CoreLogic’s July data indicates a controlled slowdown in the Sydney housing market. It will moderate further over the remainder of 2017 due to less investment activity and higher mortgage rates.
As the market develops so quickly, it is recommended to stay up to date with all the latest housing market research.
We’ve included the Sydney property market video below, along with the transcript.
Welcome to CoreLogic’s Sydney property market update for July 2017
Sydney’s housing market is showing all the hallmarks of a controlled slowdown. The quarter on quarter pace of capital gains eased from five percent in March to 0.8 percent in June. Advertised stock levels of rising clearance rates are trending lower an average selling time has started to edge upwards. Annual growth is eased from a recent peak of just over 18 percent in March to the current pace of 12.2 percent.
We expect that the Sydney housing market will moderate further over the remainder of 2017 due to less investment activity and higher mortgage rates. However, first home buyer stamp duty concessions, that went live on the 1st of July, may provide at least a temporary respite in the slower growth conditions, based on the higher demand of the more affordable end of the price range.
Housing market is transitioning
Overall, Corelogic’s June data indicates that the housing market is transitioning. With the rate of capital gains moderating across what’s been the hottest markets, while other cities continue to offer up a diverse performance.
Sydney and Melbourne dwelling values are now five years into one of the strongest growth phases on record. Sydney’s dwelling values have surged 79% higher since values started rising in June of 2012 and Melbourne dwelling values are 60% higher over the same time frame.
Prospective homebuyers and regulators are likely to welcome a controlled slowdown in these markets.
The slowing growth conditions can’t be tied to just one particular factor. The reduction in growth rates is due to a variety of factors including the recently announced macro potential changes from APRA, higher mortgage rates, particularly for investors – worsening affordability and a general reduction in consumer confidence. We’re yet to see the full effects of the APRA decision to limit interest only lending to 30% of new originations.
There is some way to go before lenders meet this new lending speed limit and it’s likely the mortgage rates will rise further despite a stable cash rate setting from the Reserve Bank. Discounting variable mortgage rates for investors based on data to the end of May are already 35 basis points higher than the recent 2016 low points.
With debt levels high and rental yields generally low it’s likely that investors will continue to be further disincentivized by higher mortgage rates and by stricter credit policies.
Lending to investors has been easing since December last year.
The latest data from the Reserve Bank showed that housing credit growth for investment purposes has been easing since December which is well before the latest APRA intervention.
If mortgage rates continue to move higher, as we expect they will, we’re likely to see a further slowdown in investment activity.
The latest results from the Australian Bureau of Statistics indicate that investors comprised about 47% of new mortgage originations, which is the lowest proportion since October last year, but still substantially higher than the long-run average, which is roughly about one third.
As investment disincentives rise, first homebuyer incentives will kick in and it’s likely that investors will comprise a progressively smaller component of the housing market of the remainder of 2017.
The slowdown investor numbers is likely to impact the Sydney housing market more than others simply because investors comprise a much larger proportion of the marketplace than other regions.
The latest ABS Housing Finance data indicates that investors still comprise 55 percent a mortgage demand across New South Wales.
Potentially we may see investment demand deflect to other markets where rental yields are higher and capital gains are earlier in the growth cycle.
With the marketplace evolving so rapidly we recommend that you stay up-to-date on all the latest housing market research at www.corelogic.com.au