Property Market Has Come Off The Boil
Official home price figures appear to confirm that Australia’s property market boom peaked in winter, while private rental data bode ill for the real estate market’s future.
The Bureau of Statistics Residential Property Price Index (RPPI) is not the most up-to-date measure of housing markets, with the latest figures released today dating from the September quarter.
However, it is comprehensive and long-running, and it appears to confirm what more timely private measures have been showing over recent months, that the property market has come off the boil.
Home prices did grow a strong 2 per cent on average across the eight capital cities, but that was down from 4.7 per cent the previous quarter.
Sydney and Melbourne continued to lead the pack for price growth, but both slowed dramatically from their winter booms – Sydney from a record 8.9 per cent surge to 3.1 per cent growth, Melbourne from 4.2 to 2.9 per cent.
The more timely monthly Core Logic RP Data figures show that Sydney and Melbourne home prices actually fell in November, by 1.4 and 3.5 per cent respectively.
While housing markets in the two biggest capitals may have only topped out over the past couple of months, it is a different story in the mining-reliant cities of Darwin and Perth.
On both the ABS and RP Data figures, the two cities are showing annual price declines.
On the official data, Darwin’s prices were down 0.4 per cent last quarter and 2 per cent over the past year, while Perth homes declined 2.4 per cent in the September quarter and 3.3 per cent last year.
Increases In Rental Vacancies
Those falls only look set to worsen, with the latest monthly rental figures from property data firm SQM Research showing what the company describes as alarming increases in rental vacancies.
The vacancy rate in Darwin is now 3.8 per cent, while empty Perth rental homes now make up 3.9 per cent of its rental stock, up from 2.5 per cent a year ago.
That is showing up in a 7.6 per cent fall in asking rents for Perth houses over the past year and a 7.8 per cent slide for units.
New tenants have been getting even better knock-downs in Darwin, where rents have slumped 20 per cent for houses and 13.7 per cent for units.
The only areas seeing solid rises in asking rents are Melbourne (3.4 per cent for houses and 3 per cent for units) and Hobart, where landlords are asking 8 per cent more for houses but unit rents are falling.
Sydney rents were rising at less than 2 per cent over the past year, and asking rents appear to be falling as the market heads into the seasonally weak summer period.
We note that 2015 overall has recorded another year of modestly rising vacancies, said SQM’s managing director Louis Christopher.
It suggests the supply side has been running a touch ahead of underlying demand at the national level.
As we predicted back in October, I believe rents in 2016 will record only modest rises with the outperforming areas likely to be the Gold Coast and Hobart.”
If the rental market remains weak, that is likely to keep further downward pressure on investor demand for housing, which has already been hit by tighter lending rules over recent months.
With property investors having made up around half of the housing market during the recent boom, as they exit the market forthcoming ABS data may confirm that property price declines are spreading beyond the mining towns and capitals.
Reserve Bank: Rates On Hold Until February
The Reserve Bank has again decided to leave official interest rates at the record low of 2.0 per cent. Rates will have been on hold for eight consecutive months when the Bank meets again in February 2016.
Better recent economic news has encouraged the Bank to continue its current wait-and-see approach to rate settings.
The latest unemployment data for October recorded a sharp improvement on the previous month with the seasonally adjusted jobless rate falling to 5.9 per cent – the lowest rate for the year.
The stockmarket has stabilised after recent volatility although the near-term outlook for equities remains cloudy.
The Bank is also awaiting the decision by the US Federal Reserve Bank this month on US interest rates settings.
An increase in US rates this month would likely have a significant impact on the local currency that remains above the desired level of policymakers.
Although rates remain on hold, the prospect remains for a cut next year. The outlook for local economic growth has deteriorated sharply and concerns persist over the current and likely future performance of the global economy.
Capital city housing markets continue to produce modest to moderate results at best with the recent sharp deterioration in the Sydney market reflecting the impact of rising mortgage rates over spring.
Booming house prices growth in Sydney and to a lesser degree Melbourne over recent years will not be repeated next year with a significantly flatter price cycle now generally in prospect for all capitals.
Official rates remain steady
Economic outlook remains problematic
Future rate cuts still possible
Spring housing markets flatten