CoreLogic – Page 2 – Digital Finance Analytics (DFA) Blog

Housing market plagued by ‘uncertainties’ as downturn continues

The fall in residential property values is “losing steam” but could be reinvigorated by changes in the political and economic landscape, according to CoreLogic, via The Adviser.

The latest Hedonic Home Value Index from Property research group CoreLogic has revealed that, in the month to 31 March 2019, national home values dropped by 0.6 per cent, driven by a 0.6 per cent drop across Australia’s combined capital cities and a 0.4 per cent fall across combined regional locations.

The sharpest reported fall was in Sydney (0.9 per cent), followed by Melbourne (0.8 per cent), Brisbane and Darwin (0.6 per cent), Perth (0.4 per cent) and Adelaide (0.2 per cent).

Hobart was the only capital city to report growth, with dwelling values rising by 0.6 per cent, while prices in Canberra remained stable.

Reflecting on the results, CoreLogic’s head of research, Tim Lawless, said that the downturn could be “losing some steam”, with the pace of falls slowing month-on-month.

However, Mr Lawless added that the scope of the downturn has become “more geographically widespread”, with monthly declines reported across six of Australia’s eight capital cities and across most “rest of state” regional locations.

Mr Lawless stated that the outlook for the housing market continues to be plagued by uncertainty related to the federal election, lending policies and domestic economic conditions.

Specific reference was made to the federal Labor opposition’s proposals to limit negative gearing to new housing and halve the capital gains tax discount to 25 per cent.

“Federal elections generally cause some uncertainty, which is likely amplified more so this time around considering the potential for a change of government, which will also involve significant changes to taxation policies related to investment,” he continued.

“No doubt, some prospective buyers and sellers are delaying their housing decisions until after the election; however, there is no guarantee that certainty will improve post-election, considering the impact of a wind back to negative gearing and halving of the capital gains tax concession is largely unknown.”

Mr Lawless said that he expects Labor’s proposed changes to exacerbate the downturn in the housing market.

“It seems a reasonable assumption that removing an incentive from the market would result in some downwards pressure on activity and prices for a period of time,” he said.

Credit availability was also cited as a source of continued uncertainty, with Mr Lawless pointing to the fall in the value of housing finance commitments, particularly in the owner-occupied space – as reported by the Australian Bureau of Statistics.

“The value of owner-occupier lending is around 2.6 times the value of investor lending, so the substantial drop in owner-occupier mortgage commitments perhaps explains why the housing downturn is becoming more widespread,” he said.

“The value of owner-occupier housing finance commitments (excluding refinancing) was down 17.1 per cent compared with January last year and investment credit was 24.6 per cent lower.”

Mr Lawless said that monetary policy movements could help stimulate credit demand but noted that tighter lending standards would limit the effect of lower interest rates.

“While any cuts to the cash rate may not be passed on in full, a lower cost of debt will provide some positive stimulus for the housing market,” he said.

“Arguably, this stimulus won’t be as effective as previous interest rate cuts due to the high serviceability buffer applied to borrowers, whereby lenders are still required to assess serviceability at a mortgage rate of at least 7 per cent despite mortgage rates which are now available around the 4 per cent mark or even lower.”

According to CoreLogic’s research, the national median home price currently sits at $524,149, with the median value across the country’s combined capital cities at $597,860, and $376,728 across combined regional locations.

Home Price Falls Widen In February

Across the metro area of Sydney, prices of all types of homes combined, according to CoreLogic’s Home Value Index, fell 1.0% in February from January, 10.4% from a year ago, and nearly 13% from its peak in July 2017. Just over the past four months, the index has dropped 5.5%:

The volume of closed sales recorded in Sydney in February plunged 20.6% from the already weak sales in February last year, according to CoreLogic’s report.

Units, generally the lower end of the market, is where first-time buyers are thought to have a chance, and they were considered the saving grace in this market. But prices continue to drop, and the industry’s hope that first time buyers would bail out this market is now fading.

House prices dropped 1.1% in February and 11.5% year-over-year.
Unit prices dropped 0.8% in February and 8.8% year-over-year.

In the Melbourne metro, the second largest market in Australia, prices of all types of homes fell 1% for the month and 9.1% year-over-year, according to the CoreLogic Home Value Index. The index is now down nearly 10% from the peak in November 2017. Over just the past four months, the index for Melbourne dropped 5.0%:

House prices in Melbourne dropped 1.2% for the month and 11.5% year-over-year. Condo prices dropped 0.6% for the months and 3.7% year-over year. CoreLogic estimates that closed sales in Melbourne plunged 22.1% in February from the already weak sales a year ago.

Of the bottom 10 sub-regions of Australia’s capital cities seven were in the Sydney metro and three were in Melbourne (chart via CoreLogic):

As Wolf Street highlights, there is a bitter irony to all this. In February 2017, just months before the market in Sydney peaked, Anthony Roberts, New South Wales Minister for Planning and Housing, was promoting the launch of a 690-unit apartment development at Olympic Park, a suburb of Sydney, heaping praise on the developer for having reserved 60 units for first-time buyers.

Roberts was hyping new incentives for first-time buyers, including a reduction of the down-payment to 5%, to lure them into the Sydney housing market:

“This is about fairness, and this is about enabling people to get into the Sydney housing market. Once you are in the Sydney housing market, you’re pretty well set then for the rest of your life.”

The metros of Sydney and Melbourne, due to their enormous size and high prices, dominate the national home values, but weakness is now spreading to other capital cities, with only Hobart and Canberra still showing year-over-year gains (in parenthesis, CoreLogic’s measure of “median value”):

Sydney: -10.4% (A$789K)
Melbourne: -9.1% (A$629K)
Brisbane: -0.5% (A$491K)
Adelaide: -1.0% ($433K)
Perth: -6.9% (A$439K)
Hobart +7.2% (A$457K)
Darwin: -5.3% (A$398K)
Canberra +3.4% (A$594K)

On a national basis, the CoreLogic Home Value Index dropped 6.3% year-over-year and 6.8% from its peak in October 2017. It’s now back where it had been in September 2016. CoreLogic’s report points out that, despite the decline, the index remains 18% higher than it had been five years ago, “highlighting that most home owners remain in a strong equity position.” Only recent buyers are underwater.

That’s a calming thought, even for the Reserve Bank of Australia, according to the minutes for its Monetary Policy Meeting on February 5, 2019, when it decided to maintain its policy rate at the record low level of 1.5%:

From a longer-run perspective, members assessed that, following such large increases in housing prices, the effect of the recent price falls on overall economic activity was expected to be relatively small.
From a financial stability perspective, tighter lending standards, an improving labor market and low interest rates were all likely to support households’ capacity to service their debt.
Few households were in negative equity positions despite the falls in housing prices, implying that banks’ losses would be limited even if household financial stress were to become more widespread.

The IMF was less sanguine in its assessment of Australia. It found that “the financial sector faces continued vulnerabilities from high household debt, still-stretched real estate valuations, and banks’ ongoing dependence on funding from global markets.”

The assessment “recommended further steps to bolster financial supervision as well as to reinforce financial crisis management,” which might be a good idea.

Regional Changing House And Unit Values Over The Past 10 Years

Over the past decade there has been a significant change in house and unit values throughout each of Australia’s largest sub-state regions (best known as SA4).

Illawarra in NSW recorded the greatest increase in house values of all regional markets over the past decade with values increasing 86.8% and for units, the strongest was South East in Tas (63.3%), according to On The House.

Our findings found that over the 10 years to June 2018, national dwelling values have increased by a cumulative 43.9% with the combined capital cities recording an increase of 52.6% and the combined regional markets recording growth of 16.6%.

Houses values increased by 46.9% nationally over the past decade with combined capital city values growing at a faster pace (56.2%) than the combined regional markets (20.0%) Of the 88 regions SA4 national regions, 73 areas recorded an increase in dwelling values over the past decade with the remaining 15 recording falls. No SA4 regions of NSW, Vic, Tas, NT or ACT have recorded a decline in values over the past decade. Meanwhile, a majority of the WA SA4 regions have recorded declines in values over the past decade.

The region to record the greatest increase in house values over the past decade was the South West region of Sydney where values increased 112.9% over the period. An additional five SA4 regions have seen house values double over the past decade, they were: Parramatta in Sydney (107.4%), Inner South West of Sydney (106.6%), Outer South West of Sydney (103.3%), South East of Melbourne (102.7%) and the West region of Melbourne (102.3%).

The regions of the country in where house values recorded the largest decline over the past decade were:

Outback (North) in WA (-38.3%)

Outback (South) in WA (-34.0%)

Mackay-Isaac-Whitsunday in Qld (-27.3%)

Central Queensland (-26.8%)

Townsville (-23.6%)

Only 3 capital city SA4 regions, all of which are in Perth, have recorded house value falls over the past decade.

Value growth in NSW and Vic has been substantially stronger than growth elsewhere. In fact, the regions of NSW (Riverina) and Vic (North West) that recorded the weakest conditions over the decade have seen value growth well in excess of the best performing WA region (Perth-North West).

Outside of NSW and Vic, the regions with the strongest value growth across the remaining states and territories over the decade were: Brisbane-South (30.2%), Adelaide-West (20.3%), Perth-North West (2.2%), South East in Tas (43.9%), Outback in NT (35.2%) and ACT (30.3%).

Illawarra in NSW recorded the greatest increase in house values of all regional markets over the past decade with values increasing 86.8%. Illawarra recorded the 15th highest rate of house value growth over the past decade nationally.

The remaining regional markets that recorded relatively large increases in house values were:

Geelong (79.6%)

Southern Highlands

Shoalhaven in NSW (77.9%)

Newcastle and Lake Macquarie (68.6%)

Bendigo in Vic (63.3%)

Looking at unit values, nationally throughout the past decade, units increased by 34.2% which is lower than the 46.9% increase in house values. Unit value growth in the combined capital cities (42.0%) and combined regional housing markets (0.4%) was similarly lower than that for houses (56.2% and 20.0% respectively).

Of the 88 SA4 regions across the country, 53 have recorded an increase in unit values over the past decade with the remaining 35 recording a fall.

The South West region of Sydney recorded the greatest increase in house values of all SA4 regions (112.9%) and it has also recorded the greatest increase in unit values (98.0%). While seven regions of the country have recorded a doubling of house values over the past decade, not one region has seen unit values double over the same period. Only the Outer South West region of Sydney (81.0%) and Sydney’s Eastern Suburbs (78.2%), along with Sydney’s South West have recorded decade unit value growth of more than 75%. By comparison, over the past decade, 24 regions of the country have recorded house value growth in excess of 75%.

Unit values have recorded the largest declines over the past decade in:

Outback (North) WA (-73.3%), Outback (South) WA (-65.7%)

Darling Downs-Maranoa in Qld (-52.9%)

Central Queensland (-45.8%)

Townsville (-45.6%)

For the regions where unit values dropped, 15 were capital city regions with the remaining 20 located in regional areas of the country. The capital city unit markets that recorded the greatest unit value falls were: Darwin (-26.0%), Ipswich in Qld (-23.5%), Logan-Beaudesert in Qld (-22.1%), Moreton Bay-South (-20.5%) and Perth-Inner (-19.5%).

Outside of NSW, the regions of each state and territory to record the greatest increase in unit values over the past decade were: Melbourne-Outer East (63.1%), Outback region of Qld (28.7%), South East region of SA (41.0%), Wheat Belt region of WA (54.9%), South East region of Tas (63.3%), Outback region of NT (28.7%) and ACT (11.6%).

Outside of the capital cities, the regional markets that have recorded the greatest increase in unit values over the past decade were: South East in Tas (63.3%), Illawarra in NSW (60.2%), Far West and Orana in NSW (55.7%), Wheat Belt in WA (54.9%) and Bendigo in Vic (46.2%).

The growth in house and unit values over the past decade has been characterised as very much slanted to strong growth in Sydney and Melbourne and weaker conditions elsewhere.

While the last 10 years is not predictive of the future, dwelling values are already falling in Sydney and Melbourne and regional markets are currently outperforming capital cities.

With housing in a downturn in Sydney and Melbourne and affordability stretched, at this point it seems unlikely the returns of the past decade will be replicated over the next 10 years.

Sydney Auctions Lowest Since 2012

From CoreLogic.

The final data from CoreLogic shows the weak trends are continuing. Sydney’s final clearance rate dropped to 46.9 per cent last week across 408 auctions, the lowest clearance rate the city has seen since December 2012.

Last week saw 1,178 homes taken to auction across the combined capital cities, returning a clearance rate of 52.0 per cent after the previous week recorded a clearance rate of 52.6 per cent across 1,411 auctions. Over the same week last year, 1,627 homes were taken to auction and the clearance rate was a stronger 69.4 per cent.

Melbourne’s final clearance rate came in at 56.2 per cent across 559 auctions last week, similar to the previous week when 631 auctions were held and a clearance rate of 56.1 per cent was recorded. This time last year auction volumes were higher across the city with 756 homes going under the hammer returning a clearance rate of 74.9 per cent.

Sydney’s final clearance rate dropped to 46.9 per cent last week across 408 auctions, the lowest clearance rate the city has seen since December 2012. In comparison, 552 auctions were held across Sydney over the previous week returning a clearance rate of 50.1 per cent while this time last year, 609 homes went under the hammer, returning a clearance rate of 69.2 per cent.

Across the smaller auction markets, clearance rates improved everywhere except Brisbane. In terms of volumes, Adelaide was the only city to see an increase with an additional 8 homes taken to auction over the week.

Of the non-capital city markets, the Hunter region recorded a 70.6 per cent final auction clearance rate across 17 results, followed closely by Geelong where 70.4 per cent of the 27 auction results were successful.

Auction Results Higher On Lower Volumes

CoreLogic says the preliminary clearance rate increased to 58.7 per cent this week, after last week saw the final clearance rate revise down to just 52.4 per cent.

Auction volumes were lower over the week with 1,842 homes taken to auction across the combined capital cities, down from 2,002 last week. While the preliminary clearance rate tends to revise lower over the week as the remaining results are captured, the final clearance rate should still show an improvement week-on-week.

Melbourne was host to 946 auctions over the week, returning a preliminary clearance rate of 62.3 per cent, compared to last week when 56.2 per cent of the 992 auctions were successful. Over the same week last year, there were 1,047 auctions held in Melbourne, returning a clearance rate of 70.7 per cent.

There were 635 auctions held in Sydney this week returning a preliminary auction clearance rate of 55.3 per cent. In comparison, last week there were 708 auctions held and a final clearance rate of 49.4 per cent was recorded, while this time last year, 68.2 per cent of the 939 auctions held were successful.

Auction Clearances Trudge Lower

CoreLogic’s preliminary results chime with those from Domain, in terms of trajectory, if not in absolute numbers.

Auction volumes increased significantly over the week with 1,991 homes taken to auction across the combined capital cities, up from just 904 last week when auction volumes were lower due to the Queen’s Birthday long weekend.

The preliminary clearance rate was recorded at 56.9 per cent this week, after last week saw the final clearance rate revise down to just 53.8 per cent, the lowest level recorded across the combined capitals since 2012.

Melbourne was the busiest city for auctions this week, with 988 homes going under the hammer, returning a preliminary clearance rate of 58.7 per cent, compared to last week when 54.9 per cent of the 275 auctions were successful. Over the same week last year, there were 1,129 auctions held in Melbourne, returning a clearance rate of 71.0 per cent.

There were 701 auctions held in Sydney this week returning a preliminary auction clearance rate of 55.8 per cent. In comparison, last week there were just 415 auctions held and a final clearance rate of 56.0 per cent, while this time last year, 68.0 per cent of the 927 auctions held were successful.

Across the smaller auction markets, Brisbane was the busiest city with 116 homes going under the hammer, returning a preliminary clearance rate of 44.8 per cent. The highest preliminary clearance rate was recorded in Adelaide where 72.7 per cent of the 44 reported auctions were successful.

Auction Clearance Momentum Eases Further

The preliminary data from CoreLogic, which will correct lower, reports a rate of 59.7% was recorded across Australia’s capital cities, which is below from 60.3% the previous week. Slightly more properties were up for auction than the previous week at 2,287.

But so far only 1,772 reported back and of that 1,058 cleared while 714 failed to sell. More than 500 are outstanding, and that could take the final rate down towards the 56.8% last week.

Clearance rates for units continued to outperform those for houses, coming in at 64.9% and 57.6%.

Melbourne, Australia’s busiest auction market, drove the national decline last week where a preliminary clearance rate of 60.9% was recorded across 1,132 auctions held, falling from a preliminary reading of 64.2% in the prior week when 1,033 properties went under the hammer. They are predicting a final rate below 60%, compared with 62% last week.

Sydney may be a little higher this week, at 62.7% compared with improvement on the 60.8% last week on a preliminary basis. But again, there are a large number of auctions yet to report. Sydney last week achieved a final rate of 54%.

Across the smaller capitals, preliminary clearance rates improved in Adelaide and Perth but fell in Brisbane and Canberra.

Auction Volumes Continue To Fall Across The Combined Capital Cities

More evidence of a slowing property market as auction clearance rates continue to fall.

From CoreLogic.

There were 2,089 homes taken to auction across the combined capital cities this week, returning a preliminary auction clearance rate of 60.3 per cent. Last week, 2,279 auctions were held and the final clearance rate dropped to 58.2 per cent, the lowest clearance rate seen since December 2015 so it will be interesting to see what happens as the final result are collected early next week. Over the same week last year, auction volumes were higher with 2,824 homes going under the hammer across the combined capital cities, returning a clearance rate of 73.1 per cent.

In Melbourne, Australia’s largest auction market, a preliminary auction clearance rate of 64.2 per cent was recorded across 1,028 auctions this week, up from 59.8 per cent across 1,099 auctions last week, the lowest clearance rate the city has seen since Easter 2014. One year ago, the clearance rate was a stronger 77.9 per cent across 1,326 auctions.

There were 669 auctions held in Sydney this week returning a preliminary auction clearance rate of 60.8 per cent, compared to 57.5 per cent across 787 last week, and 74.0 per cent across 1,075 auctions one year ago.

Across the smaller auction markets, preliminary results show that Canberra was the best performing in terms of clearance rate with a 66.2 per cent success rate across 79 auctions.

Auctions Weaken Again

From CoreLogic.

Preliminary clearance rate weakens and auction volumes drop slightly across the combined capital cities.

There were 2,245 homes taken to auction across the combined capital cities this week, returning a preliminary auction clearance rate of 61.0 per cent, while last week, 2,311 auctions were held and the final clearance rate came in at 62.1 per cent. Over the same week last year, auction volumes were higher with 2,409 homes going under the hammer across the combined capital cities, and the clearance rate was a stronger 72.8 per cent.

If we look at results by property type, units outperformed the house market this week with 63.6 per cent of units selling at auction, while 59.8 per cent of houses sold across the combined capital cities.

In Melbourne, Australia’s largest auction market, a preliminary auction clearance rate of 61.2 per cent was recorded across 1,090 auctions this week, down from 63.7 per cent across 1,144 auctions last week. One year ago, the clearance rate was a stronger 75.0 per cent across 1,098 auctions. There were 767 auctions held in Sydney this week returning a preliminary auction clearance rate of 62.5 per cent, compared to 63.1 per cent across 797 last week, and 74.5 per cent across 960 auctions one year ago.

Once clearance rates are finalised early next week, its highly likely they will be revised lower, with both Sydney and Melbourne clearance rates potentially falling below the 60% mark.

Across the smaller auction markets, preliminary results show that Canberra was the best performing in terms of clearance rate with a 77.1 per cent success rate across 80 auctions.

Auction Volumes Lower

From CoreLogic.

The combined capital cities saw fewer homes taken to auction this week, with a total of 2,280 held, down on last week when 2,577 were held.

The lower volumes saw an improved preliminary clearance rate over the week, returning a 63.5 per cent success rate, increasing on the week prior’s final clearance rate which was the lowest weighted average result seen over the year-to-date with 60.3 per cent of properties selling.

Once again the combined unit market outperformed houses, returning a 67.7 per cent clearance rate, while a lower 61.7 per cent of houses sold. A similar trend is evident in CoreLogic indices which show the unit market outperforming house values as housing demand slides towards the more affordable segments of the market.

Although the preliminary clearance rate has shown a positive rise over the week, the trend in auction clearance rates, based on the more complete final results, clearly shows a downwards trend in clearance rates. Auction markets remain more buoyant than December last year, when Sydney clearance rates reached a low point of 52 percent, however the weaker auction results suggest housing market conditions are likely to remain relatively soft.

Looking at results over the corresponding year-to-date period last year, the capital city auction market was performing quite differently, with an average of 10 per cent more homes selling over the same period last year, while weekly volumes continue to show similar trends.

Melbourne returned a preliminary clearance rate of 63.5 per cent this week across 1,137 auctions, down on last week when 1,334 auctions took place and a higher 63.9 per cent cleared. In Sydney, 774 auctions were held this week with 66.9 per cent selling, increasing on last week when only 55.8 per cent of auctions were successful across a slightly higher 829 auctions.

Results were varied across the smaller auction markets this week, with Canberra and Perth recording a slight increase in week-on-week volumes, while the remaining markets saw fewer auctions take place. In terms of clearance rates, Canberra was the strongest performer this week with 74.2 per cent of homes selling, while only 18.2 per cent of Perth homes sold.