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Fall in investor demand correlates with drop in value growth

New data from property research analytics company CoreLogic suggests that when mortgage demand from investors falls, so too does the rate of value growth.

The latest CoreLogic Property Pulse explores the influence investors have on the property market at large.

CoreLogic analyst Cameron Kusher researched the decline of dwelling values and the relation to the dropping level of investor activity. He found that, over the last five years, dwelling values nationally rose by 39.3 per cent, largely driven by activity in Sydney and Melbourne.

Over the same time period, however, investors had committed finance totalling $695.6 billion towards housing, and during May 2015, investor activity accounted for 54.8 per cent of new mortgage demand nationally.

However, the investor environment has since changed.

Mr Kusher said: “With investor demand now slowing, falling a further -6.2 per cent in September 2017 and dwelling values falling in the most investor-centric city (Sydney), what impact is the investor slowdown going to have on the broader housing market?”

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In order to determine the impact, Mr Kusher analysed mortgage demand and revealed that investor activity in New South Wales and Victoria had dropped from the May 2015 peaks of 63.6 per cent and 54.7 per cent, respectively, to 50.3 per cent and 43.2 per cent.

According to Mr Kusher, this showed that when mortgage demand from investors fall, so too does the rate of value growth.

“In fact, Sydney dwelling values are now falling as investor demand continues to fade,” Mr Kusher said.

“Melbourne has also seen value growth slow (although not to the same magnitude as Sydney); however, investor participation over recent years in Vic has not been as significant as in NSW,” Mr Kusher said.

Outside of these two states, mortgage demand from investors has declined.

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“We saw a similar slowing of investor demand occur when credit conditions were tightened after the first round of APRA’s macro-prudential policy changes through 2015 and early 2016,” the CoreLogic analyst said.

In these markets, a lack of demand could be beneficial towards owner-occupiers, rather than investors.

“Elsewhere, the changing landscape may slow markets a little, but other states and territories have largely seen demand over recent years driven by owner-occupiers.

“If anything, the lack of value growth in these markets, superior affordability and less demand from investors may make buying conditions slightly more favourable for owner-occupiers.”

[Related: How will property exist in a world where banks are platform providers?]

 

Fall in investor demand correlates with drop in value growth
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