Property gains over the second quarter of 2017 is losing steam

Tim Lawless from CoreLogic RP data talks about the Home Value Index for June

Introduction: Property gains over the second quarter of 2017 is losing steam

Ross Greenwood: Property gains that are in the country. Being the beginning of the new financial year and of course, on the very first working day of each month we see an increase to house price numbers. What it shows is that the prices have bounced again in June compared with them falling in May. This is interesting because it’s both Melbourne and Sydney the big capital cities that are growing. In Brisbane house prices have pretty flipped back. It would be fair to say the apartment market is not as robust as the actual housing market itself. Tim Lawless who is the head of research at CoreLogic Applied Data is on line right now. Many thanks for your time Tim. Just tell me, how do I replace house price numbers today?

Interview: Tim Lawless, Head of Research, CoreLogic Applied Data

Tim Lawless: Yes, but the monthly numbers were actually quite strong. As you’ve said we’ve seen across the combined capitals a 1.8% rise over the month. I think that arbitrating those monthly numbers with a little bit of caution because they are quite seasonal. I think really looking at the trend, at the June quarter, for example, we’ve seen values rise by just 0.8 of a percent across the capital cities. Same in Sydney, Melbourne is up one and a half percent over the June quarter.

To put that into some level of context, if you look at Sydney back in the March quarter, we were seeing Sydney’s values rising at about five percent over that three months period and that quarter is right now falling back to just 0.8 of a percent. I think we are seeing some steam out of the market place. The values are still rising, absolutely, but market is starting to just loss some momentum. It’s just lying down there.

Ross Greenwood: The treasurer today and it seemed as if the governor was really on a mission to try and get back to business as usual after the internal ructions of the Liberal Party over the past week or so. The treasurer Scott Marson put as good as spin on this as he possibly could. Here is what he said today.

Scott Marson: Now, we’re seeing the outcomes of that now. That very careful approach that we have been encouraging and supporting. Now, having this impact in the markets in Sydney and in Melbourne where things are easing off but to a safe landing. Not the hard landing that Liberal’s policies would deliver.

Ross Greenwood: Yes, the real problem over this is, any policies that the government puts in place, that the regulators put in place to try and take this theme up of the property markets in Sydney and Melbourne, have an immediate impact on property markets in Darwin, Perth, Adelaide, and Brisbane because it’s a national market and so what’s good for one is ultimately good for the other. That doesn’t help those markets which you’ve seen significant falls either in values or significant falls in demand.

Tim Lawless: You’ll see Darwin is a classic example here. We’re still seeing values falling in Darwin. They’re down to seven percent the last 12 months alone. They’ve been falling since 2014 so arguably Darwin doesn’t need any cooldown. Now that it’s passed I think both those markets could use a little bit of stimulus. We haven’t seen any sort of investment bounce back in there either of those markets. Any sort of a down trend that is required or at least the cooling in the market absolutely needs to be in Sydney and Melbourne. I think we are seeing the first signs of that starting to take place now.

Ross Greenwood: Here is that weak part of it though Tom. Tomorrow an interest rate comes in from the reserve bank probably expected to be on hold. There’s an increasing, if you like bathing of the Tom Tom drums, that rights will rise early next year or maybe into the middle of next year. What you say is absolutely true while it might be reasonable in Melbourne and Sydney which have got significant net mass migration at the moment. It’s positive, so there’s a demand for housing. There’s obviously been significant building in those capitals cities. The truth is that in Darwin path to a lesser extent. Brisbane certainly Adelaide they don’t want any interest rate increase because if there is any potential recovery in the housing market that will it’s stone dead.

Tim Lawless: Yes, I couldn’t agree more. The other side of that as well is some numbers just put up by the IBA late last week was the level of debt in Australia. That was updated up to the end of March and it showed that the housing price to income ratio– sorry the ratio of debt to income in Australia has just reached 190%. It’s never been that high. What that means is that if we do see rates moving higher, it just suggests that household have become even more sensitive to those very small movements. If we do see rates moving higher from where they are which mortgage rates are currently moving up, it probably means that we’ll see a bit of a slow down on household consumption which absolutely isn’t what the economy needs.

Ross Greenwood: The things that I keep on hearing is it might not necessarily be the housing market in the various tight capital cities is the problem at the moment, it is the apartment market. In particular, there are two cities that really to many stand out. One is Melbourne, the Brisbane. Now, we do on the same what’s taking place in Darwin and Perth but because of the over development some would argue in Brisbane and Melbourne they’re particularly potentially vulnerable especially if some of these apartments well, they can’t complete or the owners really do have difficulties even to try start the rise.

Tim Lawless: Yes, honestly the people that signed the contract two years ago then settled shortly, they might have a change in inability to get finance. Which either they can’t get their loan or their loan evaluation ratio is that it’s maybe behind what they expected or even worse than that. We are seeing a lot of evidence now that when people are settling for they’re off the plan unit purchase, it’s actually coming with evaluation that’s lower than the contract price. Immediately after settlement they’re under water in terms of their being negative equity plus they got to top up their deposits to meet the bank’s land evaluation ratio obligations.

Ross Greenwood: I’ll tell you what, it’s really going to be a big ongoing story. Not only over this year but then as the interest rates potentially starts to move next year as well. Tim Lawless does this numbers each month. The head of Research at CoreLogic and they have suddenly bounced back but as he says, watch those monthly numbers because they really can be a little allusly. Watch out the annual numbers or the quarterly numbers, they might just give you a slightly better indication. Tim as always we appreciate your time here on the program.

Tim Lawless: Thanks, Ross.

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