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After two years of exceptional house price appreciation, CoreLogic-Moody\u2019s Analytics Australian Forecast Home Value Index<\/strong> shows a slowdown in house-price growth across the country underpinned by expectations of slower income growth. In today’s show we talk with Tim Lawless<\/strong> from CoreLogic RP Data.<\/p>\n <\/p>\n Kevin<\/b>:\u00a0 After two years of exceptional house price appreciation, CoreLogic-Moody\u2019s Analytics Australian Forecast Home Value Index shows a slowdown in house-price growth across the country underpinned by expectations of slower income growth. Joining me now to discuss the report and some of the findings is Tim Lawless from CoreLogic RP Data.<\/p>\n Tim, thanks for your time.<\/p>\n Tim<\/b>:\u00a0 Thanks, Kevin, for having me on the show.<\/p>\n Kevin<\/b>:\u00a0 It\u2019s a pleasure, mate. While there might be a bit of a short-term slowing, the report shows stability in the medium term. Is that correct?<\/p>\n Tim<\/b>:\u00a0 That\u2019s right, and stability in the sense that as we see the housing market slow down in its pace with capital gains, we aren\u2019t likely to see any sustained declines across any of the capital cities. In fact, if we look at even the cities where growth has been the highest, in Sydney and Melbourne, by 2017, for example, those cities are likely to start seeing their annual growth rates more around the rate of inflation, around 1.5% to 2.5%.<\/p>\n Kevin<\/b>:\u00a0 So, a bit more stability, you think, as opposed to those big increases?<\/p>\n Tim<\/b>:\u00a0 That\u2019s right, and there are no surprises there after such strong capital gains. Look at Sydney. We\u2019ve seen values rise by nearly 75% since the beginning of 2009 at a time when household incomes aren\u2019t growing all that much, so it shouldn\u2019t come as any surprise to see the rate of growth moderating back to a more moderate or sustainable level.<\/p>\n Kevin<\/b>:\u00a0 Yes, just talking about those phenomenal growths in the Sydney market, there has been talk recently that if it does slow a bit in Sydney \u2013 which you’re saying it\u2019s likely to \u2013 the regional outlook might look a little bit better. Would you go along with that?<\/p>\n Tim<\/b>:\u00a0 Yes, absolutely. The regional markets, of course, are really diverse, so we\u2019re still seeing softness in the regional area associated with the mining and the resources sectors. We see the big wind down in infrastructure projects and spending in those markets.<\/p>\n But the lifestyle markets in the secondary cities, like Newcastle and so forth, look at somewhere like Byron Bay or the Gold Coast, any of those markets are really showing quite a positive trend now. We wouldn\u2019t expect the same slowdown to be occurring in those markets partly because growth previously hasn\u2019t been anywhere near as strong as what it\u2019s been in Sydney, but also because we are seeing some improvement in the underlying fundamentals of demand.<\/p>\n Kevin<\/b>:\u00a0 I\u2019ll ask you to give us an overview in just a moment about some of the cap cities and what the outlook is for those going forward, but just before we do, you mentioned mining regions. What does the report say about how they\u2019re faring?<\/p>\n Tim<\/b>:\u00a0 Well, the forecast themselves don’t drill down specifically the mining areas, but there\u2019s plenty of other indicators that show the mining regions have certainly softened substantially. This is after a backdrop of leading up to 2012, 2013, some very significant capital gains largely driven by investment, so of course, areas like Moranbah and Mackay, urban WA areas like Pilbara, Karratha, and Port Hedland have all seen value falls of upwards of 20% to 30%, so steep declines.<\/p>\n But there are some signs showing that these markets might be starting to level in their declines. No signs of any capital gains coming just yet, but potentially, the worst of conditions may have passed in those markets.<\/p>\n Kevin<\/b>:\u00a0 Tim, let\u2019s talk about borrowing just for a moment because I know the report deals with that. Are we borrowing more for our properties, or are we getting better at saving for higher deposits?<\/p>\n Tim<\/b>:\u00a0 Well, it\u2019s a bit of both. We are seeing households devoting more of their incomes towards housing, and that\u2019s a symptom of the strong capital gains we\u2019ve seen in the higher prices. There are some affordability challenges particularly in a market like Sydney, where even between say Sydney and Melbourne, there\u2019s a 33% difference, so a one-third difference in typical pricing. Between Sydney and Brisbane, it\u2019s more like two-thirds, despite the not much difference between household incomes.<\/p>\n But in the same sense, we are seeing households also focusing on savings. We\u2019re still seeing the household savings ratio relatively high compared to where it used to be pre-GFC. Households are still saving roughly around 8% of their incomes. That\u2019s down from nearly 11% around 2009.<\/p>\n Kevin<\/b>:\u00a0 Of course, we heard recently about the banks tightening their regulations on borrowings from investors. Has that had any impact that you can see?<\/p>\n Tim<\/b>:\u00a0 It has had an impact. I think it\u2019s been quite a profound impact. You remember, APRA introduced their speed limits on the pace of investment growth back in December 2014. They aimed to limit the pace of an investment portfolio credit growth to 10% per annum.<\/p>\n It took a long time for that to get down below 10%, even though, it wasn’t substantially above 10%. But based on the latest data, up to January, we\u2019ve seen the pace of investment lending slow down to just below 8% now, so potentially, we might start to see the banks loosening the purse strings just a little bit for investor lending thanks to the fact that they\u2019re down now well below that APRA speed limit.<\/p>\n Kevin<\/b>:\u00a0 Let\u2019s stay with investors just for a moment. What do you think the outlook is for property investors as opposed to owner-occupiers?<\/p>\n Tim<\/b>:\u00a0 Well, I wouldn\u2019t be surprised if we do continue to see a further moderation in the number of investors or the value of investor loans that are being committed to in the market. But keep in mind that we saw investments as a proportion of all new mortgages peak at about 55% in May last year, and that\u2019s since drifted down to about 45%.<\/p>\n The long-run average, you generally expect investors to comprise about a third of all market activities, so it\u2019s still relatively elevated. I wouldn\u2019t be surprised if we do see the proportion of investors in the market drift a little bit lower \u2013 not just because of the premium on investor loans based on the higher capital requirements but also because the serviceability standards really are getting tighter from the lending sector.<\/p>\n But another factor, of course, is just the natural cyclical effect of the market. We\u2019ve seen rental yields compress to record lows in Sydney and Melbourne, and of course, affordability barriers, particularly in Sydney also acting as some disincentive in that city.<\/p>\n Kevin<\/b>:\u00a0 Tim, if we could just have a quick look around Australia at some of the cap city markets, what does the report say about how they\u2019ve been faring and what\u2019s ahead for them?<\/p>\n Tim<\/b>:\u00a0 Well, we just touched on Sydney. Our forecast for Sydney by the end of 2016 is a growth rate probably around 2%, 2.5% average over the year.<\/p>\n Whereas, Melbourne is forecast to be much more resilient. It\u2019s currently tracking at about 11% growth per annum, and by the end of the year, we would expect that to drop down to around 7%, so still a relatively strong level of growth. But of course, by 2017, we\u2019re going to start to see the effect of higher supply levels and a lower level of jobs creation starting to pull that rate of growth back to the mid 1% mark, about 1.3% in our forecasts.<\/p>\n There are some markets that we are forecasting to actually accelerate in their growth rates, though. Brisbane, for example, is likely to see growth by 2016 pick up to the mid 4%, and by 2017 by nearly 8% growth.<\/p>\n Hobart, which has been a real underperformer, is now starting to show some really positive signs. We\u2019re expecting a growth rate of about 6.6% this year, and then lifting to about 7.5% by 2017. Hobart values are still roughly level with where they were back in 2009, so that\u2019s a turnaround that\u2019s been a long time coming.<\/p>\n But of course, markets like Perth and Darwin that are well into their down phase, we\u2019re expecting values to fall further this year before starting to bottom out late this year, and then showing some rises through 2017. But of course, that\u2019s provisional on seeing commodity prices bottom out and then starting to rise in 2017, as well.<\/p>\n Kevin<\/b>:\u00a0 Tim, a great outlook there for a number of those cap city markets. I want to thank you for giving us your time today to talk about that report. My guest has been Tim Lawless from CoreLogic RP Data.<\/p>\n Tim, thanks for your time.<\/p>\n Tim<\/b>:\u00a0 Thanks again, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":" After two years of exceptional house price appreciation, CoreLogic-Moody\u2019s Analytics Australian Forecast Home Value Index shows a slowdown in house-price growth across the country underpinned by expectations of slower income growth. In today’s show we talk with Tim Lawless from CoreLogic RP Data. …<\/p>\n","protected":false},"author":176692473,"featured_media":7507,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[10,11,13,36,22,25,27],"tags":[101],"class_list":["post-25278","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment-topic","category-research-topic","category-sponsored-channels","category-trends-topic","tag-podcast"],"yoast_head":"\nTranscript:<\/h4>\n