CoreLogic revisions spear Sydney house prices downwards

By Leith van Onselen

Following yesterday’s post on CoreLogic’s daily dwelling values index results for October, CoreLogic has released its full results, which also cover the smaller capitals and regional areas (see next table).

Please note that CoreLogic has revised its daily index, so the values differ from yesterday’s post. Here’s the annual price changes from the old series:

As you can see, Sydney’s annual price change has been revised down heavily, from -6.3% to -7.4%.

More broadly, CoreLogic reports that values across the combined capitals fell by 0.6% in October, driven by a large 0.7% respective decline in Sydney and Melbourne, and an 0.8% decline in Perth.

The combined regions, by comparison, only fell by 0.2% over October.

CoreLogic also shows that capital city quarterly growth (-1.6%) continues to run below regional growth (-0.7%):

Whereas annual capital city growth (-4.6%) is also running well below regional growth (+0.8%):

The below chart shows the declines by price segment, which shows the upper quartile driving the falls:

In its commentary, CoreLogic head of research, Tim Lawless, expects further price falls:

With credit availability remaining tight and rising inventory levels, we are expecting there will be further downwards pressure on housing values as we move through spring and into summer and the New Year.

Advertised stock levels are tracking 10.5% higher relative to the same time last year, with total listing numbers almost 20% higher across Sydney and Melbourne. With total listing numbers likely to push higher over the final quarter of the year, buyers are becoming more empowered and will increasingly find themselves in a stronger position when it comes to negotiating on price.

While stock levels are higher, transactional activity has reduced. CoreLogic estimates that year-on-year, settled sales activity is down 11.5%, leading to a slower rate of absorption through the spring listing season…

Although housing credit originations remain well below the formal APRA targets for investment lending and interest only lending, it’s clear that lenders are also focusing more on loan serviceability and reducing their exposure to borrowers with high debt levels relative to their incomes. These measures can help to explain the underperformance of more expensive housing markets where borrowers may find it more challenging to secure finance…

On the flipside, falling dwelling values has lifted rental yields from historical lows; albeit rental growth remains subdued:

Nationally, gross rental yields are picking up from previous record lows, rising from 3.71% in October last year to reach 3.87% in October 2018. Despite the subtle rise, gross rental yields remain well below their decade average of 4.31%.

A recovery in rental yields back to average levels is likely to take some time, considering national rents have remained relatively flat over the year to date and are only 0.8% higher over the past twelve months.

Rental yields reached record lows in late 2017 due to values consistently rising at a much faster pace than rents through the growth phase. Rental yields were compressed more significantly in Sydney and Melbourne, reaching record low readings of 3.04% and 3.07% respectively in 2017. These cities are still recording the lowest yield profiles at 3.24% and 3.34% at the end of October 2018.

Full report here.

Comments

  1. The worst is over according to ANZ’s chief Economist.

    “ANZ’s Housing Credit Impulse — measuring the change in housing credit growth — suggests home price falls will slow markedly in the months ahead.
    The housing credit impulse, which historically leads changes in house prices, ticked up. “

  2. Any insights as to why Brisbane is holding up? I get that Brisbane usually lags Syd/Melb … but that is not enough to explain what is going on.

      • I have never known Brisbane to be ahead of the trend for anything. Well apart from punk music of course where Brisbane band The Saints is rated along with the Sex Pistols and the Ramones as one of the authentic early punk bands. And that was 1975 in any case


      • Well apart from punk music of course where Brisbane band The Saints is rated along with the Sex Pistols and the Ramones as one of the authentic early punk bands.

        Of course, they made up for that out of character indiscretion when they arrested Dead Kennedys drummer DH Peligro for walking whilst being black during Dead Kennedys first (and only with origingal singer Biafra) Australian tour.

      • Yes – definitely under Sir Joh. Can’t remember exact year – if I had to guess, I’d say 1981.

    • My anecdata says prices are dropping but haven’t really showed up in figures yet. I’m seeing drops in bayside suburbs I’m watching. Also a lot of stock coming onto the market. I suspect there is currently a bit of a standoff between seller expectations and buyer credit availability.
      Of course, you’ll get a bunch of savvy investors from southern states looking for relative bargains and promises of future boom.

    • SupernovaMEMBER

      Possibly because CoreLogic’s numbers for Brisbane includes the retirement capital of Australia….the Gold Coast. So plenty of cashed up retirees from Sydney, Melbourne, Canberra etc moving to the warmer climate overpaying for their retirement property, I guess, would hold up Brisbane’s fall.

      • That was a test. Comments from my normal PC are disappearing into the void as though it’s been banned or something. My phone appears to be working. When I tried to delete this post it just blew up.

        Hello MB guys?

  3. The Sydney and all housing markets are still overly inflated and prices need to fall at least 50% to regain some semblance of sanity. The RBA can not remain comatose for long and rates have to go up as well.

  4. Just to provide some anecdotal evidence from the trenches……my sister lived in North Ryde until a few months ago. Last year places like this were going for $2m+ (obviously due to knock-down and development potential):

    https://www.domain.com.au/366-pittwater-road-north-ryde-nsw-2113-2014676710

    Back then there were no indicative price guides next to the declaration of auction. I’m not sure if they are deliberately putting a low-ball number for indicative pricing and just trying to lure people to the auction but even still, we’re potentially looking at a 30%+ retracement for lil old North Ryde in just over a year if this pricing holds true. I’ll be following closely.

    Just to back these numbers further, I just did a search of all the properties in North Ryde with sale prices of $1.8m – $2.25m (there is a filter in the top right corner of the realestate.com.au website). Check out some of the places that were going for $2m in 2017…..forking insane. Here is the url to save you the hassle – keep scrolling down beyond the first page, some absolute doozies in this lot:

    https://www.realestate.com.au/sold/property-house-between-1800000-2250000-in-north+ryde,+nsw+2113/list-2?activeSort=solddate

    Where does that leave the developers who are carrying this exposure for the 12-18 months it takes to demolish the existing house and slap up 3 townhouses?

    • Wino ShinyfaceMEMBER

      somewhere deeply uncomfortable, there are 3 duplex’s being built on blocks close to me, there are tradesman there 7 days a week and often at night, in an effort to get these things on the market asap

    • Not sure where it leaves them, but I know a shiiter wont be far away. Either that or they will need to change uderwear regularly.

    • Thanks for the links. This house in Denistone recently sold for $1.08mil –

      https://www.realestate.com.au/sold/property-house-nsw-denistone-129204922

      Corner block, not much backyard, but surely this would have gone for 1.2-1.3mil in 2016/17. Walking distance to 2 train stations, shops.

      You will still see houses sell for, say, -5% to 2017 prices. But then a really low ball sale goes through, -20% or worse. And looks like these are starting to pop up.

      It will be interesting to see what happens with this one in Pittwater rd.

    • I guess you have to expect some downside to valuations when Half naked girls with hands bound are dumped in the local kiddies playground. …Kinda hard to make a feature out of that.

    • Where does that leave the developers who are carrying this exposure for the 12-18 months it takes to demolish the existing house and slap up 3 townhouses?

      Family Trusts are more than just a tax rort. They are used to subvert laws (such as divorce, company) that would otherwise hold people financially liable.

      It would be a matter of giving the bird to the banks and winding down the company. Create another company perhaps with the wife as the director, transfer a little startup money from the family trust, and you are on your way again.

    • Most houses in this area look like deceased estates. Former average family homes in which boomers were raised now sold off to the highest bidder (prob international given its Ryde..) Sad.

  5. According to a prominent Sydney realtor in Sydney, banks are instructing multiple property borrowers to substantially reduce their exposure or find another lender ….HANG ON TO YOUR HATS, FOLKS!

    • Source / How fair dinkum? This is of great interest to me because I personally believe that this is the key ingredient for turning gradual house price falls into a crash. If banks decide to “reduce exposure / de risk” (lower LVR’s / smaller loans / tighter lending) together with interest rates gradually increasing due to global funding costs (higher US interest rates) then we have a situation where many over indebted speculators may be forced to sell (cannot afford the current loan & cannot refinance elsewhere). Stock on market balloons, buyers are non existent and prices crash. Then higher unemployment will “follow” as a result.

      I am no expert, but this type of scenario sounds very US bust / GFCish to me. It was this scenario (higher costs & cannot refiance) that turned the US housing from a down turn into a crash that nearly imploded the world banking system. Hence why I am always very interested to hear about banks “reducing risk”.

      • darklydrawlMEMBER

        I vote with you Dave. The two keystones to watch are restricted credit for mortgages and banks offloading risk.

    • Well, YoY, listings up 20% in Sydney and Melbourne whilst prices are down 7 and 5% respectively. I’m scared to say it, as I have been wondering when it would happen since 2004, but it seems Australia’s HPC may finally be underway.

  6. Where is the rallying call from Reusa when the market needs him!? Seems to have gone quiet. I think I recall him spouting that it was good buying about 6 months ago. Looking for some deep seated intellectual input but I won’t hold my breath.

    • darklydrawlMEMBER

      Reusa is likely to be found be popping the champers in his undergound secret bunker. His posts are pure art and theatre – deep down he is a property bear turned cynic who decided it would be more fun to swap teams. The whole “property to the moon” is a show to make it happen sooner by encouraging the uneducated to take (on even more) risks. I gotta say I am usually deeply impressed with Reusa – so good looking – darn funny and always in character. Keep up the good fight Reusa (oh and the good parties too please (not that I am ever invited – sadly I am too ugly and poor)). 🙂

  7. There is only one thing more surprising than meaningless Australian property price indices: blind trust in them

    All of Australian property price indices are really poor because they are either strait median or “at will” adjusted indices designed to show whatever a publisher wants to show. They are often shown with 3 or more significant digits despite very poor accuracy / confidence range (that is never shown).
    Reality is more like this: prices in Sydney fell by somewher between 2% and 15%.

    What’s surprising is that none produces repeated sale price index despite huge turnover of properties in Australia.