House prices fall for the first time in 18 months

Tim Lawless from CoreLogic RP Data says that some heat is coming out of the property market

Introduction – House prices fall

Ross: Want to take you to house prices though. To do that, let’s go to Tim Lawless who is the head of research at CoreLogic, who put out the monthly housing numbers around Australia Today, which show falls in house prices. This is houses, not units, in Sydney, Melbourne, in Perth, in Hobart, in Darwin. As a result, overall in the capital cities, even more significant falls in apartment prices in some of those cities as well. Many thanks for your time, Tim.

Interview – Tim Lawless CoreLogic

Tim Lawless : Good evening, Ross.

Ross: Just for a bit of math for people like don’t quite understand this. I know that Sydney property prices are lower for houses and yet the median prices gone up to above $1 million, which I think might be with the first time or one of the rare times it has actually done this on your survey. Can you explain how the maths work with it?

Tim Lawless : Yes, one of the things we are measuring here is not median prices. It’s actually the change in the overall portfolio of housing stocks so if you look at the valuation of every single house and unit across, say, Sydney and you measure how that value has changed from period to period, regardless whether the property’s sold or not, that’s what their indices are measuring. But the median price give you some relativity about what people are paying in the marketplace over the most recent three months.

Ross: In other words, people are technically been paying more but what you’re saying is the overall stock of housing across the market has fallen by that 1%. Are you surprised that house prices are falling in these major capital cities?

Tim Lawless : Well, as you introduced, May is generally pretty seasonally weak and does follow on from some pretty strong results, so the overall trend is still one where the housing market is quite strong. But I think we could safely say now that some teeth is coming out of the market. We are seeing some momentum slowing down in the rate of house price growth.

Ross: That being said, I mean, an apartment price in Sydney $742,900 compared with a house price in Melbourne $745,000, you’d still think, provided you can find the work and a reasonably well paid job, that there is greater affordability in places such as Melbourne, most certainly in Brisbane where the median house is $525,000 in say, for example, Hobart $391,000, in Adelaide $460,000, also in Perth $500,000 with significant falls are now going back the best part of three years?

Tim Lawless : Yes, price values are down by more than 10% that peaked in 2014. But as you say, some of these markets are very affordable. Sydney certainly stands out as being the ‘most unaffordable capital city’, but it really comes back to whether jobs are being created. The last five years, we’ve seen a New South Wales in Victoria account for 75% of the jobs created nationally. That’s one of the reasons why we are seeing such strong housing market conditions in both those cities.

Ross: The other market that people have warned about quite significantly is the Brisbane apartment market. Now, bearing in mind that the apartment prices that you are picking up is the whole market, but to see year on year apartment prices down by 4 1/2% and indeed over leaving the year to date so the last five months to have seen them down 4 1/2 or rather by 2.2%, it has been at least some sharp contraction.

The other thing I note today, there have been some sales numbers out suggesting that the number of completed sales has fallen by 70% over the past 12 months notwithstanding there were more stock hitting the market as apartment complexes are completed over the next 12 months or so.

Tim Lawless : That’s right. We are seeing some pain in the apartment market, particularly in Brisbane and also in Melbourne, not as much in Sydney. Sydney’s got such a big difference between house prices and unit prices. A lot of people — a lot of demand is being pushed into the unit market. But another figure we’re tracking associated with the Brisbane unit market is based on resales. We’re now seeing about 20% to 25% of all apartments for the resold over the most recent quarter actually did so at a gross loss in Brisbane. It does highlight that there is quite a bit of weakness in the Brisbane unit sector.

Ross: If you were looking around the property markets around Australia at the moment, where would you say that housing is most robust?

Tim Lawless : Well, I think if you look at Brisbane and Adelaide, they’re the two markets where we’ve seen prices just plodding along absolutely sustainable. There’s no risks about overvaluation in those markets. I think we’ll continue to see some modest price growth in those markets. But even the markets that are probably most susceptible to a slowdown are Sydney and Melbourne where we have seen the rate of capital gains just quite spectacularly high. That’s 75% growth in Sydney values over the past five years at a time when wages growth is tracking a record lows.

Ross:  Do you think just out of interest if you were an investor who’s trying to find some value, maybe do a deal somewhere that the Perth or the Darwin markets would be throwing up a bit of value out of those markets these days? I mean I have followed them for quite some time looking at, say for example, Darwin house price market gained by 8.8% this year alone. It really is a significant drop.

Tim Lawless : Both those markets are absolutely buyer’s markets. There’s a lot of stock to choose from. You can negotiate very hard. A lot of vendors have had their stock for sale for a long time so they’re probably getting quite ready to be flexible as well. Today’s buyer looking for a medium to long-term hold, I’d say that Perth and Darwin are probably approaching the bottom of their cycle. There might be some bargains to be held there.

Ross: I was going to say the best time to buy is always when there are plenty of people who want to sell. At least you know there might be some negotiability around the place. Always great to have a chat Tim Lawless from Cologic with those house prices numbers today. They come out on the first day of every month. It’s always fascinating to have a look at the other thing also is just if you see these bit of research, watch the yields that’s the case.

Say for example, if you got a house and as an investor in Melbourne, the yield on that 2.8% in other words that’s a rental income as a proportion of the value of the property. In Melbourne, 2.7%, so that’s the thing you could watch. In Hobart, 5.3% and obviously from an investor, that would be a lot more attractive if you thought there was potential capital growth as well. Tim, great to have you on the program.

Tim Lawless : Thanks again, Ross.

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