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Real Estate

Hedonic Home Value Index

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Hedonic Home Value Index

CoreLogic: Australia’s smallest cities drive growth in national housing values as Sydney and Melbourne decline CoreLogic’s national Home Value Index (HVI) was up 0.7% in March, a subtle increase on the 0.6% lift recorded in February. The uptick in the monthly rate of growth was primarily driven by stronger conditions in Brisbane, Adelaide, Perth and the ACT, along with several regional areas, offsetting a slip in values across Sydney and Melbourne.

The first quarter of the year has seen Australian dwelling values rise by 2.4%, adding approximately $17,000 to the value of an Australian dwelling. A year ago, values were rising at more than double the current pace, up 5.8% over the three months to March 2021 before the quarterly rate of growth peaked at 7.0% over the three months ending May 2021.

Sydney’s growth rate is showing the most significant slowdown, falling from a peak of 9.3% in the three months to May 2021, to 0.3% in the first quarter of 2022. Melbourne’s housing market has seen the quarterly rate of growth slow from 5.8% in April last year to just 0.1% over the past three months.

CoreLogic’s research director, Tim Lawless, says while the monthly rate of growth was up among some cities and regions, there is mounting evidence that housing growth rates are losing momentum.

“Virtually every capital city and major rest-of-state region has moved through a peak in the trend rate of growth some time last year or earlier this year,” Mr Lawless said.

“The sharpest slowdown has been in Sydney, where housing prices are the most unaffordable, advertised supply is trending higher and sales activity is down over the year.”

“There are a few exceptions to the slowdown, with regional South Australia recording a new cyclical high over the March quarter and some momentum is returning to the Perth market where the rate of growth is once again trending higher since WA re-opened its borders.”

With the softening in market conditions, the national annual growth rate (18.2%) has fallen below the 20% mark for the first time since August last year, after reaching a cyclical high of 22.4% in January 2021.

Mr Lawless said the annual growth trend will fall sharply in the coming months, as the strong gains recorded in early 2021 drop out of the 12-month calculation.

National housing turnover is also easing, with preliminary transaction estimates for the March quarter tracking 14.3% lower than the same period in 2021, but still 12.2% above the previous five-year average.

“Nationally, the volume of housing sales is coming off record highs but there is some diversity across the capital cities in these figures as well. Our estimate of sales activity through the March quarter is 39% lower than a year ago in Sydney and 27% lower in Melbourne, while stronger markets like Brisbane and Adelaide have recorded a rise in sales over the same period.”

Regional Australia continues to show some resilience to a slowdown with housing values across the combined regional areas rising at more than three times the pace of the combined capital cities through the March quarter. Regional dwelling values increased 5.1% in the three months to March, compared with the 1.5% increase recorded across the combined capital cities. The rolling quarterly growth rate in regional dwelling values has consistently held above the 5% mark since February 2021.

Australian Bureau of Statistics (ABS) regional population growth figures for FY2020-21 help explain the strong housing conditions outside of the capitals. The number of people living in regional areas of Australia increased by almost 71,000 residents, while residents living in the capitals fell by approximately 26,000 (mostly due to a sharp drop in Melbourne and, to a lesser extent, Sydney).

 

 

Trends in property listings continue to help explain the divergence in housing growth trends.

Advertised inventory, at a national level, is tracking 30% below the previous five-year average over the four weeks ending March 27. However, a more detailed analysis of each capital city highlights significant differences in the total number of homes available to purchase.

In Melbourne, total advertised supply was 8% above the previous five-year average towards the end of March, while the number of homes available to purchase in Sydney had virtually normalised to be 7.5% higher than a year ago and only 2.6% below the five-year average. Higher stock levels across these markets can be explained by an above average flow of new listings coming on the market in combination with a drop in buyer demand.

“With higher inventory levels and less competition, buyers are gradually moving back into the driver’s seat. That means more time to deliberate on their purchase decisions and negotiate on price,” Mr Lawless said.

In contrast, advertised stock levels in Brisbane and Adelaide remain more than 40% below the previous five-year average levels and around 20% to 25% down on a year ago. It’s a similar scenario across regional Australia, where total advertised housing stock was 22% below last year’s level and 43% below the previous five-year average. Such low inventory levels along with persistently high buyer demand continues to create strong selling conditions in these areas, supporting the upwards pressure on prices.

Rental trends are becoming increasingly diverse across Australia. At a macro level, rents are still rising at well above average rates. While annual rental growth has eased from a recent peak of 9.4% in November last year to 8.7% over the 12 months ending March 2022, the quarterly pace of growth has rebounded through the first quarter of the year, from 1.9% in Dec 2021 to 2.6%
in March 2022.

The rebound is partly seasonal as rental trends tend to be stronger through the first quarter of the year, but there are other factors at play including stronger conditions across the medium to high
density rental sector.

The rate of growth in unit rents has strengthened to reach a cyclical high of 3.0% in the March quarter, rising at a materially faster pace than house rents (2.4%). The stronger rental conditions across the unit sector demonstrates a remarkable turnaround in rental conditions across higher density markets, where rents fell sharply through the first nine months of the pandemic.

“Through the pandemic to-date, capital city house rents have risen by 13.8% compared with a 3.4% rise in unit values,” Mr Lawless said.

 

“The net result is that renting a unit is substantially more affordable than renting a house. This affordability advantage, along with a gradual return of overseas migration, employees progressively
returning to offices and inner city precincts regaining some vibrancy, are likely key factors pushing unit rents higher,” Mr Lawless said.

Sydney is now recording the strongest lift in unit rents, up 8.3% over the 12 months to March following a 7.2% peak to trough fall in the first half of the pandemic. Similarly, Melbourne unit rents are
up 6.9% over the past year after posting an 8.5% peak to trough fall.

With national rents up 2.6% over the March quarter and housing values rising by a lower 2.4%, gross yields have posted a rare rise in March, up two basis points from a record low of 3.21% in January and February to 3.23%. If rents continue to outpace housing values, which is likely if the housing market moves into a downturn, yields will continue to recover.

The housing market has transitioned from an upswing generally characterised by a strong and broad-based rise across the regions of Australia, to one best described as multi-speed.

At one end of the spectrum Australia’s two largest cities, Sydney and Melbourne, are recording flat to falling housing values, while at the other is Brisbane and Adelaide, where the quarterly pace of growth continues to rise at an annualised pace of more than 20%. Perth too is re-accelerating off a low base, which can, at least partially, be attributed to state borders re-opening, and regional markets are mostly strong as population growth runs up against low available supply levels.

Despite the diversity, the outlook for housing remains skewed to the downside.

 

• Rising fixed term mortgage rates and the prospect of higher
variable mortgage rates later this year are only part of the reason why housing markets are likely to soften as 2022 progresses. Other factors include:

Affordability – With housing values rising so much more than incomes over the past two years, it has become harder for prospective buyers to access the market. Saving for a deposit and funding transactional costs is a significant hurdle for a growing number of prospective buyers.

Inflation – Higher costs of living are also likely to weigh on housing demand. Higher inflation implies less disposable income and lower household savings which could make it harder for prospective buyers to raise a deposit and demonstrate their ability to service a new loan commitment. A surge in household savings through the pandemic has been a supporting factor for housing demand, however as the economy returns to the new normal, households are saving less; a trend likely to become more pronounced through the year.

Higher supply – Both newly constructed dwellings and a rise in advertised listings is likely to gradually skew housing market conditions in favour of buyers, providing more choice and an opportunity to negotiate with less urgency around decision making.

Sentiment – Consumer confidence has taken a turn for the worse over recent months, with the weekly reading from ANZ and Roy Morgan falling to the lowest level in about 18 months. Historically, consumer sentiment and housing market activity have shown a close relationship. Below average sentiment, along with slowing housing markets and the prospect of rising interest
rates, is likely to cause prospective buyers to think twice before engaging with the housing market.

However, there are other factors that should help to offset the downside risk.

• A strengthening economy, low jobless rate and rising income growth – This should help to keep a floor under housing demand and keep the number of distressed listings to a
minimum through a downturn.

• A new round of incentives for first home buyers – In the leadup to the federal election both major political parties have already announced additional support for first home buyers in
the form of an extension to low deposit home loan guarantees. Historically, first home buyers have reacted positively to stimulus measures.

A return of migration – Higher overseas migration is a net positive for housing demand. The most immediate flow through is likely to be seen in higher rental demand which could
incentivise investors and, in the longer term, flow through to purchasing demand from permanent migrants.

 

CoreLogic is the largest independent provider of property information, analytics and property-related risk management services in Australia and New Zealand.

Methodology

The CoreLogic Hedonic Home Value Index is calculated using a hedonic regression methodology that addresses the issue of compositional bias associated with median price and other measures. In simple terms, the index is calculated using recent sales data combined with information about the attributes of individual properties such as the number of bedrooms and bathrooms, land area and geographical context of the dwelling. By separating each property into its various formational and locational attributes, observed sales values for each property can be distinguished between those attributed to the property’s attributes and those resulting from changes in the underlying residential property market. Additionally, by understanding the value associated with each attribute of a given property, this methodology can be used to estimate the value of dwellings with known characteristics for which there is no recent sales price by observing the characteristics and sales prices of other dwellings which have recently transacted. It then follows that changes in the market value of the entire residential property stock can be accurately tracked through time. The detailed methodological information can be found at:

https://www.corelogic.com.au/research/rp-data-corelogichome-value-index-methodology/

CoreLogic is able to produce a consistently accurate and robust Hedonic Index due to its extensive property related database, which includes transaction data for every home sale within every state and territory. CoreLogic augments this data with recent sales advice from real estate industry professionals, listings information and attribute data collected from a variety of sources.

 

About the data
Median value refer to the 50th percentile of valuation estimates observed in the region Growth rates are based on changes in the CoreLogic Home Value index, which take into account value changes across the market Only metrics with a minimum of 20 sales observations and a low standard error on the median value have been included Data is at March 2022

 

 

Median value refer to the 50th percentile of valuation estimates observed in the region
Growth rates are based on changes in the CoreLogic Home Value index, which take into account value changes across the market
Only metrics with a minimum of 20 sales observations and a low standard error on the median value have been included
Data is at February 2022

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Grim Warning for Aussie Homeowners: Rate Relief Still Distant

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Grim Warning for Aussie Homeowners: Rate Relief Still Distant

 

By Robert Heyward

Australian homeowners facing mortgage stress may have a longer wait for relief, with a leading industry forecaster warning that interest rate cuts could still be many months away. Oxford Economics Australia predicts the Reserve Bank of Australia (RBA) won’t begin cutting rates until the second quarter of 2025, far beyond the late 2024 cut expected by other forecasters, including the Commonwealth Bank.

“Given the RBA’s hawkish rhetoric, we don’t see rate cuts coming until Q2 2025,” said Sean Langcake, head of macroeconomic forecasting at Oxford Economics Australia, ahead of the firm’s biannual economic outlook. Langcake points to “strong cross currents” in the economy as the reason for the delayed cut, with policymakers navigating a “challenging” environment.

He noted that the labour market’s resilience is testing the RBA’s cautious approach to curbing inflation, while a significant easing of fiscal policy is providing a boost to the economy, potentially complicating efforts to keep inflation in check.

Despite the RBA’s efforts to lower inflation to its target range of 2-3 per cent, Langcake expects headline inflation to remain high at the end of 2024. However, he warned that subsidies for utilities, which have contributed to disinflation, may cause the RBA to overlook the headline data.

RBA’s Tightening Cycle and Homeowner Struggles

The RBA implemented an aggressive rate tightening from May 2022 to combat rising inflation, lifting the benchmark cash rate from 0.1 per cent to 4.35 per cent by November 2023. Although the rate has been on hold since then, RBA Governor Michele Bullock has emphasised that any future cuts will require significant changes in inflation trends.

“We’ve seen from overseas experience how bumpy inflation can be on the way down,” Bullock said after the Board’s August meeting. “What we can say is that a near-term reduction in the cash rate doesn’t align with the board’s current thinking.”

The series of rate hikes has placed immense pressure on homeowners, many of whom are struggling to keep up with increased mortgage payments. According to RateCity, monthly repayments on a $500,000, 30-year mortgage have risen to $3,105 as of June 2024, compared to $1,989 in March 2022—an increase of $1,116 per month.

Worryingly, the value of home loans in arrears (30 to 89 days behind on payments) has surged, rising to $14.9 billion by June 2024, up from $5.9 billion in March 2022, according to APRA data. Laine Gordon, money editor at RateCity, acknowledged the growing financial strain on some Australian households: “Despite record high levels of savings, some families are dipping into their savings to keep up with rising cost-of-living pressures.”

However, Gordon emphasised that non-performing loans still represent a relatively small portion of overall credit, accounting for just 1.03 per cent of all outstanding loans in the June 2024 quarter, up slightly from 0.91 per cent pre-COVID.

Australia’s Inflation Battle

Australia’s inflation fight contrasts with that of other major economies, such as the United States, where the Federal Reserve is widely expected to cut interest rates in the near future. The Commonwealth Bank still expects the RBA to begin easing rates in late 2024, although it acknowledges there is a risk that rate cuts could be delayed until early 2025.

“We remain of the view that softer economic data, a further deceleration in inflation, and the easing of monetary policy by many other central banks will see the RBA begin to cut interest rates later in 2024,” the Commonwealth Bank’s latest report states, though it notes a possible start date in early 2025.

As homeowners continue to grapple with rising costs, the outlook for interest rate relief remains uncertain, leaving many Australian households bracing for prolonged financial pressure in the months to come.

 

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Fixed-Rate Home Loans: A Short-Term Gain, Long-Term Pain?

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Fixed-Rate Home Loans: A Short-Term Gain, Long-Term Pain?

 

Robert Heyward

 The recent round of fixed-rate home loan cuts from major Australian banks may seem like an attractive option for prospective homeowners, but experts caution that these offers may not be the long-term solution many hope for. As the market continues to grapple with high inflation, rising interest rates, and sluggish wage growth, affordability in major cities remains a significant challenge.

While concerns about further rate hikes eased after the Reserve Bank of Australia (RBA) held rates steady at 4.35% earlier this month, banks such as Westpac, National Australia Bank, Commonwealth Bank, Macquarie, and HSBC have all slashed fixed-rate mortgage offers. This has prompted renewed interest, though demand for fixed rates remains low. According to Mortgage Choice, only 3% of home loan submissions in August had a fixed component, with variable rate loans continuing to dominate at 97%.

Fixed-rate home loans, popular with first-home buyers, allow borrowers to lock in a repayment rate for one to five years, offering financial stability. In a competitive market, banks are eager to attract customers with fixed-rate products, hoping to secure long-term borrowers. This uptick in competition is a positive sign for homebuyers and those refinancing.

Luke Camilleri, a Mortgage Choice broker based in Sydney, sees the cuts as an opportunity to reintroduce fixed-rate options to clients. “For the past two years, fixed rates have rarely been part of the conversation,” he says. However, he also warns that it may be premature to embrace fixed rates wholeheartedly. With the RBA yet to cut rates, it’s unclear how the market will evolve over the next 6 to 12 months.

Economic Uncertainty Clouds Long-Term Prospects

Although the resurgence of fixed-rate products is beneficial for short-term planning, the long-term outlook remains uncertain. Anne Flaherty, a senior economist at PropTrack, points out that while lower fixed rates from banks may signal expectations of future RBA cuts, there is no guarantee. As such, locking in a longer-term fixed rate now may carry financial risk if variable rates fall in the future.

Mr. Camilleri echoes this sentiment, advising clients to limit fixed-rate terms to two years at most. “It’s not ideal to commit to a long-term fixed rate right now,” he says, urging homebuyers to consider the possibility that their variable rate could match or drop below their fixed rate, avoiding the long-term commitment to potentially higher payments.

Fixed Rates: Comfort Over Cost?

Despite the risks, some borrowers are still drawn to fixed-rate options for the certainty of fixed repayments, regardless of where the market heads. “People choose fixed rates not necessarily to ‘win’ on the interest rate, but for the security,” says Camilleri.

While long-term fixed rates remain a gamble, short-term fixed rates could offer a temporary win for those looking to hedge their bets. Flaherty notes that many banks are currently offering one-year fixed rates lower than variable rates, providing homeowners with short-term savings while maintaining flexibility for the future.

Ultimately, while fixed-rate home loans may offer immediate relief, the broader market landscape suggests they may not be the best long-term strategy. First-home buyers and refinancers should remain cautious, weighing their options carefully before locking in a rate in this unpredictable economic climate.

 

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Australian Home Values Hit Record $10.9 Trillion, with Every State Except One Seeing Gains

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Australian Home Values Hit Record $10.9 Trillion, with Every State Except One Seeing Gains

 

Australia’s housing market surged by $225.9 billion in the June quarter, pushing the total value to an unprecedented $10.9 trillion. New figures from the Australian Bureau of Statistics (ABS), released on Tuesday, reveal that the national average home price increased by $15,600 to $973,300 during the three months to June. However, while most states enjoyed substantial windfalls, one state saw a decline.

The continuous rise in home prices is deepening the affordability crisis for prospective buyers, with home values growing faster than many can save from their paychecks. “The cost of housing continues to rise even as interest rates remain at a 12-year high,” said Cameron Kusher, Director of Economic Research at PropTrack, in an interview with realestate.com.au. “This is making homeownership even more difficult to achieve for many.”

For current homeowners, however, the climbing property values are seen as a positive development. “Those who already own properties are generally pleased to see their equity grow,” Kusher noted. Nonetheless, the ABS data points to a slowdown in the rate of price growth across the country, aligning with broader trends tracked by the PropTrack Home Price Index.

Some of Australia’s smaller states witnessed the most dramatic price increases. In Western Australia, the average home price jumped by a staggering $47,700 to $816,000 in just three months—equivalent to an increase of over $500 per day. Kusher attributed this to strong demand coupled with a limited supply of available homes. “There’s a desperation among buyers, driven by fear of missing out, as they worry that waiting longer could mean paying significantly more,” he explained.

South Australia and Queensland also saw robust growth, with home values rising by $32,400 to $800,400 and $30,500 to $885,400, respectively.

Meanwhile, New South Wales saw more modest gains, with the average home price increasing by $11,500 to $1.222 million. Victoria, however, was the only state where home prices fell, with the average price dropping by $6,600 to $900,300 during the same period. Kusher explained that Victoria’s market has been flooded with properties, reducing the urgency for buyers. “Unlike in WA, buyers in Melbourne don’t feel the same level of pressure. With ample stock available, they are willing to wait, hoping for better deals,” he said.

Other regions saw moderate growth in home values. In the ACT, prices rose by $7,600 to $953,900, while Tasmania saw a smaller increase of $3,600 to $672,600. The Northern Territory remained the most affordable, with a $7,600 increase bringing the average price to $538,000.

Looking ahead, Kusher expects home values to continue rising into the September quarter, though at a more gradual pace. “The rate of growth is slowing as more stock comes onto the market, but we anticipate further increases, albeit at a more moderate rate,” he said.

With the housing market showing no signs of cooling off, the ongoing affordability challenge and Australian Home Values remains a major concern for those looking to break into the property market.

 

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