CoreLogic’s June housing market review this month reveals that the Melbourne’s auction market seems to be more resilient to a slowdown compared with Sydney, despite the recent softening. May usually suffers from a seasonal downturn, but the housing market in Melbourne remains as diverse as ever.
It’s important not to draw too many conclusions from this seasonal softening and see how the market progresses over the coming months.
We’ve included the Melbourne property market video below, along with the transcript.
Welcome to Core Logic’s Melbourne property market update for June 2017
Melbourne is dwelling values pushed a further 0.7% higher of the three months ending May 2017 with a 1.2 percent rise in house failures, offsetting a 3.9 percent fall in unit values.
The latest data shows Melbourne unit values have recorded the first year on year 4 since 2013.
Since dwelling values started trending higher five years ago in Melbourne, dwelling values are now 55 percent higher.
Despite the recent softening Melbourne auction market seems to be more resilient to a slowdown compared with Sydney, with clearance rates remaining in the low to mid 70 percent range through May and through the first week of June.
Overall the negative May index results from CoreLogic comes at a time of seasonal weakness, which may imply that calling a peak in the housing market is premature, but it’s becoming increasingly clear that some of the heat has left the Sydney marketplace and to a lesser extent Melbournes.
Mortgage rates are now pushing higher
One of the key factors affecting housing market conditions is likely to be the fact of mortgage rates are now pushing higher, since august last year discounted variable rates have risen by 10 basis points for owner-occupiers and by 35 basis points for investors.
Mortgage rates could rise further, as the recently announced macro-prudential measures from APRA progressively impact on credit policies, and the federal government banking levy comes into effect on July 1st.
Small rises in mortgage rates are likely to have some impact on housing demand, considering household debt is tracking at record highs for investors.
The higher cost of servicing the debt comes at a time when rental yields are close to record lows in Sydney and Melbourne, which are also the two cities with the largest concentration of investors.
Landlords are likely to be trying to push their rents higher, but this may be difficult considering the weak wages growth environment and the fact that rental supply is high in some regions.
If investors are concerned about the right of capital growth in that largest city coming to an end, more student vestiges may start to change their focus towards the rental return, given the possibility of lower capital growth potential.
Other asset classes aren’t likely to be attractive
While we are expecting investment activities are slow, the fact is other asset classes aren’t likely to be as attractive as property to investors.
Cash and bonds continue to provide low bits’ safe returns, and equities remain volatile. Considering the alternatives, we’re likely to see property investment remain a popular option.
Estimated market outlook
If investors are concerned about the run of capital gains and the two largest capital cities coming to an end, more student vestiges may start changing their focus towards the rental market return, given the possibility of lower capital growth potential.
Yields are much healthier in cities like Hobart Brisbane, and Canberra and the growth cycle is nowhere near as mature as what it is in a Sydney and Melbourne.
In summary, the jury’s still out on whether the housing market has peaked. However, if it hasn’t, a peak could be just around the corner the housing market remains as diverse as ever and the flow of data over the coming months will be a critical factor to get a better understanding of the trends.
Of course, you can stay in tune with regular housing market updates by the CoreLogic website at www.corelogic.com