The decline is ‘declining’ – Tim Lawless

The CoreLogic hedonic home value index results released today reveal that the pace of declining property values has eased relative to the past four months. However, CoreLogic head of research Tim Lawless says that the market downturn has become geographically more widespread, with housing values lower across six of the eight capitals and five of the seven ‘rest of state’ markets over the month.  Tim is along with all the details.
Kevin:  The pace of declining property values has eased relative to the past four months according to CoreLogic’s Hedonic Home Index. The CoreLogic head of research, Tim Lawless, noted that the market downturn has become geographically more widespread. He joins me to talk about that. Tim, welcome to the show.
Tim:  Hi, Kevin.
Kevin:  What do you mean by that? What leads you to that conclusion, Tim?
Tim:  I think there’s two broad themes that we’re seeing in the data at the moment. One is that we’ve probably moved through the worst of the downturn and the fact that we are seeing the rate of decline is just starting to ease off a little bit. What we’re seeing at the same time is that more regions around Australia are moving into either flat conditions or negative annual growth. You can see that in some markets that have been really sustainable and quite affordable in their housing conditions, like Brisbane and Adelaide. For example, Brisbane values are now down a little more than one percent over the past 12 months. Adelaide values have tracked a little bit lower over the quarter. We’ve seen a lot of steam and a lot of momentum coming out of that market over the past year.
Kevin:  If there is a downturn, is it just in the city areas? Or is it … You’re indicating that it’s more widespread, so spreading into the regions, Tim.
Tim:  It is. Absolutely. There’s a few trends we’re seeing across the regions. A really broad brush way to look at the regions around Australia is there’s about 42 individual SA4 subregions around the country and only 18 of those regions are reporting positive annual growth now. The areas that values are still rising tend to be around Tasmania and areas fringing Melbourne, areas like Geelong, Ballarat, Bendigo, Latrobe for example, are still showing some decent growth, as well as regional Tassie. Also, some of the markets around, say for example, you can see the Riverina, around New South Wales. Interestingly enough, even though it’s largely an agricultural area, we’ve seen values rise by about five and a half percent the past 12 months.
Tim:  We’re also seeing less weight coming from the mining regions. Those areas were generally dragging the overall regional averages down quite severely. Most of the key mining regions now, around say the Pilbara in WA and the Bowen Basin of Queensland, have now moved back into some level of growth. We are seeing less drag from those areas, as well.
Kevin:  One of the things that it highlights for me is just the cyclical nature of the market, how one day we’re talking about the mining areas being down, the next they’re in transition again. It’s really a moving feast, Tim, isn’t it?
Tim:  Of course, it is. You can just see the absolute diversity in markets around the country. Part of that is related to this phase in the economical cycle and demographic trends. That’s a classic example of the mining towns where commodity prices have bounced back quite nicely. We’re starting to see a little bit more fixed capital investment in those markets.
Tim:  If you look at some of the weaker conditions, generally you’d expect weakness to be caused by either, say, a rise in interest rates or some sort of weakening in economic conditions or a shock like the GFC, but we’re not really seeing any of those factors evident at the moment. The downturn or the weakness that we’re seeing in most markets I think is probably more due to credit availability. This is really a downturn that’s been caused by a drying up or a turning off the tap of finance.
Kevin:  Tim, how does the national index compare to, say, five or even ten years ago?
Tim:  There’s always diversity. Five years ago, of course, the market was still in a very strong growth phase, mostly being driven by Sydney and Melbourne. Remember, Sydney’s annual rate of growth peaked out at nearly 18, 19% in around about 2015, 2014, just before the first round of macro prudential policies rolled through. Melbourne wasn’t really too far behind that. We’re also seeing other markets like Brisbane, Adelaide, Hobart were generally coasting along in a what you’d probably describe as a fairly sustainable rate of capital gains. Come forward five years and we’ve seen a fairly broad based changing of the guard. Hobart is now the best performing marketplace by quite some margin. Canberra is really the only other capital city where values are holding firm and not declining. Over the past 12 months, they’re already up by three percent.
Tim:  There has been a lot of change over the past five years. Ten years ago, of course, we were just coming out of the GFC and there was a lot of stimulus in the market. I’m sure we can all remember the boost of the first home buyer’s grant. You get $14,000 for an established home, with 21,000 for a new home. There was a cash handout to school halls, insulation, all that sort of stimulus. Maybe we’re starting to move towards something a little bit more similar to that. I think when we see the budget being handed down, we probably will start to see some more announcements around tax savings, probably a big spend on infrastructure, policies designed to provide some stimulus to the economy and to the household sector, which hopefully will provide a little bit of buoyancy or at least help to offset some of the headwinds of the housing market.
Kevin:  Your report also indicates the first negative reading since at least May 2005 for the rental market, Tim.
Tim:  Yeah. This is the really interesting component of the housing market at the moment. We saw across the combined capital cities rents over the past 12 months were down by 0.1%. In essence, that was a flat rating. Most of that downwards pressure is coming out of the Sydney market where rents were down three percent, 3.1% over the last 12 months. This is the first period where we’ve actually seen Sydney rents falling on a sustained basis. Our rental series goes back to about 2005.
Tim:  I think what’s happening in markets for rental conditions is probably two things that are conspiring to slow rental growth down. One would be that we’ve seen so much investment in the market, which has introduced more rental stock as well as new construction activity. At the same time, we’ve also seen a little surge of first home buyers back into the marketplace in Sydney and Melbourne due to stamp duty concessions that went live back in July of 2017, as well as the fact that we are seeing more first home buyers holistically because of more affordable housing prices and less competition with investors.
Tim:  I think that’s why we’ve seen rental rates slow down or go negative in Sydney, but most other markets are still seeing rents only rising quite subtly. Melbourne rents were only up two percent the last 12 months. Brisbane was up 1.4%. Adelaide only 1.2%. Generally speaking, quite sluggish rental conditions around the country.
Kevin:  Tim, a great report. Thank you very much for your time. Tim Lawless has been my guest. Tim is the head of research at CoreLogic and reporting on the Hedonic Home Index. Thanks for your time, Tim.
Tim:  Thanks, Kevin.

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