04 Nov Property Market Update – October 2019
Nationally all capital cities recorded positive growth last month with the exception of Perth which declined 0.4 per cent to $435,119 according to the latest CoreLogic Home Value Index.
The strongest growth conditions continue to be in Melbourne and Sydney. Melbourne and Sydney prices have recovered by 6% and 5.3% respectively since the recent low in May. Most capital cities have seen growth as lower mortgage rates appear to be driving on buyer activity. Other factors impacting Melbourne and Sydney’s bounce back have been tighter labour market conditions, increase in population and improved access to credit according to CoreLogic’s research director Tim Lawless.
Mr Lawless said the recent gains came after a broad-based decline in housing values, with the national index declining 8.4 per cent between October 2017 and June 2019.
Perth now has the lowest median house price of any capital city ($451,800) with Darwin house values a close second with a median of $468,300.
Whilst this continued decline in Perth’s values may be impacting sellers, there is a silver lining with WA coordinating a significant rise in first home buyers. “Unsurprisingly, the NT and WA are showing the highest proportion of first-home buyer activity, with first time buyers not weighed down by negative equity and with the ability to take advantage of very affordable housing in these regions,” head of research Tim Lawless said.
Perth was weakest performing capital city in the three months to October and over the past 12 months the greater Perth region included six of the 10 weakest capital city markets. Overall dwelling values fell 8.7 per cent over the year, and were 21.6 per cent below their peak. The
There was some good news though; Mr Lawless said the rolling three-month trend in housing values recorded the smallest decline in 14 months (-1.7 per cent).
Rental markets have remained subdued, with rental rates falling across five of the eight capital cities over the three months ending October 2019. The largest declines are confined to Darwin, where rents are 1% lower over the past three months, and Sydney where rents are down 0.7%. The only capital cities where rents were up over the rolling quarter were Brisbane (+0.2%) and Adelaide (+0.3%).
Soft rental conditions can be attributed to a range of factors including the recent history of rising rental supply, demonstrated by unprecedented levels of investment participation in the housing market between 2012 and 2017, as well as a significant increase in dwelling construction skewed towards rental accommodation in the high rise apartment sector. Additionally, a larger than normal number of renters have transitioned to first home buyers, thereby denting rental demand.
As dwelling values trend higher and rents languish, gross rental yields are starting to compress. Across the combined capitals, gross rental yields moved through a recent peak in May earlier this year at 3.88%. Since that time, gross rental yields across the combined capitals have reduced back to 3.65% which is the lowest gross yield since November last year.
Although gross rental yields are trending lower, so too are mortgage rates. At the end of September, the average three-year fixed rate for an investor mortgage was 3.8%. Although the RBA hasn’t published average mortgage rates for October yet, considering mortgage rates reduced further in October, it’s likely that the three-year fixed rate for investor mortgages is now lower than capital city gross rental yields for the first time since at least 2007 (when CoreLogic’s rental yield series commences), implying that more properties will be showing a positive cash flow for investors, and renters may be better off purchasing a home and paying down a mortgage rather than continuing to rent.