Ross Greenwood speaks to CoreLogic’s Tim Lawless as the housing market is on track for recovery after property prices in Sydney and Melbourne increased by 1.7 per cent in September.
Ross Greenwood: Let’s now go to home prices because today what you saw was that home price values in Melbourne and Sydney have been rising for the past three months, rising strongly. Not since just the election but also the cuts in interest rates and the tax cuts. Now, it is Melbourne and Sydney where it’s concentrated on, the Canberra prices and Brisbane prices were also stronger over the past month. However, Perth and Darwin in particular, are still in the doldrums, prices falling and falling heavily still today.
The Head of Research at CoreLogic, who compiles those numbers is Tim Lawless is on the line right now. Tim, many thanks.
Interview with: Tim Lawless, Corelogic
Tim Lawless: Good evening, Ross.
Ross Greenwood: Okay. Is there a correlation between where interest rate is set right now and where home values are as you said?
Tim Lawless: Absolutely. Interest rates are low everywhere. The correlation is certainly there but also the fact that economic conditions in Sydney and Melbourne are much stronger. That’s probably the key reason why we are seeing Sydney and Melbourne really standing out from the pack. Values are up 1.7% in both cities over the months alone. Nowhere else is even coming close to that.
It’s not just interest rates that are driving prices at the moment. If it was then we would be seeing prices rising in Perth. The unfortunate reality in Perth and the economic conditions are still quite soft. Residents over there really aren’t getting the benefit of the stimulus.
Ross Greenwood: How much do you sense, Tim, that they might be in those large capital cities the fear of missing out? They’ve seen a boom, they’ve seen a big fall in many of the more prestigious suburbs in particular, and so as a result people sitting here and thinking, “With these interest rates coming down, I can do the calculations, I can do the sums and I’m very worried if this takes off again, off the back of these low interest rates that I just might miss out.” Is that a real fear, do you think?
Tim Lawless: Without a doubt, Ross, and we really saw that back when the market was rising in between 2012 and 2017, it dissipated obviously. market is bouncing back. You got, buyer numbers are rising. So there’s more competition in the market and they’re competing for what’s actually quite a small pool of stock. The numbers across Sydney for example, are still tracking about 23% lower than what they were a year ago and a year ago, they were lower than the prior year. In Melbourne, they’re down about 11%.
What we’re seeing this is, I guess conundrum where we’re seeing a lot more activity in the market, people are competing for a smaller pool of stock and they’re feeling like if they don’t buy-in straight away, they’re going to miss out on prices and that the prices will simply rise underneath them.
Ross Greenwood: Okay. We go to something as basic as, let’s say apartments and if I look at the gross yield on apartments say, in Sydney at the moment, 3.8%, look Melbourne, 4.3%, I go to Brisbane, 5.4%, I go to Canberra, we broadcast it at 5.9%. Given the fact that I know that I can probably borrow even for investment purposes below 4% these days and I can get yields really around those levels, if I can hang on to my tenant, it pretty much is the case is you can borrow pretty much the full value of the property if you are able to and you might not be able to.
The truth is you can almost make it a positive those properties, the tenant, if you can get the tenant will pay off the rent for you. That’s where the compelling reason for people getting back into the property market comes from.
Tim Lawless: Yes, that’s right. Yields are tracking lower once again with mortgage rates. As you say, that spread or the difference between the mortgage rate and the yield is actually smaller now than it’s been in the past decade. The low yield is no longer a disincentive to invest.
In fact, most asset classes are low yielding. If you add the yield, say a 3.8% yield on a Sydney unit, plus the capital gain at the last quarter to 3.3% and the total return is actually looking quite attractive for housing. I’d be really surprised that we didn’t start seeing investors becoming much more active in the market once again.
Ross Greenwood: Okay. They’ve got to get the stock in and it means that those people who might consider selling, they’re all going to have a compelling reason to try and get out of a property or they’re getting a more attractive price that’s being offered to them and you also had the same set of price before. A lot of owners simply held onto their properties because they’re prepared to buy their time and wait until market conditions change which as we’re saying, they appear to be doing right now.
Tim Lawless: Yes. I think there’s a lot of vendors, they’re prospective vendors or home owners who’ve been sitting on their hands waiting for the right time to sell their property and that pent-up demand is going to have to start showing up is when we move further through spring. I’m surprised we haven’t seen more vendors putting their properties in the market place. We’re already a month through spring and we’re still seeing new stock additions into the marketplace relatively slim. It’s probably just around the corner.
Ross Greenwood: Then come back to the whole question about what happens next because A, it’s going to be tested if more stock is put on to the market. B, clearly it’s quite different depending on which capital city you’re in and interest rates of course, are a national cost of money. It’s not as though the Reserve Bank can set interest rates for one capital city, but not for another. This is where it really comes down to the behavior in these individual marketplaces, individual cities which might determine the future direction of the property values.
Tim Lawless: Yes, that’s right. In Sydney and Melbourne, it’s funny enough, these are still the two most unaffordable capital cities. The incomes are related to the housing prices, their ratio is still quite elevated in both markets. I think as we start to see economic conditions hopefully improving outside of Sydney and Melbourne, we’re going to start to see a lot more buyers taking advantage of the very low entry prices. And Brisbane is a really good example and a typical buying price for a house Brisbane is only 540,000 compared to Sydney, it’s at 900,000.
There’s only about a 10% difference in household incomes between those two markets. I think we will see improved economic conditions and probably some of these smaller cities that haven’t really been firing are going to start to heat up a little bit.
Ross Greenwood: There you go, Tim Lawless is the Research Director at CoreLogic and each first day of the month put out their index, their price index showing you what’s happened to the property process over the past month or so. Certainly, we’ve been documenting for you the fact that the mood, the sentiment was changing and one thing you can say out of this survey today is really many of those suburbs that previously were amongst the worst performed suburbs such as Ride, the inner east in Melbourne and Sydney have now disappeared off that worst performed list and many of the worst performing suburbs in areas are now really around Darwin and also around Perth.
Tim Lawless, always great with these-
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