Sydney and Melbourne Home Prices Just Peaked Again

Property Market Update for Week Ending 2 July 2017 

Key Property Market Highlights:

• Auction clearance rates are still trending down.
• Home prices in our two largest capital cities have never been higher.
• There are fewer auctions scheduled for next week.
• More tightening from APRA is just around the corner.

This Week’s Preliminary Auction Activity (Week Ending 2 July)

The downward trend in clearance rates continued over the weekend, despite a dip in auction volume. A total of 1,984 homes were auctioned and the combined capital city preliminary clearance rate increased to 70.3 percent. Last week, the final results saw the clearance rate fall to 66.5 percent on auction volume of 2,355.

There’s little point comparing to last year’s results when only 841 homes were taken to auction due to the Federal Election.

As the preliminary clearance rates tend to be revised lower after the final reporting, it’s likely this week will mark the fifth straight week with a sub-70 percent clearance rate.

Source: CoreLogic

In Sydney, sellers offered up 832 homes at auction with 72.6 percent of them attracting a winning bidder. This is higher than last week’s final report of 68.2 percent across 939 auctions. That said, last week’s preliminary result was about the same as this week, so expect the true figure to be in the high 60s again.

Melbourne was the busiest city, but only just. The Victoria capital was host to 866 auctions; a big drop from last week’s auction volume of 1,047. The preliminary clearance rate was 71.9 percent, which is higher than last week’s final tally of 70.7 percent. We’ll find out later in the week if the final clearance rate remains in the 70s.

Canberra recorded the highest preliminary clearance rate, but volume was much lower than usual. 

Last Week’s Final Auction Results (Week Ending 25 June)

Last week’s nationwide clearance rate of 66.5 percent was the lowest since June 2016. Only Melbourne maintained a result in the 70s this week.

Here are all the final capital city auction results for last week:

Source: CoreLogic

Here are the results for the Sydney and Melbourne sub-regions, plus a few regional areas:

Source: CoreLogic

For the historical data of weekly auction clearance rates, click here.

Recent Price Movements

So much for Sydney and Melbourne’s April median house price peaks. This week, both cities blew past those figures to record even higher highs.

You’ll recall that home prices were steadily climbing until April 11^th and April 18^th, for Sydney and Melbourne respectively. Then prices began falling for two straight months. Last week I reported that prices had jumped about 2 percent in two weeks in both cities. Then this week, Sydney continued its climb and Melbourne prices jumped another 2 percent, with both cities notching record highs yet again.

As you can see in the following chart from CoreLogic, the five capital city aggregate price home value index is up over 10 percent in twelve months. All five major capitals are in the green for the quarter.

Source: CoreLogic

Property Market Analysis

It seems the Sydney and Melbourne markets are so resilient that even when auction clearance rates are trending down, home prices keep rising.

Demand obviously remains strong. As we move deeper into winter, supply will continue to wane, which could put more upward pressure on prices. We may also see auction clearance rates trend back up.

Sydney is expected to host only 600 auctions next week, and auction volume in Melbourne will be down to 728. If the number of buyers remains equal, we’ll see stiffer competition, higher auction clearance rates and perhaps even higher prices next week as well.

What It Means For Investors

If this trend up in prices continues, I can’t imagine Philip Lowe being too thrilled. Speaking of, the RBA left the cash rate on hold this week at a record-low 1.50%. Since there’s little chance the RBA will be lifting rates anytime soon, we can expect APRA to step in to further tighten the screws on property investors and attempt to slow down home price growth.

APRA has already capped growth in interest-only mortgage lending to 30 percent on the big four banks to go along with an already existing 10 percent speed limit on the growth of residential investment loans. to be honest, that’s a relatively minor restriction. Nearly one-third of new loans will still be interest-only and a 10 percent annual growth in investor lending is massive. More will be needed to put a damper on home prices growth.

Within the next few weeks, APRA is expected to announce a fresh round of even tougher bank capital requirements to comply with international banking standards. You can bet that property investors will bear the brunt of these upcoming changes through higher interest rates.

Although home prices are rising, APRA remains a formidable foe to investors who are bullish on ongoing generic capital growth. And let’s not forget, Australians are already deep in the hole. Household debt to disposable income just topped 190 percent.

There’s clearly a point at which debt growth is no longer sustainable. The million-dollar question is, where is that point?

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.