Melbourne remains one of the strongest capital city housing markets, despite an overall slowing of conditions in the national property markets over the quarter.
You can check out the National market update for November and the local reports for Brisbane and Sydney.
We’ve included the Melbourne property market video below, along with a transcript.
Welcome to CoreLogic’s Melbourne Property Market update for November 2017
Melbourne housing market conditions have also lost some steam with the annual rate of growth easing from a recent peak of 13.1% in July down to 11% in October.
Despite the slowing, values are continuing to rise across both the detached housing sector and the unit market.
In fact the last three months has seen unit values edge slightly higher than those of house values, up two percent compared with a 1.9 percent rise in house values.
There’s a few reasons for Melbourne resilience compared with Sydney: population growth is substantially faster and migration rates are at record highs, jobs growth is very strong and affordability constraints aren’t as pressing compared with a Sydney housing market.
Slow down of housing conditions
A variety of factors are causing housing conditions to slow down, however, the primary dampener is likely to be a new round of macro-prudential measures from the prudential regulator APRA.
In response, lenders have tightened the servicing tests and they’ve reduced their appetite for riskier loans including those on higher loan devaluation ratios or higher loan to income multiples.
Additionally, interest only borrowers and investors are facing premiums on their mortgage rates which are likely to act as a disincentive especially for investors who are generally facing low rental yields on investment properties.
The peak rate of growth and dwelling values lines up closely with a peak growth rate for investment lending in late 2016.
We saw the housing market respond in a similar fashion through 2015 and the first half of 2016, as investors faced tighter credit conditions following the announcement from APRA that lenders couldn’t surpass a 10 percent speed limit on investment lending.
At that time the pace of capital gains slowed sharply and went negative for a short period of time.
Of course, the housing market rebounded in mid 2016 when the APRA imposed investment credit limits were comprehensively achieved and the cash rate was lowered by 50 basis points.
This time around we aren’t expecting a lower cash rate to re-stimulate the market and it’s likely that credit policies will be closely monitored by the prudential regulator to ensure there isn’t a material rebound and investment activity.
Factors that support a soft landing for the housing market
On the positive side, there are several factors that are likely to support a soft landing for the housing market.
Financial markets have pushed expectations for a cash rate hike out to early 2019.
That implies that mortgage rates aren’t likely to rise materially over the foreseeable future.
With household debt at record highs, higher mortgage rates would test already stretched household balance sheets.
Labor markets have strengthened and population growth is underpinning housing demand set against the backdrop of limited detached and semi-attached housing supply.
Overall Australia’s housing market performance remains as diverse as ever.
Historically sustained growth cycles have generally followed by a period of negative growth so a further reduction in dwelling values shouldn’t come as a surprise.
If you would like to keep a closer eye in the housing markets check out our CoreLogic websites where we are updating our perspectives on the housing market on a daily basis www.corelogic.com.au