Category: Property Market

Auction clearance rates reach the highest level over the calendar year to date

From CoreLogic.

Across the combined capital cities this week, the number of properties taken to auction increased dramatically, with 3,232 auctions held; significantly higher than what has been recorded over the same period across previous years, with auction volumes generally reaching their seasonal peaks around March.  The record highs for the number of auctions were confined to the Sydney and Melbourne markets, where auction numbers were the highest on record for the month of February.  Despite auctions reaching record highs for February, the combined capital city preliminary clearance rate also reached a new record high over the year to date.  78.6 per cent of auctions recorded a positive result this week, which is higher than the 71.4 per cent last year, across a lower volume of auctions (2,701). Overall activity has increased week-on-week, with volumes increasing across all the capital cities, with clearance rates also rising in most capital cities with the exception of Canberra and Perth, where clearance rates fell over the week.

Invest in Urban Transport to Fix Housing Affordability

From AAP.

Soaring household debt and housing prices could make it “dangerous” to cut interest rates, the head of the Reserve Bank of Australia says.

Dr Philip Lowe has told a Federal parliamentary economics committee that a deeper cut to the official cash rate could deliver a short-term boost to jobs and inflation but also push already-high property prices and household debt levels to worrying levels.

“Is it really in the national interest to create a little bit more employment growth in the short-run at the expense of creating vulnerabilities which could be quite dangerous in the long term,” Dr Lowe said at the hearing in Sydney on Friday.

He said another rate cut could help drive down the unemployment rate, which could be lower than its current 5.7 per cent, and boost underlying inflation, which could be higher than 1.55 per cent.

RBA figures show the household debt-to-income ratio is already at 187 per cent, while total household debt is equal to about 123 per cent of the country’s gross domestic product.

“I accept that different people will come to different points on judging that trade-off; at the moment we’re in a reasonable place because the unemployment rate is broadly steady and household debt and house price growth at the aggregate level are fast enough,” Dr Lowe said.

“I feel if they were even faster at the moment we would be moving into the area where the vulnerabilities are increasing, perhaps to unacceptable levels.”

Lower housing prices and household debt levels would only marginally strengthen the case for another rate cut, he said.

The central bank chief said monetary policy alone could no longer drive growth and it was up to the Parliament to use fiscal policy — through changes to tax and spending — to support the economy.

“Monetary policy at the margin can help you, but were talking very much at the margin,” he said.

The best way the Government could reduce pressure on property prices and boost growth would be investing in urban transport infrastructure, he said.

He said with a growing population, crowded cities, poor land supply and the difficulties people encounter moving around, investment in urban transport infrastructure would be “a first order gain”.

“It increases demand, takes the pressure off ultra-low interest rates, increases the productive capacity of the economy because people can move around, it takes the pressure off housing prices,” Dr Lowe.

“It’s probably the best housing affordability policy.”

Today’s Auction Results Continues Strong Trend

Preliminary auction clearance results today from Domain show strong results again, though the preliminary result from Sydney last week stood at 83.1% compared with 80.2% this time around. Nationally clearance was 80.9% compared with 75.7% last week. This is higher than a year ago though on slightly smaller volumes. Melbourne stands at 82.4% compared with 76.1% last week on higher volumes.

Brisbane cleared 69% on 122 listed, Adelaide 81% on 90 listed and Canberra 77% from 79 listed.

Household Debt Has Become An RBA Thematic

The statement delivered today by RBA Governor, Philip Lowe, to the House of Representatives Standing Committee on Economics contains the now familiar nod towards risks associated with high household debt.  “Too much borrowing today can create problems for tomorrow, because debt does have to be repaid”. Exactly!

One area that we are watching closely is the cycle in residential construction activity, as the upswing has helped support the economy over recent years. The rate of new building approvals has slowed, but there is a large amount of work still in the pipeline, particularly for apartments, so we still expect some further growth in this part of the economy this year. There has, however, been some tightening in conditions for property developers in some markets.

In the broader housing market, the picture remains quite complicated. There is not a single story across the country. In parts of the country that have been adjusting to the downswing in mining investment or where there have been big increases in supply of apartments, housing prices have declined. In other parts, where the economy has been stronger and the supply-side has had trouble keeping up with strong population growth, housing prices are still rising quickly. In most areas, growth in rents is low. And recently we have seen a pick-up in growth in credit to investors, which needs to be watched carefully.

In terms of consumer prices, a year ago we had expected the inflation rate to remain above 2 per cent. It has turned out to be lower than this last year, at around 1½ per cent. Wage growth has been quite subdued, reflecting spare capacity in the labour market and the adjustment to the unwinding of the mining investment boom. We anticipate the subdued outcomes to continue for a while yet. Increased competition in retailing is also having an effect on prices, as is the low rate of increase in rents.

We do not expect the rate of inflation to fall further. Our judgement is that there are reasonable prospects for inflation to rise towards the middle of the target over time. The recent improvement in the global economy provides some extra assurance on this front. Headline inflation is expected to be back above 2 per cent later this year, boosted by higher prices for petrol and tobacco. The pick-up in underlying inflation is expected to be more gradual.

Since we appeared before this Committee last September, the Reserve Bank Board has kept the cash rate unchanged at 1.5 per cent.

At its recent meetings the Board has been paying close attention to the outlook for inflation as well as two other issues: trends in household borrowing and in the labour market.

One of the ways in which monetary policy works is to make it easier for people to borrow and spend. But there is a balance to be struck. Too much borrowing today can create problems for tomorrow, because debt does have to be repaid. At the moment, most households with borrowings do seem to be coping pretty well. But the current high level of debt, combined with low nominal income growth, is affecting the appetite of households to spend, and we are seeing some evidence of this in the consumption figures. The balance that is required is to support spending in the economy today while avoiding creating fragilities in household balance sheets that could cause problems for the economy later on. This is also something we need to watch carefully.

Trends in the labour market are also important. As in the housing market, the picture in the labour market varies significantly around the country. Overall, the unemployment rate has been steady now for a little over a year at around 5¾ per cent. In a historical context this would have been considered a good outcome, although, today, a sustainably lower unemployment rate should be possible in Australia. The other aspect of the labour market that is worth noting is the continuing trend towards part-time employment. Over the past year, all the growth in employment is accounted for by part-time jobs. There is a structural element to this, but it is also partly cyclical. We expect that the unemployment rate will remain around its current level for a while yet.

The Reserve Bank Board continues to balance these various issues within the framework of our flexible medium-term inflation target, which aims to achieve an average rate of inflation over time of 2 point something. Our judgement is that the current setting of the cash rate is consistent with both this and achieving sustainable growth in our economy. We will continue to review that judgement at future meetings.

Home Deposits Unwelcome in Super

From The Financial Standard.

Superannuation industry groups are warning the federal government to keep Australia’s $2 trillion retirement savings system away from addressing the nation’s housing affordability problems.

Earlier this week Federal Treasurer Scott Morrison said the government is likely to address housing affordability in its May Budget, and there have been several suggestions about how to deliver the best outcome.

New South Wales Minister for Planning and Housing, Anthony Roberts, recently mentioned the idea of unlocking superannuation for first home deposits.

Industry Super Australia believes the idea is bad policy as it could reduce retirement savings and drive up housing prices while doing nothing to address supply.

ISA chief economist Stephen Anthony said: “In the housing affordability debate, the focus should be on land release, regulation and tax subsidies that fuel investment in existing property rather than new buildings. Allowing first home buyers early access to their super will set back a retirement income system that is still struggling to fully deliver.”

Anthony also said the proposal is inconsistent with the federal government’s objective of super, being “to provide income in retirement to substitute or supplement the age pension.”

The Australian Institute of Superannuation Trustees (AIST) also warned against using superannuation to tackle the nation’s housing affordability challenge.

“The superannuation industry shares concerns about housing affordability for the young but superannuation is not the silver bullet,” AIST chief executive Tom Garcia said.

“Superannuation is about saving for retirement. It’s not a savings pool to be used for any other purpose as the government has made clear in its own proposed objective for super.”

Morrison said in a radio interview with Ray Hadley that he’s had good discussions with senior NSW government ministers about housing affordability issues for a long time.

“It is a big challenge particularly for people here in Sydney and particularly people down in Melbourne. Whether it is in Queensland or other places, particularly South East Queensland there are real challenges there. We want to look at ways that we can improve that situation. It is not just for people who are looking to buy their first home,” Morrison said.

Barnett government will cut stamp duty for seniors if re-elected

From The Real Estate Conversation.

If re-elected, the Western Australian Liberal government will cut stamp duty for downsizing seniors by up to $15,000.

The discount will apply to new and already-established homes, and will affect more than 4,000 eligible seniors aged over 65 years, according to a statement from the Liberals Western Australia.

Eligible seniors will pay no stamp duty on property worth up to $440,000, and the tax will be roughly halved on a property worth $750,000. The initiative, which will be introduced for two years from the start of 2018, will include a requirement for the senior to sell their existing home.

The policy will also give a duty concession of up to $10,000 for vacant lots.

Premier Colin Barnett said, “It is important to support seniors in choosing housing that better suits their needs.”

Seniors Minister Paul Miles said, “Our actions will not only bring major benefits to seniors and their families, they will directly support jobs – whether it be the tradies building new houses, or the professions involved in the sale of established homes.

The Barnett government already has policies in place to stimulate the languishing WA property market, including the First Home Owner Grant Scheme and Keystart.

The Real Estate Institute of Western Australia and the Council on the Ageing welcomed the release of the Barnett campaign policy.

REIWA President Hayden Groves said he was thrilled the Barnett Government had committed to easing the burden of transfer duty for seniors if re-elected on 11 March.

“Transfer duty creates a significant barrier for seniors over 65 on fixed incomes who are looking to change their lifestyle or down size,” he said.

“The cost of transfer duty on a median house price of $520,000 is $18,715, which is almost equivalent to the entire annual standard aged pension of $20,745.40.”

“The $15,000 concession the government have committed to will make a substantial difference to those seniors looking to ‘right size’ into more suitable accommodation,” he said.

COTA WA CEO Mark Teale said one in three voters in WA are over the age of 60 and seniors make up 19 per cent of WA’s population.

“Our members, many of whom are on a fixed income, find the existing transfer duty arrangements to be a major barrier to ‘right sizing’, so this announcement is very positive news,” said Teale.

REIWA analysis estimates the policy reform could release 21,000 homes onto the market, making it easier for West Australians to “trade-up”.

“While the concession would cost the state government $303 million from the 21,000 senior households ‘right sizing’, the resulting trade-up activity would generate additional transfer duty revenue in the order of $393 million, leaving a net surplus of $90 million,” said Groves.

Ben Myers, Executive Director – Retirement Living at the Property Council of Australia, said the  downsizing incentive for senior Western Australians will have broad-ranging benefits and should be examined by other states.

The peak body for retirement and seniors living has conducted its own research which shows that “downsizing to a smaller home can extend people’s capacity to live independently, delaying or reducing their need for formal care or support,” according to Myers.

Myers said the policy with “ensure senior Australians have housing choice and can downsize at low cost” but also has the benefit “of freeing up housing stock for first home buyers.”

This Week The Investor Intention Indicator Is Down Again

We just got the results back from this week’s household surveys, and yes, we went straight to the investor intention to transact series. It is down again, now for the fourth straight week, and continues the trend we reported last week. Whilst “a swallow does not make a summer”, it could be a leading indicator of trouble ahead.

If the data is correct, the current home sales momentum is likely to slow in coming months.

The Property Imperative 8 Now Available

The latest and updated edition of our flagship report “The Property Imperative” is now available with data to end February 2017. This eighth edition updates the current state of the market by looking at the activities of different household groups using our recent primary research, and other available data. It features recent work from the DFA Blog and also contains new original research.

In this edition, we look at mortgage stress and defaults across both owner occupied and investment loans, housing affordability and the updated impact of “The Bank of Mum and Dad” on first time buyers.

We also examine the latest dynamics in the property investment sector including a review of portfolio investors, and discuss recent leading indicators which may suggest a future downturn.

The overall level of household debt continues to rise and investment loans are back in favour at the moment, though this may change. Here is the table of contents.

1       Introduction. 
2       The Property Imperative – Winners and Losers. 
2.1         An Overview of the Australian Residential Property Market.
2.2         Home Price Trends. 
2.3         The Lending Environment. 
2.4         Bank Portfolio Analysis. 
2.5         Broker Shares And Commissions. 
2.6         Market Aggregate Demand.
3       Segmentation Analysis. 
3.1         Want-to-Buys. 
3.2         First Timers.
3.3         Refinancers.
3.4         Holders. 
3.5         Up-Traders.
3.6         Down-Traders. 
3.7         Solo Investors. 
3.8         Portfolio Investors.
3.9         Super Investment Property. 
4       Mortgage Stress and Default.
4.1         State And Regional Analysis. 
4.2         Stress By Household Profile. 
4.3         Stress By Property Segments.
4.4         Stress By Household Segments. 
4.5         Post Code Level Analysis.
4.6         Top 100 Post Codes And Geo-mapping. 
5       Interest Rate Sensitivity. 
5.1         Owner Occupied Borrowers. 
5.1.1          Sensitivity by Loan Value. 
5.2         Cumulative Sensitivity. 
5.2.1          Owner Occupied Borrowers. 
5.2.2          Investment Loan Borrowers. 
5.2.3          Owner Occupied AND Investment Loan Borrowers. 
6       Housing Affordability And Hot Air.

Request the free report [61 pages] using the form below. You should get confirmation your message was sent immediately and you will receive an email with the report attached after a short delay.

Note this will NOT automatically send you our ongoing research updates, for that register here.

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Auction Volumes Surge Past 2,000 This Week

From CoreLogic.

The combined capital city preliminary clearance rate remained in the high 70 per cent range over the week, despite auction volumes reaching the highest level so far this year.  There were 2,280 dwellings taken to auction this week, significantly increasing from 1,591 over the previous week, with 77.0 per cent of auctions reported as successful.  The larger number of auctions was driven by a substantial rise across the Sydney and Melbourne markets, while the number of auctions held actually saw a decrease across the smaller capital cities over the week.  The strongest clearance rates, based on preliminary data, were in Sydney and Canberra, where 83.5 per cent and 81.5 per cent of auctions returned a successful result.  Melbourne also recorded a strong preliminary clearance rate, with 76.7 per cent of auctions clearing.  The preliminary combined capital city clearance rate was higher this week than what was seen over the same period last year, however, the number of auctions held was lower, with 2,347 auctions held over the same week last year, returning a 71.8 per cent clearance rate.