Growth conditions were flat across both the combined capital cities and the combined regional areas of Australia, according to CoreLogic’s October Home Value Index Results.
However, growth over the past 12 months in the combined capitals (+7%) outperformed growth in the combined regional areas (+4.9%).
Tim Lawless, head of research at CoreLogic, attributed the slowdown in capital gains to tighter credit policies, which have “fundamentally changed the landscape for borrowers.”
“Lenders have tightened their servicing tests and reduced their appetite for riskier loans, including those on higher loan to valuation ratios or higher loan to income multiples,” Lawless said. “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.”
“In fact, the peak rate of growth in dwelling values lines up closely with the 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% speed limit on investment lending.”
Housing market conditions quickly rebounded in the second half of 2016, once the investor related credit limits were achieved and the Reserve Bank adjusted the cash rate lower in May and August of 2016.
Slowdown in Sydney could mean the end of the housing boom
Sydney joined Perth and Darwin as the only capitals to record declines in dwelling values over the quarter.
The Harbour City experienced a drop of 0.6% over the quarter and 0.5% over the month. Perth experienced a drop of 0.7% over the quarter and no changes over the month, while Darwin experienced an extreme drop of 4.4% over the quarter and 1.6% over the month.
“Seeing Sydney listed alongside Perth and Darwin, where dwelling values have been falling since 2014, is a significant turn of events,” Lawless said.
George Tharenou and Carlos Cacho, economists from UBS, said Sydney’s softening house prices could signal the end of Australia’s world record housing boom, which saw home values soar by more than 6,500% over a 55-year period.
Sydney’s decline is the first rolling quarterly fall in dwelling values since May 2016, when the first round of macro-prudential changes were still working their way through credit policies, and home loan rates were only just beginning to reduce in line with the first cut to the cash rate.
Growth conditions were strongest in Hobart
In contrast to the ebbing fortunes of the other capitals, capital gains were strongest in Hobart, at 3.3% over the quarter and 0.9% over the month.
CoreLogic’s latest data confirms the findings of other analysts, including Simon Pressley of Propertyology. In September, Pressley said that price growth in Hobart had the potential to push past 20% over the next year, well above the best years produced by Sydney and Melbourne during their boom years.
“Hobart’s growth cycle today is comparable to where Sydney was in 2014,” Pressley said. “All of the metrics which we analyse suggest that, all things being equal, the 15 per cent price growth over the last 12 months will be surpassed next year and that there’s currently no end in sight.”
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