Housing Market Snapshot

Housing Market Performance

As has been the case historically, there is a significant amount of variance in performance across the nation’s capital city housing markets, with Sydney (5.8%) the key driver of value growth so far this year. In fact, only Melbourne (3.5%), Hobart (0.9%), Darwin (0.4%), and Canberra (4.1%) have recorded value growth so far this year.

Values have fallen over the first quarter of 2015 in:

  • Brisbane: 0.5%
  • Adelaide: 0.9%
  • Perth: 2.7%.

Housing market rallying in some cities

Over the 12 months to March 2015, combined capital city home values have increased by 7.4% which is the lowest annual rate of growth since September 2013. The annual rate of home value growth has moderated after peaking at 11.5% over the 12 months to April 2014.

  • UP
    Across the individual capital cities, the annual rate of home value growth is much stronger in Sydney (13.9%) than in all other capital cities. Melbourne has increased, up 5.6%, Brisbane 2.7%, Adelaide 2.2% and Canberra 1.5%.
  • DOWN
    Across the remaining cities, home values have fallen over the year in Perth (0.1%), Hobart (0.3%), and Darwin (0.8%).


While home values continue to rise, the most up-to-date sales data indicates that the number of house and unit transactions has been 'trending lower', but still slightly higher than a year ago. Nationally, over the 12 months to January 2015, the number of home sales is 0.5% higher than over the 12 months to January 2014.

Auction clearance rates jump following cash rate cut

Since the 25 basis point cut to official interest rates in February, auction clearance rates have jumped, particularly in Sydney and Melbourne, suggesting a positive response to the stimulus of lower mortgage rates across these cities.

Auction clearance rates had been trending lower since early September last year when the weighted average clearance rate across the capital cities peaked 74%. At the end of 2014, CoreLogic was reporting a clearance rate of 64%.

Private treaty properties in short supply

The number of properties available for sale is extremely tight at the moment. Across the combined capital cities, the number of new listings being added to the market is 13.3% lower than a year ago while total listings are 3.9% lower. Total listings are currently lower than they were a year ago across each capital city except for Perth, Darwin, and Canberra.

Capital city rental growth continues to slow

Rental rates are showing very little in the way of appreciation, with the median dwelling rent across the combined capitals increasing by only 1.7% over the past 12 months.

Capital city rental growth is now occurring at its slowest pace in more than a decade. Most capital cities are still seeing dwelling values rise at a substantially higher rate than rents, which is causing a consistent compression of rental yields. The lowest gross rental yields can be found in the cities where dwelling values have grown the most: Sydney where the typical home is providing a gross yield of 3.6% and Melbourne where gross yields are slightly lower at 3.3%. The highest yields are still in Darwin (5.8%) and Hobart (5.3%).

Increases in new housing supply affecting rental growth

Additional data relating to the housing and mortgage market remains generally positive. Dwelling approvals hit their highest ever monthly level in January 2015, and although they fell in February it was the second highest monthly number of approvals on record.

While this should be seen as a positive indicator for the broader economy, some regions are seeing escalating supply levels, which are likely to affect the rate of capital gain. We are already seeing the effect of a large increase in new housing supply with limited rental growth as well as lower capital gains across the apartments sector, which may slow even further as approved homes are completed.

Trends in mortgage demand vary across borrower categories

Mortgage demand remains relatively strong; however, across the broad borrower categories there are some distinctly different trends. New owner occupier home loans have tracked relatively steadily throughout the past year, falling by 1.1%, while refinanced loans have increased substantially, up almost 29% over the year. The high rate of refinancing reflects not only the very low interest rate environment, but also the fierce competition for lending across the banking sector.

The RBA published its quarterly data on household finances over the past month. The data showed that at the end of last year, the ratio of housing debt to disposable income hit a new record high of 140.3%. While that ratio hit a new peak, it is important to note that the ratio of housing assets to disposable income was recorded at 444.0%, its highest level since the September 2010 quarter.

Investor demand is also tracking higher, with the value of investment loans 22.1% higher over the year. The most significant increases in investor demand have been contained within the New South Wales and Victorian markets.

We are expecting the rate growth in investment lending to slow down over the first half of 2015 as the Australian Prudential Regulation Authority (APRA) becomes more vigilant on investment lending, and lenders are placed under further pressure to ensure the value of their investment lending doesn’t grow at a rate materially above 10% per annum.

We have already seen that the cut to interest rates has had a positive impact on the residential auction market and it remains to be seen if the effect stretches further. It may encourage further investment in residential property and equities with the RBA reporting that the annual interest rate of a three-year term deposit account is just 2.75%.

Housing market conditions tapering off ?

Relatively low consumer confidence, stricter serviceability requirements for borrowers, tighter lending conditions for investors, affordability challenges and low rental yields are all factors that may contribute to the moderation in housing market conditions over 2015.

Softer labour markets and uncertain economic conditions may also contribute to less confidence from consumers. The ideal outcome for the RBA under the current and potentially lower interest rate setting would be that housing market conditions continue to moderate back to more sustainable levels; however, housing demand remains strong enough to keep dwelling construction at the current high levels and new home sales relatively high.

To date we have seen a moderation in growth; however, the rebound in value growth in Sydney is no doubt likely to be creating some headaches for the RBA.