Fresh real estate data released this week has confirmed that the cooling property market is turning colder as prices fall at the fastest annual rate since 2012.
The CoreLogic July home value results, released on Wednesday (1 August), revealed that national dwelling values continued their weak run, with both capital city and regional dwelling values trending lower over the past three months.
National dwelling values slipped by 0.6 of a percentage point over the month to be down by almost 1 per cent over the rolling quarter, 1.6 per cent lower over the past 12 months, the largest annual fall since August 2012.
Since peaking in September last year, the Australian housing market has recorded a cumulative 1.9 per cent fall in value; a relatively mild downturn to date considering values remain 31 per cent higher than they were five years ago.
According to CoreLogic head of research Tim Lawless, the weakness in dwelling values is being driven by the long-running declines in Perth and Darwin along with an acceleration in the rate of decline across Sydney and Melbourne and slowing growth rates across most of the remaining regions.
The premium end of the market has seen a more substantial decline.
“The growth trends vary remarkably across the broad valuation segments of each housing market, highlighting the diversity of conditions,” Mr Lawless said.
“The starkest annual performance differential is in Melbourne, where the top quartile has seen values fall [by] 4.1 per cent over the past 12 months while property values across the lower quartile are 7.5 per cent higher.”
Sydney’s luxury properties lose 8 per cent of their value
In Sydney, dwelling values are down by 8.0 per cent across the most expensive quarter of the market, while the most affordable quarter of the market has seen values fall by a much lower 1.8 per cent over the past 12 months.
The remaining capital cities have recorded substantially less variation between the broad valuation segments.
“This dramatic performance differential in Sydney and Melbourne is attributable to a range of factors; however, most importantly, the surge in first home buyers has supported demand and the lower end of the market and the tightening of credit has led to reduced borrowing capacity for many borrowers,” Mr Lawless said.
“The surge in first home buyer activity evident since stamp duty concessions were introduced across New South Wales and Victoria in July last year has propped up demand across the more affordable end of the housing market, while a new focus on borrowers with a high debt-to-income ratio is likely to be dampening the amount of funds available for purchasing expensive dwellings.”
Mr Lawless noted that the focus on high debt-to-income ratios will intuitively impact the Sydney and Melbourne housing markets more than other cities due to demonstrably high dwelling prices relative to household incomes.
Investors desert Sydney and Melbourne
CoreLogic data shows that Sydney and Melbourne have recorded the most substantial concentration of investment activity, despite the tighter lending conditions for this segment and weaker housing markets in Australia’s most expensive cities.
However, beyond the metro centres, New South Wales and Victoria continue to show higher investment concentrations relative to other states.
APRA’s macro-prudential measures, first introduced in 2014 to rebalance the market and bank books, appear to have done the job. Property investors are currently paying a premium of around 60 basis points on their home loans.
“Mortgage rate premiums for investment loans remain in place and the limits on interest-only lending continues to disincentiv[ise] investors,” Mr Lawless said, highlighting that market factors such as low rental yields and dim prospects for short- to medium-term capital gains are also likely to quell investment demand.
Although the 10 per cent speed limit on investor credit growth has been removed for eligible lenders, CoreLogic is not expecting a rebound in credit availability for investment purposes, the head of research said.