Property market eases in June quarter

“This stronger month-on-month reading can be partially explained by the seasonality in the monthly growth rates,” CoreLogic head of research Tim Lawless said.

“Adjusting for this effect suggests an easing trend in housing value growth has persisted through the second quarter of 2017.”

The results of the June quarter revealed combined capital city dwellings only had a rise of 0.8 per cent, which is the slowest quarterly growth rate since December 2015 when dwelling rates fell by 1.4 per cent.

“This trend towards lower capital gains across the combined capitals index is mostly attributable to softer conditions across the Sydney housing market, where quarter-on-quarter growth was recorded at 0.8 per cent over the June quarter, down from 5.0 per cent over the March quarter,” Mr Lawless said.

“In contrast, the quarterly trend in Melbourne has been more resilient, with growth easing from 4.2 per cent over the March quarter to 1.5 per cent over the three months ending June.”

Auction rates

Weak auction results are another indicator of a slowing property market, with Sydney and Melbourne clearance rates sitting in the high 60 percentage and above 70 percentage respectively, Mr Lawless said.

“Both markets experienced auction clearance rates consistently in the high 70 per cent to low 80 per cent range over the March quarter,” Mr Lawless said.

Slower housing market conditions also reflected in the annual pace of capital gains. Across the combined capitals, the annual pace of capital gains has eased from 12.9 per cent three months ago to 9.6 per cent at the end of June 2017.

Growth rates and capital gains

Sydney’s growth rate declined to 12.2 per cent over the last twelve months, down from 18.9 per cent three months ago, while Melbourne’s annual growth rate is the highest out of all capital cities, despite declining to 13.7 per cent from 15.9 per cent over the last twelve months.

Outside of Sydney and Melbourne, Brisbane has the third highest pace of capital gains and saw dwelling values rise 0.5 per cent over the June quarter, which is attributed to a 0.8 per cent rise in house values over the quarter, offsetting the 2.4 per cent fall in unit values.

Rent growth

Despite capital gains rates experiencing a slowdown, capital city rental growth is on the rise, with rents pushing 2 per cent higher over the last 12 months. Canberra and Hobart rates rose by 8.4 per cent and 6.2 per cent per annum respectively, and Sydney and Melbourne saw rises of 4.5 per cent and 4.1 per cent respectively, which could be attributed to the rise of net migration in NSW and Victoria.

“While the rental growth turnaround will be welcomed by landlords looking to recover higher mortgage costs, the consequence is that renters are now facing renewed pressure as rents rise,” Mr Lawless said.

Not all capital cities experienced growth, with Perth, Darwin and Brisbane recording falls of 8.3 per cent, 5.4 per cent and 0.2 per cent respectively.

Gross rental yields

Gross rental yields are down 20 basis points compared to this time last year across the capital cities, running at a record low for Melbourne and near low for Sydney.

“It’s likely that landlords will be seeking to recover some, or all, of their increased financing costs associated with higher interest rates on investment in interest-only loans by progressively increasing weekly rents,” Mr Lawless said.

“With record-low wages growth and so much new housing supply coming to market, this remains to be seen.”

Is there a crash incoming?

Even though the property market is slowing down, Mr Lawless said a major correction is not imminent.

“Although growth conditions have lost momentum across the largest housing markets, we are yet to see any signs of a material downturn, [which] include mortgage rates pushing higher despite a steady cash rate, lender credit policies tightening up and housing affordability, which remains a significant barrier for many prospective buyers,” Mr Lawless said.

“The impact of macroprudential measures announced by APRA at the end of March are still flowing through to mortgage rates and credit policies. We are likely to see further tightening and repricing around investment lending and interest-only lending over the coming months.”

Mortgages

Mr Lawless added investor activity is also likely to slow down in the future due to mortgage rates edging higher and tightening credit policies for investors.

“Considering investors comprised just over 55 per cent of new mortgage demand across New South Wales, based on the latest housing finance data from the Australian Bureau of Statistics, a further slowdown in investment activity is likely to have a more substantial impact on housing demand in Sydney relative to other markets.

“There is a possibility some of the slack created by less investment in the Sydney housing market could be taken up by first home buyers taking advantage of stamp duty concessions that go live on 1 July. However, if this is the case, it’s likely to be temporary as higher first-time buyer demand could simply push prices outside the range applicable to the concession.”

Even with the signs of a softening property market, mortgage demand has remained strong during May and June, which has tracked only 3 per cent lower than May and June 2016.

“The reasonably steady level of valuation events suggests buyers remain active, despite higher mortgage rates, and are potentially shopping around as credit conditions tighten,” Mr Lawless said.

“Wages growth is tracking at record lows and mortgage rates are likely to rise further, particularly for investment purposes. As a result, the expectation is that housing market conditions, most particularly in Sydney and Melbourne, will continue to soften through the remainder of 2017.”