Winter Property Market Chill Sets In

Australian Property Market Update 
5th June, 2018 

Housing Supply and Demand

Sellers were left out in the cold last week, as only 56.2 percent of auctions across the country found a winning bidder. The combined capital city clearance rate has grown progressively worse over the past month, falling to its lowest levels since the beginning of 2013.

This week’s preliminary result wasn’t much better, and once the final reporting from agents comes in, the numbers will likely look even worse again. It seems Adelaide performed the best, while the Melbourne market continues to look brighter than Sydney’s, at least on the surface.

Here are the latest preliminary auction market stats, as reported by CoreLogic:

Source: CoreLogic

While supply remains relatively strong in the auction market, meaning plenty of homeowners are looking to sell, it seems there may be many other properties, especially in Sydney, available “off market.” Here’s what one buyer reported on Twitter:

I just got this back from an estate agent in Sydney when I asked about a place…. pic.twitter.com/dUqANGIB00

— David Breeney (@DBreeney) June 4, 2018

As more and more vendors bring their properties to market, agents may choose to keep some listings under the radar, to give an impression of scarcity. The last thing agents want is the media catching wind of rapidly rising supply while demand is waning.

Also keep in mind that our auction clearance rate data comes directly from agents. As Lindsay David of LF Economics recently pointed out, and one of this Twitter followers confirmed, sometimes what’s reported doesn’t exactly line up with the reality in the trenches.

One particular agent with two auctions today.
Auction 1 – Sold – Showing up in the statistics.
Auction 2 – Passed in – Not appearing on Domain or RealEstate’s statistics. Why are agents allowed to pick and choose which ones they can report? Transparency in the industry is poor.

— Vicki Papa (@Vicki_Papa) June 2, 2018

Recent Changes in Home Prices

If Sydney (and Melbourne???) supply is indeed far more than the official data indicates, that will not bode well for house prices, especially with clearance rates falling into the 50s.  

But come on, was anyone really expecting Sydney house prices to remain flat after increasing nearly 75 percent in five years? Even to maintain an average of home prices doubling every ten years, we would expect to see prices fall by about 15 percent over the next year, before continuing their rise again.

So, what does the official data say about recent changes in home prices? That depends on who you ask, and how you measure it.

According to CoreLogic, declines in dwelling prices are still fairly moderate. Their data for the month of May suggests less than a quarter percent fall over the month for Sydney and half a percent fall for Melbourne. Sydney is down 4 percent year-on-year, and Melbourne is still 2 percent higher than it was twelve months ago.

But according to Morgan Stanley’s analysis, things are looking a little bleaker. They claim Melbourne has now replaced Sydney as the worst performing capital city market, with prices falling by 5 percent in the Victorian capital in that last three months alone.

Melbourne has replaced Sydney as the worst performing national capital for residential property, @MorganStanley analysis shows. @duhughes reports. https://t.co/Fiuxq4Pqpw #ausbiz #ausproperty

— Financial Review (@FinancialReview) June 4, 2018

However you measure it, real estate prices are falling, unless of course you’re in Brisbane or Adelaide. Adelaide especially has come on strong over the past month, with an increase of .50 percent, according to CoreLogic.

Here’s all of CoreLogic’s latest median house price data:

 Source: CoreLogic

Where to From Here?

As I shared in last month’s market update, the future of house prices depends primarily on the availability of cheap credit. How much credit is available to homebuyers is a function of both the cost of borrowing (interest rates) and bank serviceability calculations (how high of a bar lenders set to qualify for loans).

Thanks to the Banking Royal Commission, lenders now want to see evidence of actual household expenses in mortgage applications and are no longer happy to apply a general median estimate of household expenses. Our resident mortgage broker, Chris Berry posted a great article yesterday called, “How the Royal Commission May Impact Your Borrowing Power”. In it, he shares an interesting example of how one investor was impacted by this recent change.

The point is, the lending market at the moment seems to be pointing to tighter credit, which means house prices likely have more to fall in our most expensive capital cities. With investors qualifying for lower borrowing limits, that may mean more demand for cities like Brisbane, and especially Adelaide.

Unless regulators step in to turn the tide, don’t be surprised to see house prices fall in Sydney and Melbourne by as much as 10 percent over the next year, and that’s assuming borrowing costs remain low.

Even if prices in our largest two cities retreat, I would expect Brisbane and Adelaide to continue to gently tick upward over the coming months. But if interest rates are forced higher through a reckless RBA move or rising bond yields overseas, all bets are off.

As for Perth, well, that’s an interesting one. If anyone cares for my assessment on WA, leave a comment below and I’ll happily share my thoughts.

Otherwise, be careful out there; and if you haven’t yet enrolled in Steve McKnight’s Property Apprenticeship course, get in touch with me at the link in my bio below. If you’ve been thinking of enrolling, this will be your last chance. At the end of this month, we’re closing enrolments for good.

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.