Sydney is showing the sharpest turnaround in market conditions since conditions began to turn this year, with the trend looking very similar to how the market responded over the first round of APRA changes back in early 2015 through to 2016.
We’ve included the Sydney property market video below, along with the transcript.
Welcome to CoreLogic’s Sydney property market update for November 2017
Sydney is showing the sharpest turnaround in market conditions with the trend looking very similar to how the market responded over the first round of APRA changes back in early 2015 through to 2016.
The annual growth trend has more than halved since May earlier this year, when Sydney dwelling values were rising at 18 point 8 per cent per annum.
Over the 12 months to October 2017 the annual growth rate is reduced to seven point seven percent.
Considering the recent negative movements month on month, we expect the annual trend will continue to reduce as the market moves into its down phase.
While we expect values will fall across Sydney there are several factors that should help to contain a downturn: overseas migration rates remain strong, interest rates are likely to remain stimulatory and first home buyers already offsetting some of the easing in investment demand.
Slow down of housing conditions
A variety of factors are causing housing conditions to slow down, however, the primary dampener is likely to be a new round of macro-prudential measures from the prudential regulator APRA.
In response, lenders have tightened the servicing tests and they’ve reduced their appetite for riskier loans including those on higher loan devaluation ratios or higher loan to income multiples.
Additionally, interest only borrowers and investors are facing premiums on their mortgage rates which are likely to act as a disincentive especially for investors who are generally facing low rental yields on investment properties.
The peak rate of growth and dwelling values lines up closely with a peak growth rate for investment lending in late 2016.
We saw the housing market respond in a similar fashion through 2015 and the first half of 2016, as investors faced tighter credit conditions following the announcement from APRA that lenders couldn’t surpass a 10 percent speed limit on investment lending.
At that time the pace of capital gains slowed sharply and went negative for a short period of time.
Of course, the housing market rebounded in mid 2016 when the APRA imposed investment credit limits were comprehensively achieved and the cash rate was lowered by 50 basis points.
This time around we aren’t expecting a lower cash rate to re-stimulate the market and it’s likely that credit policies will be closely monitored by the prudential regulator to ensure there isn’t a material rebound and investment activity.
Factors that support a soft landing for the housing market
On the positive side, there are several factors that are likely to support a soft landing for the housing market.
Financial markets have pushed expectations for a cash rate hike out to early 2019.
That implies that mortgage rates aren’t likely to rise materially over the foreseeable future.
With household debt at record highs, higher mortgage rates would test already stretched household balance sheets.
Labor markets have strengthened and population growth is underpinning housing demand set against the backdrop of limited detached and semi-attached housing supply.
Overall Australia’s housing market performance remains as diverse as ever.
Historically sustained growth cycles have generally followed by a period of negative growth so a further reduction in dwelling values shouldn’t come as a surprise.
If you would like to keep a closer eye in the housing markets check out our CoreLogic websites where we are updating our perspectives on the housing market on a daily basis www.corelogic.com.au