While Sydney and Melbourne have grabbed most of the attention for the strong growth in dwelling values over recent years and the value falls more recently, Hobart has actually been the best performed capital city market in terms of value growth over recent years.  While Hobart has seen strong growth on the back of an affordable housing market, much of that affordability advantage has now been eroded and there are some early signs that the market may now be set to weaken.

Value premium for other capital cities relative to Hobart

 
With a median dwelling value of $435,833 Hobart remains the most affordable capital city in the country however, that affordability advantage has been substantially eroded over recent years.  Sydney and Melbourne remain substantially more expensive than Hobart however, the value gap compared to both cities hasn’t been this narrow since 2013.  It is the capital cities outside of Sydney and Melbourne where the value gap has narrowed significantly over recent years.  Brisbane median values are currently just 13% higher than Hobart’s (the narrowest gap since 1988), while Adelaide values are just 1% higher than those in Hobart, the narrowest gap since late 2006.  Perth values are currently 5% greater than Hobart’s, Darwin values are 1% higher and Canberra values are 35% higher.  The last time the value gaps were so narrow were: mid-2004 for Perth, mid-2005 for Darwin and early 1998 for Canberra.  Affordability was a big driver of growing demand for housing in Hobart over recent years.  With strong increases in dwelling values that affordability advantage has now largely been eroded.

Quarterly and annual change in dwelling values, Hobart

 
Over the three years to July 2018, Hobart dwelling values have increased by 32.4% which is a significantly greater increase in values than Melbourne (the city with the second largest increase in values over the same period) in which values increased by 18.7%.  The latest quarterly data shows that values increased by 1.1% over the three months to July 2018, the slowest rate of quarterly growth since July 2016.  Furthermore, although dwelling values are 11.5% higher over the past 12 months, which makes Hobart the region with the nation’s strongest value growth, it was the slowest annual rate of growth for the city since February 2017.  The trends in the data are certainly pointing to some weakness starting to appear in the Hobart market.

Change in dwelling values from peak by deciles, to July 2018

 
Looking at CoreLogic’s Hedonic Index across valuation deciles, it becomes even clearer that some weakness is beginning to emerge in the Hobart market.  The above chart breaks Hobart properties into 10 even segments based on their value with the 1st decile reflecting the most affordable ten percent of properties and 10th decile representing the most expensive properties ten percent of properties.  Any weakness in the Hobart market is apparent across the more expensive properties with the top 10% of properties having already recorded a fall of -1.5% from their peak.  At this stage values continue to rise across the most affordable properties in the city.

Rolling 28 day count of total properties listed for sale, Hobart

 
A significant driver of the growth in dwelling values over recent in Hobart has been the distinct lack of properties for sale. Although value growth is starting to slow, there remains little stock for sale in Hobart which should, to some degree, support upwards pressure on prices.  While total properties listed for sale remains low, advertised supply levels have started to increase over recent weeks and head back towards levels from a year ago.  Perhaps this reflects that as market conditions are starting to slow a little an increasing number of buyers are now looking to sell.  

Monthly dwelling approvals with 6 month average trend, Hobart

 
Finally, another contributor to increasing dwelling values have been the fact that as demand for housing in Hobart has climbed there has been very little increase in new housing.  Belatedly, dwelling approvals are now starting to trend much higher indicating that supply is starting to increase which should also have an impact on the rate of value growth in the city.

The deterioration in housing affordability in Hobart over recent years which has led to the loss of its value advantage relative to other capital cities looks to now be indicating that a housing slowdown is imminent.  At this stage values are increasing, albeit at a slower pace and stock for sale remains low which means, at least for now, a severe slowing of conditions such as those seen in Sydney and Melbourne is unlikely to occur.  Nevertheless, stock for sale is rising, as is the new supply of housing is rising and signs of market weakness are appearing across the higher value areas of the city.  Given this we would expect that growth in dwelling values in Hobart is set to be much slower over the coming years than it has been over the past three or so years.