News & Media

August 2017 Newsletter

SPRING PROPERTY MARKET: WILL IT BLOOM?

There’s just over a month to go till Spring begins and there are plenty of people wondering what the market will do.

During winter, auction rates were lower in Sydney (understandably - it is winter after all, and many people go into hibernation), with home prices also softer. In the June quarter, Sydney’s citywide auction clearance rate dropped to 73%, although some areas still achieved a sale rate of more than 89%, while others were   below 50%.

Over the quarter, the highest clearance rates were achieved by Double Bay (100 %), Hillsdale (95.5 %), Willoughby (95.5 %), Rose Bay (94.6 %) and North Ryde (93.3 %), while the lowest clearance rates were in Cabramatta (40%), Kellyville (42.9%), Guildford (48%) and Waterloo (48.4%).

Real Estate Institute of NSW (REINSW) president John Cunningham said lower clearance rates were partly the result of some sellers not realising market conditions had changed.

“They’re looking at big results that happened at auctions six months or a year ago and thinking it will be the same when they sell,” Mr Cunningham told realestate.com.au, adding that this often compelled the sellers to set inflated reserve prices at auction.

Rates on the move?

For the beginning of the season, there’s another variable thrown into the mix, with talk that the RBA might increase the official cash rate on Melbourne Cup Day. Goldman Sachs was putting the chance of a rate increase on the first Tuesday in November at 60%, which would mean the first cash rate rise since 2010. If that were to happen, the impact may likely be felt by Sydney’s home prices.

Interestingly though, Louis Christopher from SQM says the combination of house and unit growth nationally will be 6 - 10% in 2017. For Sydney, Mr Christopher forecasts dwelling prices to rise between 11% and 16% for the 2017 calendar year. He doesn’t yet have a forecast for 2018.

In an interview with the Financial Review, Mr Christopher said: "The biggest risk to affect the base case forecast would likely be further aggressive APRA action plus RBA cash rate rise. Both would have to happen this current quarter but if it happens in say November, then our 2017 forecasts remain safe. The biggest blindside shock would be a new global financial crisis event driven by China where global credit markets freeze up again."

There were other bullish forecasts (amidst some more bearish ones). For example, HSBC’s Chief Economist, Paul Bloxham expects Sydney house prices to rise between 14% and 16% in 2017 before halving to between 7% and 9% in 2018. And Domain Chief Economist Andrew Wilson forecasts Sydney house prices to rise 6% this year and just 3% next year.

Conversely, BIS Shrapnel’s Angie Zigomanis expects Sydney house prices to experience only 3% growth in 2017, while in 2018 he believes Sydney house prices will lose 4%.

There are plenty of other economists and researchers weighing into the mix, with a number pointing to macroprudential policy tightening, including caps on credit growth and interest-only loans, which may lead to ongoing tightening of credit conditions and higher mortgage rates, which will weigh on housing demand.

With spring moving ever closer, time, as they say, will tell!

RENTERS ON THE RISE

There’s an increasing number of renters in Australia, according to the figures from Census 2016. The stats show there are almost as many Australians renting as there are people who own their property outright.

Since the last Census, undertaken in 2011, the proportion of renters has risen by 10 per cent to 30.9 per cent. That compares with a total of 31 per cent of the population who own outright, and 34.5 per cent who own a home with a mortgage.

Twenty-five years ago, the 1991 Census showed that 26.9 per cent of Australians rented, while 41.1 per cent owned outright. In Sydney, it’s a stark trend, with renters making up over 34 per cent of all households.

However, at almost 35 per cent, those owning a home with a mortgage was the most common type of housing tenure in Australia. And for those who do own a home with a mortgage, the Census found that they’re finding it easier than ever to make repayments on their homes.

While the median household rent had jumped substantially ($335 a week in 2016 compared with $285 in 2011), median household mortgage repayments dropped to $1755, from $1800 in 2011. That’s likely due to lower interest rates, with the official cash rate having dropped by more than 3 per cent per annum since August 2011.

Sydney and the rest of NSW saw the biggest increases in mortgage affordability, with median households spending more than 6 percentage points less of monthly income on loan repayments, compared with 2011.

More choose to live in apartments

Another Census 2016 insight was the trend towards medium to high density living in most capital cities – particularly Sydney and Melbourne and, to a lesser extent, Brisbane.

Separate houses continued to account for the largest proportion of Australian homes, although the figure decreased from 76 per cent of households in 2011 to 73 per cent in 2016. However, we are also increasingly living in dense accommodation. Flats, apartments, semi-detached, row housing or town housing now make up 26 per cent of the housing stock.

Recent analysis of the Census figures by CoreLogic revealed a move toward medium density housing. In Sydney, Melbourne, Brisbane, Adelaide, Perth and Canberra, medium density housing experienced the biggest increase in stock in the five years between the 2011 and 2016 Census collection periods.

CoreLogic research analyst Cameron Kusher said that while approvals for high and medium density housing had fallen recently, it was anticipated that construction of these housing types would remain elevated. “I believe… the shift towards a greater proportion of capital city housing being medium and high density will continue over the coming years,” Mr Kusher told Finder.com.au.

Chris Johnson, chief executive of developer lobby Urban Taskforce, told domain.com.au “there’s no doubt in my mind the [apartment living] trends are going to continue.”

“There’s a trend towards renting, which comes with the apartment market, but it’s also to do with global cities as well. As cities like Sydney and Melbourne increase their populations over the next 40 years both will become cities of eight million people. This is the same size as the current populations of London and New York so we must plan for this type of city in the future.”

Dwelling Structure and Tenure Type

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