Capital Markets Report

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Executive Summary

Australia's housing market has broadly been in an upswing since June 2012, with dwelling values across CoreLogic'scombined capital city index having increased by 22.2 per cent through to January 2015. While the headline growth rate has been strong, the market shows a great deal of diversity with Australia's two largest cities, Sydney and Melbourne, showing a substantially higher rate of growth than the other capital cities.

Coastal and lifestyle markets are gradually recovering from previously soft conditions while markets associated with the mining and resources sector have softened substantially. With mortgage rates at their lowest level since 1968, and potentially moving lower over the year, we are expecting some further stimulus to housing market conditions, however there is likely to be some counter balance from declining housing affordability, weaker rental yields and tigher lending conditions as federal regulators step up their vigilance on lending standards.

According to the CoreLogic Home Value Index, home values across the combined capital cities increased by 8.0 per cent over the 12 months to January 2015. The annual rate of growth has slowed over recent months after hitting a peak of 11.5 per cent over the year to April 2014.

Over recent growth phases we have consistently witnessed growth in the value of houses outpacing that of units. Although growth in unit values has been slower than that for houses, we are observing a growing appetite for units, particularly in the inner city areas of major capital cities. While units may not have a history of recording stronger capital growth than houses, they tend to see higher rental yields as well as having a lower purchase price than is achieved for detached houses.

As Australia's $1.4 trillion mortgage market continues to grow and evolve, underpinning Australia's $5.7 trillion dollar residential property market, regulators, policymakers, analysts and investors are becoming increasingly sophisticated in analysing and understanding the component parts of each respective market. On page 16, Craig Mackenzie, Executive GM Commercial & Legal, CoreLogic looks at the impact oacf market access to more granular and timely data. In the old days, the market would essentially only find out, typically on a half yearly basis, how much home values had increased across the combined capital cities and how much new lending had taken place over the prior period. Things have certainly changed.

The underlying mortgage market is healthy, supported by low interest rates, and dynamics ensure good interest from issuers and investors alike. New regulation is conducive to further development of the RMBS market in 2015 and beyond. Last year Australian RMBS issuance hit $32 billion, its highest level since the global financial crisis (GFC), said Chris Dalton, chief executive officer (CEO) of the Australian Securitisation Forum, in an analysis of the RMBS market on page 18. It isn't widely appreciated but Australia had the highest issuance of private label RMBS around the world.

Further afield, low rates and job growth are set to propel the US property market in 2015, according to Frank E. Nothaft, Chief Economist, Information Solutions at CoreLogic. On page 19 he predicts that the US economy is poised to grow at about a 3.0 per cent pace in 2015, generating a 3 to 4 million gain in employment. This job growth, coupled with low mortgage interest rates and easier credit access, are expected to propel both owneroccupant and rental housing activity. This heightened level of housing demand should translate to the best home sales market in eight years, a rise of 5 to 6 percent in US houseprice indexes, and mortgage originations that will likely be higher than last year.

Sydney is undoubtedly the star of the State by State breakdown on page 20 recording the greatest increase in home values amongst all Australian capital cities with values increasing by 13.0 per cent over the past 12 months. Sydney house values have recorded a higher level of growth than units, increasing by 13.8 per cent over the year as opposed to 9.9 per cent for units.

However, despite strong gains in Sydney and Melbourne, prices were flat to slightly higher in most regions, with capital city dwelling prices rising 7.9 per cent across calendar 2014. Glenn Levine, Senior Economist at Moody's Analytics looks at the road ahead as the February interest rate cut, and the likelihood of another such move before midyear, will continue to support prices.

Finally, our economic overview of the Australian economy finds that the rate of economic growth has slowed over recent years as investment in the resources sector has moderated.

This is the Executive Summary from the CoreLogic Property Capital Markets Report. The report includes:

  1. Introduction
  2. Executive summary
  3. Housing market overview
  4. State by State analysis
  5. Economic overview