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Market curious about current GFC-like challenges, report finds

04 December 2018 Sasha Karen
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New data shows that Australia’s housing market is experiencing its most challenging period since the GFC, with, unsurprisingly, Sydney and Melbourne taking the most hits.

CoreLogic’s hedonic home value index for November is reporting that Australia recorded a dwelling value decline of 0.7 of a percentage point, down by 4.2 per cent since peaking in October last year.


According to CoreLogic’s head of research, Tim Lawless, the last time national values were down by this much was during 2010–2012, when the annual rate of decline fell by 4.3 per cent.

“Previous to that, the national market was falling at a faster rate during the GFC. However, that downturn was brought to a halt by federal government stimulus including lower interest rates, a boost to the first home buyer grant, [and] cash handouts,” Mr Lawless told REB sister publication Smart Property Investment.


The largest declines were recorded in Sydney and Melbourne, which fell by 1.4 per cent and 1 per cent, respectively. Mr Lawless said that these cities were mostly responsible for the overall conditions.

“The downwards pressure on national dwelling values is largely confined to Sydney and Melbourne which, together, comprise approximately 55 per cent of the value of Australia’s housing asset class,” Mr Lawless said.

Sydney’s housing market recorded a decline of 9.5 per cent, 0.1 of a percentage point away from the previous peak-to-tough decline of 9.6 per cent, set during the time period between 1989 and 1991. This new decline, Mr Lawless said, is expected to drop further in 2019.

“Considering the momentum in the market, Sydney will almost certainly surpass this previous record decline, and we expect dwelling values to continue their downwards trajectory through 2019,” the head of research told Smart Property Investment.

Melbourne’s house market was also down, albeit not as severely as Sydney, at 5.8 per cent, with Mr Lawless also seeing conditions to weaken through 2019.

The reasoning for Sydney and Melbourne’s conditions, Mr Lawless said, was due to the tightening of finance in these areas which see high levels of investment demand, housing affordably issues, lower rental yields, more supply and a reduction in foreign buying activity.

More premium houses were also dragging the market down, Mr Lawless said. In Sydney, the most expensive quarter of the market saw a value drop of 9.3 per cent over the last year and the least expensive quarter of the market also saw a decline of 5.7 per cent.

Meanwhile, Melbourne saw a larger decline in the most expensive quarter with a drop of 9.9 per cent, while the least expensive quarter rose by 1.7 per cent.

The impact of Sydney and Melbourne could also be felt in subregions, as the weakest capital city subregions were found to be centred across Sydney and Melbourne, according to CoreLogic data, with the largest fall for a subregion being Sydney’s Ryde at 14.4 per cent since its peak in August last year.


With these top markets set to soften, it was no doubt that the market would be curious about how far values could fall, according to Mr Lawless.

“If we see values decline by 15 per cent in Sydney, they will be back to levels last seen in June 2015. Considering this, most investors who purchased before this date should remain in a positive position,” the head of research said.

“The big question is how far will dwelling values fall. Considering this downturn is very much being fuelled by credit regulation and availability of finance, it really comes back to how long these tight credit conditions persist.

“No doubt policymakers will be looking for a reduction in household debt levels and a return to entrenched high-quality lending standards.”


However, just because values are down in Sydney and Melbourne, it does not represent the entire market, Mr Lawless said.

“Conditions across the Australian housing market are increasingly diverse. Dwelling values are trending higher across five of the eight capital cities, albeit at a relatively slow pace compared with the previous surge in Sydney and Melbourne,” Mr Lawless said.

“Hobart and regional Tasmania continue to be the standouts for capital gain, with values up by 1.7 per cent across both regions over the past three months.”

Meanwhile, the strongest subregions were found in Hobart, Canberra and select areas of Brisbane and Adelaide. The strongest of these, Hobart, saw dwelling values rise by 9.3 per cent, while Canberra rose by 4.1 per cent.

Other strong areas saw rises of 3.5 per cent or less, which indicated to CoreLogic that any growth is modest.


Rents saw a slight movement upward in November, rising by 0.7 of a percentage point Australia-wide. In Australia’s capital cities, they were up by 0.4 of a percentage point, while regional rental conditions were much more favourable as they were up by 2 per cent.

Darwin was considered by CoreLogic to have the weakest rental conditions of all the capital cities, with rents down by 5.1 per cent compared to this time last year, followed by Sydney’s drop of 2.7 per cent. Meanwhile, the largest gains were in Canberra with rents rising by 6.9 per cent, and then Hobart by 6.1 per cent.

Regardless of only slight movement, CoreLogic data indicated that dwelling rents are outperforming rental values.


The tight lending environment saw the annual pace of credit growth slowed to 5.1 per cent, the slowest rate since October 2013.

However, Mr Lawless identified trends pointing towards some upwards momentum in credit growth after investor mortgage rates rising 10 basis points recently and coupled with tighter credit policies and further scrutiny of borrowers.

Mr Lawless explained that when the housing market turns, there needs to be a change in interest rate or economic conditions, but the market in this instance has been mainly affected by credit policies and finance availability.

“Despite the recent out-of-cycle 15 basis point rise in mortgage rates, the cost of debt remains at the lowest level since the 1960s,” Mr Lawless said.

“From an economic perspective, GDP growth is tracking above expectations, unemployment is tracking well below average and at the lowest level since 2012, population growth remains strong (albeit showing signs of slowing) and wages growth is slowly lifting from a low base. These factors should help to support housing demand and offset a more material decline in dwelling values.

“We expect headwinds from tighter credit will continue for the foreseeable future and will continue to temper housing market activity. This will be especially the case for those markets where investment demand is most concentrated, and where housing costs are high relative to incomes, such as Sydney and Melbourne.”

Market curious about current GFC-like challenges, report finds
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