National Dwelling Values Fall by Half a Percent in October
According to the CoreLogic Home Value Index results for October 2018, tighter credit conditions and lower dwelling values across Australia have contributed to slower housing activity, with the annual decline across the nation at 3.5%, and the home value index reporting a 0.5% fall in dwelling values nationally in October.
The weakest conditions continue across Australia’s two largest cities, with Sydney values down 7.4% over the past twelve months and Melbourne values down 4.7%. This is mostly because they are the locations where investment buyers have been the most concentrated, supply additions have been the highest and housing affordability is the most stretched.
Values declined in Perth and Darwin, falling 3.3% and 2.9% respectively over the past twelve months. Regional Western Australia continued to show challenging conditions, with values falling by 6.5%.
Regional Tasmania is the only region nationally where dwelling values are recording double digit growth (+11.4%). Both Hobart and regional Tasmania continue to record strong housing market conditions, driven by robust housing demand and a shortage of supply. Regional Victoria is also showing strong growth as demand continues to ripple outwards from Melbourne towards more affordable cities.
With Housing Values Falling, Has Affordability Improved?
At a drop of 3.5%, national dwelling values are now the lowest they’ve been since January 2017, so if you’ve purchased a property since then, it is likely that it is worth less than you paid for it. On the plus side, values are 44.8% higher over the past decade and 209.9% higher over the past 20 years.
Although values in Sydney and Melbourne are seeing accelerating rates of decline, this has not greatly improved affordability. Values will continue to decline, but it is unlikely that this will make significant improvements to affordability, especially in the absence of real income growth. However, if the declines continue for a number of years, we could see a more substantial improvement in affordability.
The National Housing Outlook for the Next Three Years
According to the QBE Australian Housing Outlook, continued population growth, low unemployment and low interest rates will continue to influence house prices, and support borrowers, in Australia over the next three years.
Bank lending practices in response to initiatives undertaken by the financial regulators have an overriding influence on the residential market, particularly for investors. Large numbers of new dwelling completions are having an influence on supply and a dampening effect on the market. There is likely to be an oversupply in most markets despite a record demand for dwellings over the next three years. Only New South Wales and Victoria (where most overseas migrants settle), as well as Tasmania (largely driven by interstate migration), are expected to remain in aggregate undersupply.
The weakening in the Sydney and Melbourne market over the past 12 months follows double digit growth in three of the four preceding years. The markets offer some of the greatest downsides over the next three years, particularly as investors have accounted for over half of residential finance since 2012. The curbs on investor lending reduce investors’ ability to bid up prices to compete with owner occupiers, who are already facing challenging affordability after the recent strong growth.
Prospects for price growth in the Brisbane, Perth, and Darwin residential markets in the short term remain weak, but by 2020/21 an upturn in prices is expected to emerge. The dwelling oversupply is likely to subside, while improved affordability is anticipated to be a trigger for price growth as economic conditions strengthen.
The regional cities mentioned below are forecast to see positive house price growth over the coming three years. Some are likely to benefit from the overflow and affordability challenges of the larger markets in Sydney and Melbourne, while others are likely to benefit from lifestyle changes.
- New South Wales – Residential property prices in Newcastle and Wollongong are significantly influenced by the Sydney market. The key behind growth in house prices in these regions is the relative affordability in comparison to metropolitan Sydney, as well as employment prospects in the regions and new dwelling commencements.
- Victoria – Median house prices in Geelong, Ballarat and Bendigo are mostly in line with Melbourne prices, although the regional areas have not been able to keep up with Melbourne’s recent price growth. The regional centres of Geelong and Ballarat are close enough to Melbourne for regular commuter transit, while Bendigo attracts infrequent commuters.
- Queensland – Gold Coast, Sunshine Coast and to a lesser extent, Toowoomba, generally move with the Brisbane residential market. In 2017/18, Sunshine Coast and Gold Coast had Queensland’s strongest rate of price growth. Townsville is bottoming out after an extended downturn following falling mining investment and Cairns is seeing positive signs from the strengthening tourism sector. Interstate migration usually supports demand for dwellings in the regional markets when prices are rising.
- Tasmania – Whilst recent growth has been concentrated in Hobart, the Launceston residential market looks to experience an upturn as house prices rise due strengthening economic conditions and improvements in unemployment.