CoreLogic – Page 14 – Digital Finance Analytics (DFA) Blog

The Deadly Grip Of Property Depression In The Mining Belt

Important analysis from CoreLogic showing the impact of the property downturn on the mining belt.

As commodity prices and mining investment has sunk, demand for housing in mining areas has also slowed. This week we take a look at the performance of some of the major mining towns.

Mining towns and regions across the country have been hard hit as investment and commodity prices have slumped. This week we’re looking at how the housing market has performed in terms of the volume and median price of sales across these regions. The results indicate that not all mining towns have recorded an equivalent slowdown. The following analysis looks at annual median prices and annual sales volumes

Port Hedland – median prices peaked at $925,000 in June 2013 and sales volumes peaked at 402 in July 2006. Current median prices are $390,000 (-58% lower than peak) and current sales are 128 (-68% below peak). In what may be a positive sign for the market, annual sales are once again trending higher, although the median prices trend is yet to bottom out.

Isaac – median prices peaked at $620,000 in November 2012 and sales volumes peaked at 661 in March 2012. Current median prices are $138,390 (-78% lower than peak) and current sales are 117 (-28% below peak). Transaction numbers have recently started to rise, however median price trends remain negative.

Karratha – median prices peaked at $815,000 in October 2010 and sales volumes peaked at 511 in March 2005. Current median prices are $362,980 (-55% lower than peak) and current sales are 235 (-54% below peak). Transaction numbers have been trending higher since xxx but the median sale price is still falling, albeit at a more moderate pace.

Gladstone – median prices peaked at $475,000 in September 2012 and sales volumes peaked at 1,823 in July 2007. Current median prices are $350,000 (-26% lower than peak) and current sales are 572 (-69% below peak). Dwelling turnover is continuing along a downwards trend with no sign of an improvement in buyer demand just yet.

Kalgoorlie-Boulder – median prices peaked at $351,250 in June 2015 and sales volumes peaked at 1,656 in September 2006. Current median prices are $312,000 (-11% lower than peak) and current sales are 345 (-79% below peak). Transaction numbers appear to be levelling, however there is no sign of any upwards pressure on prices or turnover.

Mackay – median prices peaked at $435,000 in June 2013 and sales volumes peaked at 3,264 in April 2004. Current median prices are $345,000 (-21% lower than peak) and current sales are 1,045 (-68% below peak). Transaction numbers have recently levelled across the Mackay housing market but are yet to improve.

Roxby Downs – median prices peaked at $500,016 in November 2013 and sales volumes peaked at 187 in February 2004. Current median prices are $250,000 (-50% lower than peak) and current sales are 23 (-88% below peak). Transaction numbers have recently increased slightly across Roxby Downs.

The smaller mining townships which don’t act as major service centres have tended to see a much sharper fall in median selling prices than the larger townships. The decline in sales and prices from the market peaks has been substantial across all of these regions, however the regions that have seen the most significant downturn were those that also recorded a significant upswing in prices and turnover rates prior to the peak in commodity prices.

Recently, most of these mining towns have experienced a stabilisation in sales with some regions having seen an increase in sales volumes. Although sales may have broken the declining trend in a number of areas, median selling prices are generally continuing to trend lower across each of the regions highlighted. The improvement in transactional activity could potentially be due to larger numbers of distressed sales moving through these markets, but may also be attributable to a cautious return of buyers seeking out a bargain.

The challenge for many of these regions remains that despite a recent uptick in commodity prices, investment in large infrastructure projects (new mines, processing facilities, transport etc) has dried up and subsequently few additional jobs are being created. Although commodity prices have recently surged, particular iron ore, coking coal and thermal coal, it is not yet leading to a substantial increase in exploration activity or employment, subsequently housing demand remains weak and continues to have a dampening effect on housing prices.

Auction Results Still Hot (Again)

CoreLogic says auction markets continue their strong run with the weighted preliminary clearance rate holding well above 70% for the 15th week running.

Auction activity has continued to rise through in the final month of spring, however the number of auctions remains well below the highs recorded a year ago. The preliminary clearance rate was 77.5 per cent across 2,490 reported auction results. This is higher than last week’s final clearance rate of 74.4 per cent, with auction volumes increasing compared to the 2,253 Capital city auctions reported last week. Over the corresponding week last year, auctions volumes were significantly higher with 2,947 auctions reported and a 61.4 per cent clearance rate. The high rate of clearance is evident in the distinct markets, where Melbourne reported an 80.5 per cent clearance rate, up from the previous weeks 77.5 per cent, also Sydney (82.1 per cent) and Canberra (79.5 per cent) producing high clearance rates week-on-week reporting above 80 and 70 per cent respectively, four weeks in a row.

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Home Prices Higher In Most States – CoreLogic

CoreLogic says that capital city dwelling values shift half a percent higher in October 2016 based on their Home Value Index. They have reached a new record high for the month, with values rising across six of the eight capitals.

Apart from Adelaide (-1.3%), Hobart (-2.8%) and Perth (-1.5%), every capital city recorded a rise in dwelling values over the past three months, with the Canberra housing market recording the largest increase in values after a 5.6% quarterly rise.

Sydney continued as the stand out based on annual capital gains, recording the largest year-on-year increase; dwelling values are now 10.6% higher over the past 12 months. Detached houses (+10.9%) are showing only a slightly higher rate of capital gain compared with units (+9.1%) across Sydney, highlighting the healthier supply/demand dynamic that exists across the Sydney region for higher density housing.

The divergence in performance between houses and units is most clearly evident in Melbourne and Brisbane. The annual rate of capital gains in Melbourne remains strong at 9.1%, however there is a substantial difference in growth rates between houses and units, with house values up 9.6% compared with a 5.2% increase in unit values over the past year. Brisbane’s housing market has shown a larger capital gain spread, with house values up 4.7% compared with a 1.4% fall in unit values over the year.

According to CoreLogic, another sign of market strength can be seen in auction results. In fact, over the past two months, clearance rates across Sydney have dipped below 80% only once. A year ago auction clearance rates were consistently trending around the mid 60% range, albeit on volumes that were about 20% lower than last year.

While dwelling values have broadly risen during October, rental yields in Sydney and Melbourne remain depressed, with gross yields at record lows. The typical Sydney and Melbourne house is now providing a gross rental return of just 2.8%. Taking into consideration holdings costs, expenses and vacancy, the net rental yield for houses is likely to be closer to 2% in these markets. Markets where value growth hasn’t been as strong are seeing healthier yield profiles, with Hobart demonstrating the highest gross rental yields of any capital city.

Real Home Value Growth Varies Significantly

Talking about average home price growth is rarely helpful, it is important to get granular. So CoreLogic’s post on real home price growth by major centres is very helpful because it corrects growth for inflation. Their analysis shows that real home values are now more than 20% lower than their peak in Perth and Darwin, but well up in Sydney. Over the longer term, Sydney and Melbourne are the only two capital cities in which real home values are now back above their previous peaks. We have a multi-speed market.

The Australian Bureau of Statistics (ABS) released consumer price index (CPI) data for the September 2016 quarter earlier this week. According to the data, headline inflation increased by 0.7% over the quarter to be 1.3% higher over the year. Meanwhile, underlying inflation was recorded at 0.3% over the quarter and 1.5% higher over the past 12 months. Both headline and underlying inflation have increased at a rate below the RBAs target range of 2% to 3%. This would usually see the RBA cut interest rates to try and lift inflation however, the previous cuts in May and August, which had the same intent, have not successfully lifted inflation. What those cuts did manage to do was re-energise growth in housing, particularly in Sydney and Melbourne. For this reason there is some speculation as to whether the RBA will risk cutting interest rates again given concerns that a lower cash rate will fail to push the dollar lower and lift inflation but add further heat to an already strong housing market.

With the CPI data released, we can pair it with the CoreLogic home value index data to September 2016, in order to obtain an understanding of real growth in values. Although headline value growth is lower than it was a year ago, so too is headline inflation which mean that real value growth, particularly in Sydney and Melbourne remains strong.

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The above chart highlights the real and nominal changes in home values across each capital city over the 12 months to September 2016. In both real and nominal terms values have fallen over the past year in both Perth and Darwin while they have increased across each of the remaining capital cities. There’s also been evidence that along with Sydney and Melbourne, where growth has been strong for almost four years now, value growth has also picked up in other cities such as Adelaide, Hobart and Canberra.

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If you look at the compound annual change in real home values over the past five, ten and 15 years, the 15 year time-frame in most capital city provides the strongest performance. The clear exception is in Sydney where the last five years have resulted in the strongest annual returns. In contrast, across all other capital cities except for Perth and Hobart the past five years have recorded the weakest annual growth across each of the three time-frame. This result really highlights the strength of the Sydney market over the past five years and its relative weakness over the 10 years preceding.

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Since the end of 2008 (ie post GFC), growth in home values has significantly skewed towards the Sydney and Melbourne housing markets. As highlighted in the above chart, when adjusted for inflation values are lower that they were at the end of 2008 in Brisbane, Adelaide, Perth, Hobart and Darwin. Sydney and Melbourne have also seen a substantially greater increase in values relative to Canberra which was the only other capital city to have seen an increase in real home values.

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Sydney and Melbourne are the only two capital cities in which real home values are now back above their previous peaks. After peaking all the way back in the March 2004 quarter, real home values in Sydney are now 35.3% higher in Sydney and in Melbourne they are 17.2% higher than their September 2010 peak. All other capital cities are still recording real home values below their previous peaks. The magnitude of these declines are recorded at: -10.2% in Brisbane, -5.3% in Adelaide, -20.2% in Perth, -15.6% in Hobart, -23.8% in Darwin and -1.0% in Canberra. In some of these cities, values peaked many years ago, as far back as 2007 in Perth and Hobart and 2008 in Brisbane.

Although interest rates are low and in real terms homes have been becoming more affordable outside of Sydney and Melbourne it still hasn’t proved to be enough to lure substantial demand and subsequent growth across the other capital cities. What this highlights is the importance of employment, what sets Sydney and Melbourne apart, outside of more expensive housing prices, is the fact that they both have strong economies which are creating jobs. Housing affordability alone is no longer enough to attract an increasing level of housing demand, you need a strong economy and the jobs that go along with those strong economic conditions.

Perth and Darwin in particular are well into a fairly substantial value decline phase which is appears set to continue. Since their respective market peaks in September 2007 and September 2010, real home values are now -20.2% and -23.8% lower respectively.

Unit Prices Growing Slower Than Houses

In an interesting post from CoreLogic, Cameron Kusher discusses the supply on units, and concludes there are more coming on stream relatively in Brisbane and Melbourne, than Sydney, so risks are lower, here. But I found his observation about relative home price growth even more interesting. Unit prices are moving more slowly than houses.

We suggest the rising supply of units appears to be having a depressive impact on price growth and given the continued supply ahead, unit prices are unlikely to defy gravity in the major centres. Investors beware!

In the recently released Financial Stability Review (FSR) the Reserve Bank (RBA) talked about the supply risks surrounding the inner city apartment markets however, they did point to the fact that they see more potential risk in Melbourne and Brisbane. In this blog we explore the differences in pending apartment supply across the key capital cities.

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The above chart highlights the change in house and unit values across the individual capital cities since the market entered its current growth phase in June 2012. The first thing to note is that in all cities except for Hobart, house values have risen by a greater amount than units. In fact, in all of the remaining capital cities except for Sydney unit values have increased by less than half the rate of houses. This highlights that despite the shift to more unit living, particularly in inner-city areas, ultimately there appears to be a healthier relationship between supply and demand for houses compared with units and as a result, house values have increased at a faster rate than units.

Highest Auction Clearances Confirmed

CoreLogic has confirmed the Domain data we discussed Saturday, reporting a preliminary clearance rate highest this year.

Spring is seeing a lift in the auction market. The number of homes taken to auction this week increased to 2,641, compared with 2,443 over the previous week. The preliminary clearance rate of 80.2 per cent is the highest recorded for the year so far, up from 76.2 per cent last week. Over the corresponding week last year, the clearance rate was significantly lower at 64.9 per cent however auction volumes were higher, 3,143 auctions were held. Every capital city except Perth has recorded a preliminary clearance that was higher than a year ago, while the two largest auction markets, Sydney and Melbourne, recorded a preliminary clearance rate higher than 80 per cent.

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Land Prices Push Higher

The HIA-CoreLogic Residential Land Report for the June 2016 quarter has just been published by the Housing Industry Association, and CoreLogic. The Residential Land Report offers a comprehensive review of quarterly sales activity and price trends in 41 regional and six capital city markets across Australia.

During the June 2016 quarter, land transactions experienced the largest increase in Hobart (+26.9 per cent) compared with the same period year earlier. Land turnover was unchanged in Adelaide (+0.2 per cent). Land sales saw the largest reduction in Sydney (-38.3 per cent), followed by Melbourne (-14.3 per cent) and Brisbane (-3.9 per cent). Perth also experienced a small decline in land market turnover (-3.5 per cent).

“Residential land prices in Australia climbed to yet another all-time high during the June 2016 quarter, on the back of strong demand and lower interest rates,” HIA Senior Economist, Shane Garrett commented.

According to the HIA-CoreLogic Residential Land Report, the median residential land price rose by 2.6 per cent during the June 2016 quarter, to a new all-time high of $237,535. A total of 18,395 residential lots are estimated to have been transacted during the quarter – down by some 9.3 per cent on a year ago.

According to CoreLogic research director Tim Lawless, the increase in land transactions nationally was accompanied by a surge in land sales located in Tasmania as well as in some regional markets. “Hobart saw land sales jump by almost 27 per cent over the first half of 2016 compared with the same period a year ago, while the largest cities, where affordability constraints are already the most visible, recorded a substantial reduction in land sales over the first six months of 2016.”

“The volume of land sales across Sydney was down sharply while land prices surged 14.1 per cent higher over the year. The opposing trends of transaction numbers and prices is a clear indication of demand outweighing supply which is creating significant price inflation across vacant land markets,” Mr Lawless added.

“While unit markets have seen approvals and construction activity reach spectacular highs, supply levels across the detached housing sector remains insufficient in many areas. The lack of available vacant land highlights that greenfield housing markets are likely to remain undersupplied which implies further upwards price pressures across the key vacant land markets where demand remains strong,” concluded Tim Lawless

“Housing affordability has deteriorated across several key markets, and the ongoing rise in land prices is proving very challenging,” Shane Garrett explained.

“With market supply having fallen further over the past year, policy makers need to look very carefully at ways of bringing about more sustainable outcomes in residential land supply. This will inevitably involve tackling issues around the pace of land release, the bottlenecks in the planning process and the excessive burden of taxation,” concluded Shane Garrett.

Clearance rates remain above 70 per cent since the last week in July

CoreLogic says it has been another strong week for auction results, with a preliminary auction clearance rate of 77.9 per cent.

There were 2,405 auctions held across the combined capital cities. Auction volumes still remain below levels of last year. The clearance rate has remained above 70 per cent since the last week in July. Last week, the final auction clearance rate was recorded at 76.4 per cent with 2,290 residential properties taken to auction. At the same time last year, auction volumes were higher, with 2,858 capital city auctions held, 67.4 per cent were successful. Sydney’s clearance rate continues to be nation leading, however the number of auctions held is still lower that at the same time last year.

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Auction Momentum Continues

Anyone who wishes to argue the property market is stalling, needs to explain the continued high auction clearance rates from last weekend. The market appears in rude health to us!

According to CoreLogic, last week the capital city auction markets were quiet due to the Labour Day long weekend which coincided with the AFL and NRL grand finals. Given this, it was unsurprising to see volumes increase substantially this week, with 2,246 held across the combined capital cities. The preliminary clearance rate was 79.2 per cent this week, up from a final clearance rate of 75.8 per cent last week across just 872 auctions. This week four of the capital cities recorded clearance rates above 80 per cent. At the same time last year, results were lower, with 69.5 per cent of auctions clearing over a total of 3,016 capital city auctions.

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High Clearance, But Low Auction Volumes Confirmed

CoreLogic confirms what we saw already, that there was a substantial drop in auction numbers this week due to the grand finals and the Labour Day long weekend.

853 properties were taken to auction last week, with a preliminary clearance rate of 77.5 per cent, compared to the same time last year when there were 865 auctions were held, with a clearance rate of 68.2 per cent. In comparison, over the week before last a total of 2,480 auctions were held with a clearance rate of 75.4 per cent.