Has Sydney lost steam in the housing market?

Ross Greenwood speaks to Tim Lawless, CoreLogic’s head of research, about their September results, showing that the combined capital city trend growth rate  losing steam

Introduction: Capital gains in the Sydney housing market lose

Ross Greenwood: I want to take the house prices around Australia today. Now these are the September house prices and I do show, in particular in Sydney, a cooling of the market. As a result of that, you’ve got a situation where right now, house prices are at the slowest rate that they have been for 7 to 8 months in Sydney. The interesting side of this is it’s not the same when you look at Melbourne or Brisbane or Hobart for that matter. Hobart has become, oddly, the hottest property market in all of Australia.

Now this of course is in line with some many which includes the Reserve Bank, the Head of Treasury, you’ve had the OECD, you had state and the polls all saying that they think house prices should grow more slow in Australia to make certain that the system is secure. Let’s now go to Tim Lawless who is the Director of Research at CoreLogic who put out these numbers. Tim, are you at all surprised by what’s taking place in Sydney?

Interview with Tim Lawless, Head of Research, Corelogic RP Data

Tim Lawless: Good evening, Ross. No, not at all and this is probably been a long time coming to see the Sydney housing market slow down. Remember, this comes after five and a half years of a really strong growth cycle. We’ve seen Sydney values rise by nearly 75% over that five and a half years. To see values just slid back a little bit over the last month is probably the first sign of the markets just topping out.

Ross Greenwood:  Okay, now topping out because and of course, a lot of people have used the bubble word. A lot of people have used the word that Australia’s property markets might be somewhat precarious and could be the subject of a decent route or that type of thing. These are the words that have been used to describe what could happen. In regards to Australia’s property markets right now, if they are a little more orderly, if they do start to just come off the boil as distinct from fall by 10 or 20%, this is the difference in the markets right now. This is what the Reserve Bank, in particular, is trying very carefully along with corporate regulators to manage.

Tim Lawless: Well, that’s exactly right but the Reserve Bank and any other regulators or any of the government agencies would love to see a controlled slowdown. I’d be really surprised if we saw anything different. Look back to any of the cycles we’ve seen in Australia and generally a really strong sustained growth cycle like what we’ve seen in Sydney over the last five and a half years is typically followed by some level of a downturn. We should expect that but generally prices don’t fall by more than say five to 10%. I can’t see any reason why it would be any different this cycle particularly with population growth so strong and jobs growth ramping up now.

Ross Greenwood:  Given the fact that this is the peak selling season, the spring season has always been most houses are traditionally sold. Is there also the auction clearance rate that you would have seen 12 months ago and is there more stock hitting the market now? They’re all tell tales as to whether it’s the buyers or the sellers who have got the better choice and the better deals.

Tim Lawless: Yes but we are seeing clearance rates in Sydney attracting generally around the mid to high 60% marks. Quite a big difference from where it was a year ago where Sydney was typically upper end the 80% auction clearance rate mark. It does highlight that Melbourne has been holding with an auction clearance rate above 70% consistently. It has come down a little bit as well but certainly holding up much more resilient than what Sydney has.

Ross Greenwood:  Well, if we take people around the country basically on houses, let’s say, rather than apartments, in Sydney, the median price 1.074 million dollars not withstanding the 0.3% full for the last month. In fact, it’s now down for the quarter as well for houses. In Melbourne, the median price now, $818,000 up over the past year by 13%. In Brisbane, $527,000 give or take that’s up by some 4% over the past year. Now, let’s go then to Hobart, the hot market that I talked about, 412,000 is the median up by 15% over the past year. Canberra, the other market I want to look at which is $653,000 the median, was up over the month, the quarter and over the past year up by 9.3%.

So really, what it’s saying is, there is still strong growth on an annual basis in Sydney but it’s less quarterly. These monthly figures that are coming off, but oddly enough, everybody says it’s apartments that are most risky. In Sydney, the apartment prices get going up.

Tim Lawless: Yes, Sydney apartments aren’t really as risky as what we see in Brisbane or as for a lesser extent, Melbourne. If you look at a lot of distress factors in the apartment markets, if you look at how many resales are loss making, for example. We look at what proportion are of the planned units are settling with valuation loan and the contract price. Sydney is not setting off any alarm bells for the unit market like what we’re seeing in Melbourne or Brisbane is probably the worst case example. We’re seeing more than 25% of resales apartments in Brisbane are loss making over the June quarter.

Ross Greenwood:  There’s one other thing also comes into this and that is given the fact that we’ve been seeing the slowdown housing. I totally get that and I understand it needs to settle and all that type of thing. But, the other fundamental for Australia right now is late last week, there were population figures that came out that showed that the population growth rate right now is its fastest for almost three years. Over the past 12 months, more or close on 390,000 new people came into Australia, and all of those people needed to be housed.

The problem is if you have a real slowdown in the housing markets, in building stocks, housing approvals whatever it might be, ultimately, the problem is there’s going to be a catch up to try and get your rising population housed. If there’s not enough housing, quite clearly, that can cause house prices to rise in the future.

Tim Lawless: That’s right and I think that’s why there’s probably a floor under pricing in Sydney. When you have population growth this strong and not only does it create demand for housing but generally it also stimulatory for big infrastructure projects. We can see that in Sydney big, infrastructure projects, Badgerys Creek is probably the best example a bit how they upgrades their new train lines. They create a lot of jobs and they improve the productivity of the broader metro area, as well. I think that’s going to help to really, probably not prevent Sydney from going backwards in values. I’m quite certain that’s going to happen, but they probably placed the floor under prices from major falls.

Ross Greenwood:  Tell you what, great to have you on the program as always. Tim Lawless is the director of research at CoreLogic that puts these numbers out on a monthly basis. The real takeaway is Sydney prices quite clearly and demonstrably slowing especially for houses. Melbourne is still going gangbusters. Brisbane is what you’d call almost a normal market in some ways. Adelaide has been slow. Perth is going backwards, the houses, apartments are a little bit of there. Darwin is the basket case of Australia and Hobart the boom market mainly because it’s been the most affordable one. Canberra prices have been solid probably somewhere between the Melbourne and the Sydney prices over these last little period of time. Tim Lawless as always, I appreciate your time here on the program tonight.

Tim Lawless: Thanks Ross. Goodnight.

Ross Greenwood:  Tim Lawless. You see, the other small one to keep in mind is an interest rate decision will be made by the Reserve Bank tomorrow at 2:30 Australian Eastern Summer Time which we have to now say. The other important aspect of this is that it is likely to be on hold. There’s nobody who says that it will actually rise but just one little thing I note, if you go out and have a look at the interest rate predictors, the rate, the yield curves and so forth, what you note is compared with this time last month, last month, I was suggesting according to that measurement that the first interest rate rise would come November-December 2018 so give or take 12 months time.

Right now, those same predictors are indicating they believe that the first interest rate rise will come in August next year. In other words, the forecast of interest rate rises has actually moved forward almost three months and that’s just in the last month or so. Anyway, we’re going to take a break here on Monday News. Also your calls are always welcome 131-873 and of course our email, you can send as a note via our websites. It’s 3aw.com.au, 2gb.com and 4bc.com.au.

 

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