will push yields lower as rental growth continues to slow over the next 1-2 years” said Mr Oster.

Foreign buyers pulled back a little in new property markets in Q2, with their share of total demand falling to 12.8% (15.6% in Q1), with buyers less active in Victoria (18.1%) and NSW (13.1%).

In existing housing markets, however, foreign buyers were more active with their share of national demand rising to 8.6% (7.5% in Q1), with foreign buyers accounting for more than 1 in 10 sales in both Victoria and NSW.

For the first time the Survey distinguishes between foreign buyers in Australian apartment and housing markets.

In the new property market, property professionals estimated that foreign buyers accounted for 16.1% of all apartment sales and 11.5% of house sales in Q2.

“There were however, some big differences between the states, especially in the apartment market where foreigners purchased more than 28% of all new apartments in Victoria, compared to just 16.5% in NSW. There was much less divergence in new housing markets” said Mr Oster.

Despite stricter restrictions on foreign investment in the established residential property market, the survey suggests foreign buyers also play a fairly significant role in this segment of the Australian housing market.

Foreign buyers accounted for 11.4% of all established apartment sales and 9.4% of house sales in Q2.

According to Mr Oster: “It was however notable that foreign buyers had a much bigger presence in the established housing market in Victoria, with a market share of just over 16%. This was much higher than in all other states. Interestingly, the Survey also reported a much higher share of foreigners buying dwellings or land (23%) for re-development in Victoria”.

In terms of local buyers, first home buyers were more prevalent in new property markets in the June quarter (accounting for more than 1 in 4 property sales) although this increase was mostly due to first home buyer investors.

Owner occupiers or up-graders were also more active in both new and established markets, while resident investors (net of FHBs) accounted for just over 1 in 5 sales in both new and established markets.

NAB Economics is forecasting average national house price growth of 6.1% through the year to end-2015, although wide variance in capital city performance will persist. Capital growth is expected to be led mainly by Sydney (10.2%) and Melbourne (6.5%), with modest gains also forecast for Brisbane (4%) and Adelaide (0.9%). In Perth, house prices are expected to fall -3.8%.

Average national house price growth is expected to moderate in 2016 to 3%. NAB Economics expects prices growth to accelerate in Brisbane (4.8%), remain steady in Adelaide (0.9%) and fall in Perth (-0.1%). In contrast, house price growth is forecast to slow in both Sydney (3.9%) and Melbourne (3.1%).

RBA Says Negative Gearing Should Be Reviewed

In the RBA’s submission to the Inquiry on Home Ownership, they argue that negative gearing for investment property should be reviewed, because it has the potential to raise risks in the market, lift prices and distort the market.

Housing, particularly owner-‐occupied housing, receives preferential taxation treatment in many countries, and Australia is no exception. Australia’s taxation system is also relatively generous to small investors in buy-‐to-‐let property compared with some other countries, because investors can deduct losses from their investments against wage income as well as other property income, and because capital gains are taxed at concessional rates. However, there are some other countries where the tax preference for investor property is even stronger than in Australia.

Geared investment increases with age and income, though we should be cautious, as the ATO data is of course income for tax purposes, post offsets.

The Bank believes that there is a case for reviewing negative gearing, but not in isolation. Its interaction with other aspects of the tax system should be taken into account. The ability to deduct legitimate expenses incurred in the course of earning income is an important principle in Australia’s taxation system, and interest payments are no exception to this. To the extent that negative gearing induces landlords to accept a lower rental yield than otherwise (at least while continued capital gains are expected), it may be helpful for housing affordability for tenants. It is worth noting, however, that the interaction of negative gearing with other parts of the taxation system may have the effect of encouraging leveraged investment in property.

Interesting given the UK budget announcement last week to reduce negative gearing there, for the same reasons. So, is economic logic and political positioning pulling in two different directions? The evidence that removal of negative gearing would drive rents up is shaky at best, and the weight of argument is definitely for reform.

You can hear my thoughts on ABC Radio National’s AM Programme this morning.

LTV and DTI Limits—Going Granular

DFA analysis of Australian mortgages highlight that we have high LTI ratios, and high LVR ratios, both indicating a build up of systemic risks in the system. We used postcode level analysis, and believe that it is essential to “get granular”.

Now the IMF has released a working paper on the effectiveness of using loan-to-value (LTV) and debt-service-to-income (DTI) limits as many countries face a new round of rising house prices. Yet, very little is known on how these regulatory instruments work in practice. This paper contributes to fill this gap by looking closely at their use and effectiveness in six economies—Brazil, Hong Kong SAR, Korea, Malaysia, Poland, and Romania.

In most cases,the caps on LTV and DTI started in the range of 60–85 percent and 30–45 percent, respectively, for mortgage loans. In all countries, there were changes to the limits of LTV/DTIs typically because the authorities noted that they were not having the desired effect. In some cases, house price and mortgage growth did not fall, and in other cases, the limits did not bind. Concerned with speculative activities, authorities in some countries lowered the caps selectively either for speculative prone (geographical) areas or for individuals with multiple mortgages. In one case, the centrally set caps were removed and banks were allowed to set their own limits, validated by supervisors. However, this did not work, and stricter requirements were put back in place.

To curb leakages, the limits were extended in some of the countries to insurance companies, mutual funds and finance companies that advertised mortgage products. It was also extended to development financial institutions.

Insights include: rapid growth in high-LTV loans with long maturities or in the number of borrowers with multiple mortgages can be signs of build up in systemic risk; monitoring nonperforming loans by loan characteristics can help in calibrating changes in the LTV and DTI limits; as leakages are almost inevitable, countries strive to address them at an early stage; and, in most cases, LTVs and DTIs were effective in reducing loan-growth and improving debt-servicing performances of borrowers, but not always in curbing house price growth.

Note: The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

A Typical Capital City Home Increased in Value by About $50,000 Last Financial Year – CoreLogic RP Data

CoreLogic RP Data data for June confirms the housing market remained strong. In addition, Based on the current median dwelling price of $565,000, the 9.8% increase means the typical capital city home has increased in value by about $50,000 over the year. At 9.8% the rate of growth across the 2014-15 financial year, was virtually on par with the previous year where dwelling values were 10.1% higher. In June:

Home values increased across most capital cities and the combined capital cities in June 2015

Home values increased by 2.1% across the combined capital cities in June 2015 and rose across all cities except for Perth and Darwin.

Home values have increased by 2.0% over the three months to June 2015 with values lower in Perth and Darwin.

On an annual basis, combined capital city home values have increased by 9.8% which is their fastest annual rate of growth since August 2014.

The value growth performance has been extremely varied over the past year. Sydney (16.2%) has been much stronger than other capital cities while Melbourne (10.2%) has recorded moderate growth while increases have been minimal in Brisbane (3.4%), Adelaide (4.5%), Hobart (0.9%) and Canberra (2.4%). Home values have fallen over the past year in Perth (-0.9%) and Darwin (-2.9%).

The annual home value growth in Sydney and Melbourne is now at its fastest pace since August of last year.

Sales activity across the country is slightly lower than at the same time last year

Over the 12 months to March 2015 there were 357,972 houses and 140,246 units sold across the country.

House sales are 2.1% higher over the year compared to a -8.0% fall in unit sales.

It should be noted that off-the-plan sales aren’t counted until they settle so we would expect the unit figure to be revised much higher over the coming months and years.

Vendor metrics indicate strong housing market conditions

Auction volumes have surged since the RBA cut interest rate in February and again in May clearance rates have also recorded a sharp rise but have eased slightly from their recent record high levels.

Discounting levels remain low while time on market is also at a near record low, in fact Sydney’s time on market is equal to its record low and in Melbourne homes are selling at their fastest rate on record.

The amount of homes for sale is much lower than at the same time last year

New listings are 11.3% higher than a year ago nationally and 5.5% higher across the capital cities.

Nationally, total listings are -3.9% lower than a year ago and total listings are -6.5% lower.

Sydney has less stock listed for sale (16,614) than each of Melbourne (26,225), Brisbane (18,260) and Perth (20,198).

The total number of listings in Sydney is -19.1% lower than at the same time last year.

Mortgage demand has rebounded strongly following the Christmas / New Year period

The RP Data Mortgage Index (RMI) shows that mortgage demand eased a little in June 2015.

ABS housing finance data to April shows the market growth continues to be driven by investors and owner occupier refinances.

Housing credit data shows that over the past year investor housing credit has increased by 10.4% which is in excess of the cap targeted by APRA.

Capital city dwelling values 9.8% higher over the financial year – CoreLogic RP Data

Based on the CoreLogic RP Data June home value results capital city dwelling values finished the 2014/15 financial year on a strong footing, with dwelling values rising 2.0 per cent over the June quarter and 9.8 per cent higher over the year. The rate of capital gain was slightly higher over the second half of the year (5.1 per cent) compared with the first half (4.5 per cent) highlighting that the housing market has gathered some momentum during 2015. The previous 2013/14 financial year recorded a slightly higher rate of growth at 10.1 per cent.

Since dwelling values started rising in May 2012, Sydney dwellings have seen a 43.1 per cent surge in values and Melbourne values are up by 25.9 per cent. Despite softer market conditions in Perth, dwelling values are currently up 12.8 per cent over the cycle which represents the third highest growth rate across the capitals. Simultaneously, Brisbane’s property market has shown the fourth highest rate of growth at 12.4 per cent, followed by Adelaide (10.4 per cent), Hobart (9.6 per cent), Darwin (8.9 per cent) and Canberra (8.8 per cent).

Looking at the performance of detached housing versus apartments over the financial year, houses are clearly outperforming units in the capital gains stakes. Over the financial year, house values were 10.4 per cent higher across the combined capitals index while unit values increased by a much lower 5.6 per cent. The same trend where houses are showing a higher capital gain than units is evident across each of the capital cities except Hobart and Darwin.

Today’s results confirm a scenario where detached housing outperforming apartments is most evident in Melbourne. Based on the results, Melbourne house values have shown a very strong 11.2 per cent capital gain over the financial year while apartment values are up by only 2.4 per cent.

Gross rental yields drifted another notch lower in June due to dwelling values rising at a faster pace than weekly rents. Currently, the typical gross yield for a capital city house is recorded at 3.5 per cent, which is equivalent to the record low last recorded in 2007. The average gross yield on a capital city unit also fell over the month to reach 4.4 per cent; the lowest gross apartment yield since 2010 and not far off the all-time low of 4.3 per cent recorded in 2007.

Residential Property Now Worth A Record $5.5 Trillion

The ABS released their data on Residential Property Prices to March 2015. The total value of Australia’s 9.5 million residential dwellings increased to $5.5 trillion. The mean price of dwellings in Australia is now $576,100, an increase of $8,400 over the quarter. Sydney continues to drive residential property price increases with the Residential Property Price Index (RPPI) for Sydney rising 3.1 per cent in the March quarter 2015 and 13.1 per cent in the previous year. Established house prices for Sydney rose 3.8 per cent and attached dwelling prices rose 2.2 per cent.

The price index for residential properties for the weighted average of the eight capital cities rose 1.6% in the March quarter 2015. The index rose 6.9% through the year to the March quarter 2015. The capital city residential property price indexes rose in Sydney (+3.1%), Melbourne (+0.6%), Brisbane (+0.4%), Adelaide (+0.7%), Canberra (+1.1%) and Hobart (+0.5%) and fell in Darwin (-0.2%) and Perth (-0.1%). Annually, residential property prices rose in Sydney (+13.1%), Melbourne (+4.7%), Brisbane (+3.9%), Adelaide (+2.5%), Canberra (+3.0%) and Hobart (+1.9%) and fell in Darwin (-0.4%) and Perth (-0.3%).

We see how Sydney steamed ahead of other states in the last quarter.

We also see significant differences between the relative price of established houses and attached dwellings in Sydney compared with other centres, the rest of the states outside the capital cities.

A review of the Residential Property Price Indexes was undertaken in 2014 as a response to planned reductions to the ABS work program. The outcomes of the Review were released on the ABS website in a feature article in the September 2014 issue of Residential Property Price Indexes: Eight Capital Cities. The implementation of the review outcomes is occurring in this issue.

In summary, the changes in this issue are:

all Australian residential property sales data used to compile the price indexes and related statistics are now supplied to the ABS by CoreLogic RP Data;
from the March quarter 2015 the suite of residential property price indexes are considered final;
the method of calculating prices in the total value of the dwelling stock has been modified due to the change in timing of this release;
the unstratified median price and number of dwelling transfers series are now being published up to the current quarter.

Five Reasons Housing Is More Affordable Overseas

From The Conversation. Housing affordability continues to be an issue of importance to voters, with a recent Fairfax-Ipsos poll showing 69% of Australian capital city residents disagree that housing is affordable for prospective first home buyers.

Different countries have adopted varying approaches to improve access to affordable housing – with governments playing a central role in ensuring people are adequately sheltered, as well as being encouraged to buy housing where possible. In many countries there is an underlying desire by households to own their own home, although renting is the norm in others.

More than 84% of households in Berlin rent their home. exilism/Flickr, CC BY-NC-ND

In each case there are specific and sometimes unique-to-that-country approaches that have helped address the issue of affordability. Here’s five.

Government intervenes in the rental market

In some countries there is a general culture of renting for accessing accommodation, rather than assuming all households should achieve home ownership. At times, renting is cheaper than buying. In Germany most households (54.1%) are renters due to the long-term intervention in the marketplace by the government, as well as the accepted culture that renting is suitable over the long-term. In Berlin a total of 84.4% of all households rent. Providing this amount of rental accommodation is a major challenge without substantial government intervention and/or provision of housing.

For example, in Germany a housing allowance was paid to approximately 783,000 households in 2012, equating to 1.9% of all private households. However most of this funding was allocated to single person households (57%) unable to compete in the open housing market with multiple income households.

Other countries have acknowledged the gap between (a) the maximum amount of rent a tenant can pay and (b) the minimum level of rent a landlord will charge. For example in the US, this gap is bridged by the widespread use of a voucher system which subsidies the payment of rent to private landlords. This system is funded by the US government and ensures tenants can access a minimum quality of affordable housing.

Government provides affordable housing

In Singapore there is a high level of government intervention in the market with the HDB (Housing and Development Board) providing approximately 80% of all housing in the country. Approximately 90% of households in Singapore own their own home and there are also grants for first time buyers and second time buyers in Singapore.

In Hong Kong about 29.7% of residents live in PRH (public rental housing) provided by the Hong Kong government. In Scotland a large proportion of the supply of affordable housing is undertaken by housing associations and local authorities. This collectively equates to about quarter of total housing accommodation in the market. However the recent trend for many countries, including Australia, has been the provision of less direct housing by governments.

Cities embrace higher density housing

There are numerous examples of global cities making better use of limited inner-city land supply by encouraging higher density living in high rise units or condominiums, especially in Asian cities including Hong Kong, Macau and Singapore. The provision of affordable housing for purchase or renting is therefore more likely to be achieved in these circumstances due to minimal land use and higher densities. However high-rise living is not commonly accepted in many European cities or in locations with a resistance due to cultural preferences for detached housing.

Public transport allows residents to commute to less expensive housing

The main driver of where a household lives is the need to be close to their workplace. As more affordable housing is usually located away from the central business district, households can buy cheaper homes but the trade-off is additional commuting time to work. When this extended commuting time (e.g. up to 2 hours each way) is combined with improved transport infrastructure such as in Japan, it is possible to access affordable housing in outlying satellite towns and cities where land is more affordable. Therefore governments which improve road and public transport infrastructure also increase access to affordable housing.

Multiple person households are encouraged

Lower demand can be achieved by limiting population levels and underlying demand for housing. But while this may not be an option for many governments, another option is to encourage multiple person households which otherwise would remain as single person households. According to the ABS (2012) in 1911 the average persons per household was 4.5, decreasing to 2.7 persons per household by 1991.

List of countries by number of households

Wikipedia compiled from various sources.

Author: Richard Reed, Chair in Property & Real Estate at Deakin University

Lateline Does Negative Gearing

Interesting segment on Lateline yesterday discussing housing affordability and negative gearing with Finance Minister Mathias Cormann.

Bubble Smuzzle

The sudden talk of bubbles in the property market, by the regulators and treasury, looks like an attempt to talk the housing market down whilst not really doing that much in reality, and leaving space for more rate cuts in the cash rate as broader economic activity slows. The RBA’s low rate strategy is partly to blame. But, is it really a bubble? Well. If you look at the growth in house prices now compared with a decade or more ago, growth in the past three years in every capital city is lower than it was in the period 2001-2004. Darwin and Hobart are the centres with growth which most closely match the ramp up in 2001 onwards and the current rises.

We did not have the 20-40% corrections post the GFC that the USA and UK had, prices tended to stall, or rise slowly, but we started the current run-up from a higher base position.

The next point is that household debt is higher compared with GDP than it has ever been, and whilst the savings ratio is high, it is now actually falling. The current low interest rates are encouraging people to grab a loan, and buy a property, especially investment property. It’s simple, low interest rates, negative gearing to offset costs, and the prospect of capital growth makes property investment compelling, as it is in a number of other countries. Indeed, overseas investors are joining in the fun (and FIRB has not tackled the issue). First time buyers are going direct to the investment sector, and down traders are selling up, releasing cash and investing in leveraged property. It’s all very logical.

Demand is also being stoked by population growth, including migration, and the expanding number of households in Australia. We have not built enough property for more than a decade, so there is more demand against supply. Also, we have more single person families (thanks to relationship breakup, older singles, and other people preferring to live alone). So we need different types of property, and more of it.

Because supply/demand is out of kilter, prices are rising, it’s not a bubble, its fundamental economics. We need to think about three factors, first, interest rates are low and will at some time rise, many people who have borrowed today and can afford repayments will find it increasingly difficult if rates rise, mortgage stress is quite high today, at low rates, and will rise. Second, income growth is flat, and this means that people won’t get out of jail as they did in 2001+, because incomes rose faster then, and helped to ease the pain when rates rose. Also, rentals are more linked to incomes than house prices, so rental income wont lift much. Third, on any absolute measure, (Loan to income, Prices to GDP) we are 25-30% above the long term norm. At some point it will correct – but it’s a structural problem not a bubble. This is true in all major centres, and is also spilling out into the regional areas. It’s not just a Sydney-Melbourne thing.

The solution requires joined up thinking. We need to revisit negative gearing. Plan better to build more houses, tighten lending and capital rules to restrict bank lending, tackle foreign purchasers and provide innovative options to assist first time buyers back into the owner occupied sector (joint equity share arrangements is my bet). Finally, and desperately, we need to deflect the banks appetite to lend to housing towards productive lending to business because this will give productive growth, not useless asset price growth and bank balance sheet growth. We need to ease price growth, and get back to trend. This will be painful and politically charged. On the supply side, we need to build more, reduce new development taxes and change planning regulations.

Meantime we have property which is chronically overvalued. Not a bubble, a structural problem. I doubt Canberra will do much more than hold yet another inquiry into housing (Oh, Hockey kicked one off a couple of weeks ago!)

Residential Property Prices Increased Significantly YOY in Real Terms 4Q14 – BIS

The Bank for International settlements released their latest cross-country house price database. They highlight the volatile nature of property, and longer term, contrasts the rise and rise we have seen in Australia, with very different stories elsewhere. Between 2007 and now, prices in real terms are still lower than they were then in US, UK and Japan. In Australia, and Canada, they are higher. Real residential property prices had almost doubled in Brazil and had risen by 80% in India; but they had declined by almost one third in Russia.

“In the fourth quarter of 2014, residential property prices increased significantly year on year in real terms (ie deflated by the CPI) in several advanced economies. They grew by 3–5% in Australia, Canada and the United States, and by around 10% in Sweden and the United Kingdom. Real prices increased by 1% in the euro area, although there were important disparities among member states: they rose by 16% in Ireland and more moderately in Germany and Spain, but continued to decline in France, Greece and Italy. Prices also fell in Japan. The picture was also mixed among major emerging market economies. Property price inflation remained strong in India, and to a lesser extent in South Africa and Turkey, but prices continued to fall in China and Russia.

From a longer-term perspective, residential property prices generally peaked in real terms in 2006–07 in most advanced economies. Since the end of 2007, they had decreased by 14% in the euro area, reflecting a fall of around 40% in Greece, Ireland and Spain, and by 23% in Italy, partly offset by a price increase in Germany. As of the fourth quarter of 2014, real prices were also still well below their 2007 levels in the United States (by 13%) and, to a lesser extent, Japan and the United Kingdom. Most other advanced economies, such as Australia, Canada, Norway, Sweden and Switzerland, had registered a significant rise in property prices over the previous seven years. Among major emerging market economies, real residential property prices had almost doubled in Brazil and had risen by 80% in India; but they had declined by almost one third in Russia.”