Over the month of June 2019, national dwelling values declined by -0.2% according to the CoreLogic Home Value Index. It was the sixth consecutive month in which the rate of value decline had eased and it was the smallest monthly value decline since April 2018. The annual rate of value decline also slowed over the month from a -7.3% fall in May to a -6.9% fall in June. Despite the trend towards smaller month-on-month falls, values are back to levels last recorded in July 2016.
The easing rate of decline over the first half of the year is largely attributable to market conditions in Sydney and Melbourne. These two capital cities, along with Hobart and regional areas of SA and NT, were the only major regions where values increased. For Sydney, it was the first monthly rise in values since July 2017 and for Melbourne it was the first rise since November 2017.
Over the June 2019 quarter, national dwelling values fell by -1.0% which was their smallest three month decline since June 2018. Each individual capital city recorded a value fall over the quarter, while in regional markets, SA and Tasmania recorded increases and there was no change in NT.
The -6.9% national fall in dwelling values over the past year consisted of an -8.0% fall across the combined capital cities and a much lower -3.0% fall across the combined regional markets. Hobart and Canberra were the only capital cities in which values have increased over the past year and even in those cities, the annual growth is slowing. In regional areas, values rose in SA, Tasmania and NT but fell elsewhere.
The national market peaked in October 2017 and from then until June 2019 dwelling values have fallen by -8.4%. Values across each capital city and rest of state region are currently lower than they were at their peak. The declines range from a -0.2% fall in regional Tasmania to a -33.5% fall in regional WA. Values are currently more than 10% below their peak in each of Sydney, Melbourne, Perth, Darwin and regional WA. While homeowners don’t like to see housing values fall, the declines have led to some rapid improvements in housing affordability, especially in light of recent interest rate cuts.
The consistent slowing of declines suggest that the worst of the declines have now likely passed. Importantly, the slowing trend of declines were occurring before the federal election result, prior to last month’s interest rate cut and before APRA announced plans to potentially reduce their serviceability limits on borrowers. These three events which all occurred from mid to late May and, anecdotally, have boosted housing market confidence further, evidenced by this data showing a further slowing in value declines and the recent improvement in auction clearance rates.
Although credit may be about to become a little easier to access, the latest data for housing credit shows that credit expansion continued to slow for investors but has steadied for owner occupiers. Housing finance data highlights the slowing mortgage demand with owner occupier and investor finance commitments continuing to trend lower.
It is important to unpack a bit further the increases in values over the month in Sydney and Melbourne. Of course, it is only one month of data however, Sydney and Melbourne are the two cities that have recorded the largest increases in values over the past decade and they are the two least affordable capital cities. While Sydney and Melbourne have shown a steady improvement in housing conditions over the past few months the remaining, more affordable capital cities, have continued to see conditions weaken.
The improving trend in Sydney and Melbourne while smaller cities remain weak is likely due to broader economic factors. Sydney and Melbourne are cities of around 5 million people; they have much lower unemployment rates than most other cities and have seen much stronger job creation. Furthermore, the overall economies of these two cities are much more diversified and stronger than the other capital cities and the volume of population growth each year is greater than elsewhere. As a result, there is likely to be much more pent-up demand for housing in Sydney and Melbourne, the missing ingredients have been confidence and the ability to access finance.
Looking forward, we aren’t expecting a rapid improvement in housing market conditions however; national values are expected to bottom over the coming months. From there it is anticipated that value growth will be slow. Although interest rates have been cut with the prospect of more cuts in the coming months and APRA has relaxed some of its lending rules, the introduction of comprehensive credit reporting at the beginning of July is likely to mean lending conservatism will remain. Lenders will have much more information about borrower’s debts and expenditure than ever before, which will ensure credit worthiness will continue to be closely monitored.