Property market update: Buyers are back, stock levels are low
This week realestate.com.au chief economist Nerida Conisbee looks at efforts to stimulate the market, why buyers are back and yet stock is low, and whether it is time to take a closer look at the Melbourne market?
So much stimulus
After putting a dampener on property for four years, regulators, Federal Government and the RBA are all re-applying stimulus to the property market.
Here is the state of play so far:
- APRA have removed the speed limit on investor lending growth, the cap on interest-only loans and the 7.5% stress test on home loans
- The Federal Government has cut income taxes, made no changes to negative gearing and will be giving first home buyers a chance to buy with a 5% deposit at the end of the year
- The RBA has cut interest rates twice and there may be further cuts
- Globally, interest rates are trending down again – this puts less pressure on wholesale rates and hence our mortgages.
A couple of things can be taken from this. The first is the difficulty in getting policy right – property market conditions can change quickly and putting in too many brakes at once can cause conditions to turn too hard, too quickly.
The second is that all this stimulus is being applied because the Australian economy isn’t doing all that great, which will be a key factor in moderating this upturn.
When will home owners start selling again?
Buyers are back, but it’s a pity about the stock levels. The recent housing downturn was characterised by pretty much no distress – listing volumes didn’t jump, even though prices fell.
With so many buyers out there, it does seem likely that sellers will see now as a good time to transact, however it is likely that many are waiting for a more solid turn to price growth.
This will probably take a couple more months, so ideally around the Spring selling season.
What would lead to a big jump in listings?
High levels of distress – rapid rises in unemployment, mortgage rates rising rapidly – anything that means people struggle to pay off their loans will lead to a jump in listings.
Australians are highly indebted, many are in theoretical housing stress but are also paying low levels of interest and are not particularly worried about losing their jobs.
At this stage, rising interest rates are not going to happen but rising unemployment is occurring. Ideally, for confidence in the property industry to return, what’s needed is a solid return to price growth that leads to people selling.
A closer look at Melbourne
Melbourne pricing remained stable in June and although it is still too early to tell if the market has plateaued, some indicators suggest that this has happened.
There are however some more affordable parts of Melbourne that seem to have turned a corner – north west, outer east and west for the better.
The south east and west were the areas that got through the downturn most unscathed. In contrast, prices in the inner east dropped 16.1%, likely driven by high levels of apartment development.
Surprisingly, inner Melbourne did a lot better. However, it is likely that a lift in apartment quality (and hence price) may have meant it did slightly better. Inner east was already pretty expensive.
Like Sydney, property seekers in Melbourne are congregating around premium suburbs. This would explain the big lift in clearance rates and will likely mean prices will rise in many of these locations pretty soon.
Do high levels of search and engagement mean a suburb will outperform?
In 2015, an analysis our Behavioural Communications and Analytics (BCA) team on views per listing started to show Hobart tearing away from the rest of Australia.
At the time, median prices weren’t going anywhere, however by 2016, high levels of search began to translate to transaction activity.
Over that time, prices in Hobart grew by 30%, the best performing market in Australia. Sydney prices in comparison over the same period went backwards 3%.
High views per listing have also been apparent on the Northern Beaches and inner west of Sydney over the last 12 months. In an early sign of recovery, we are seeing three regions outperform the Sydney market – Northern Beaches, inner west and more recently, Baulkham Hills and Hawkesbury.
While Northern Beaches and inner west can be explained purely by search, the trend in Baulkham Hills and Hawkesbury can be explained by another trend we see on realestate.com.au.
Suburbs with good public transport links see higher levels of engagement. A very good public transport link, the North West Metro line, has just opened and it runs through the Baulkham Hills and Hawkesbury region.
While search does appear to be predictive, the outcomes are not always straight forward. Chinese property seekers kept searching for Australian property after we saw a drop in FIRB approvals and are only now drawing away from search.
It appears they remained interested in Australian property for quite some time after their levels of transactions declined, no doubt discouraged from actually buying due to access to finance and additional taxes.
Perth began to show a recovery in searches from buyers in 2017 but price growth seemed to be de-railed by the announcement of the Royal Commission.
Current search behaviour
What then are some of the things search is showing up now? Hobart, Gold Coast and Melbourne are seeing the highest views per listing from renters.
There are big jumps in property seekers from the UK, Hong Kong and US. Melbourne’s premium suburbs are dominating the most in-demand suburbs for houses while Sydney’s premium suburbs dominate for apartments.
In general, there is a shift to searching in premium suburbs in most capital cities.
Northern NSW is doing well – not just from buyers but also renters, with what appears to be hot demand in the Gold Coast pushing down to Tweed Heads and beyond.
Clearance rates sky rocket
Clearance rates are very high – 78% in Sydney and 72% in Melbourne. Stock levels however are abysmal – last year at this time, there were 552 auctions in Sydney; yesterday there were only 219.
Melbourne is similarly bad – 631 auctions at this time last year and 248 yesterday.
The clearance rate is a further sign that buyers are back but sellers are being very slow to respond to what appears to be the bottom of the market.