Since moving through a peak rate of growth in November 2016, capital gains across Australia’s housing market have been losing momentum, with national dwelling values unchanged over the month of October.
For October, conditions were flat across both the combined capital cities and the combined regional areas of Australia, however over the past twelve months growth in the capital cities (+7.0%) has outperformed the regional areas (+4.9%).
Index results as at October 31, 2017
CoreLogic head of research Tim Lawless said, “The slowdown in the pace of capital gains can be attributed primarily to tighter credit policies which have fundamentally changed the landscape for borrowers.”
“Lenders have tightened their servicing tests and reduced their appetite for riskier loans, including those on higher loan to valuation ratios or higher loan to income multiples. Additionally, interest only borrowers and investors are facing premiums on their mortgage rates which are likely to act as a disincentive, especially for investors who are generally facing low rental yields on investment properties.
“In fact, the peak rate of growth in dwelling values lines up closely with the peak growth rate for investment lending in late 2016. We saw the housing market respond in a similar fashion through 2015, and the first half of 2016 as investors faced tighter credit conditions following the announcement from APRA that lenders couldn’t surpass a 10% speed limit on investment lending.”
“Of course, housing market conditions rebounded swiftly through the second half of 2016 once the investment related credit limits were achieved and the cash rate was adjusted lower in May and August last year” Mr Lawless said.
Sydney joins Perth and Darwin as the only cities to record a fall in dwelling values over the past three months
While most of the broad regions are experiencing a slowdown in the rate of capital gains, only three capital cities have recorded a negative movement in values over the three months ending October: Sydney (-0.6%), Perth (-0.7%) and Darwin (-4.4%). Mr Lawless said, “Seeing Sydney listed alongside Perth and Darwin, where dwelling values have been falling since 2014, is a significant turn of events.”
This is the first rolling quarterly fall recorded in Sydney dwelling values since May 2016, when the first round of macro-prudential changes were still working their way through credit policies, and mortgage rates were only just starting to reduce in line with the first cut to the cash rate. Despite the recent downshift in values, Sydney dwelling values are up 74% since the growth cycle commenced in early 2012.
Melbourne conditions remain resilient relative to Sydney
For Melbourne’s housing market, conditions have remained much stronger relative to Sydney; dwelling values were 0.5% higher over the month to be up 1.9% over the rolling quarter. Mr Lawless attributes this resilience to Victoria’s record breaking migration rate, which is creating unprecedented housing demand. Additionally, strong jobs growth and a healthier level of housing affordability relative to Sydney are also supporting continued growth in housing values in Melbourne. “Despite the stronger growth profile, Melbourne dwelling values are now rising at their slowest quarterly pace since mid-2016,” Mr Lawless said.