Premium properties drive price rebound

Following on from this morning’s MB report covering the five major capitals, CoreLogic has released its full dwelling value results for November, which also captures the smaller markets and regional areas:

As shown above, the smaller capitals and regions also had a mostly positive month in November, with Hobart (+2.3%), Canberra (+1.6%) and the combined regions (+0.5%) recording rises, whereas Darwin (-1.2%) recorded a fall.

According to CoreLogic, the premium end of the market (i.e. top 25% by value) is experiencing the strongest price gains nationally:

Tim Lawless said, “Although housing values are rising across each of the valuation cohorts, the recovery trend is most concentrated within the premium sector of the market.”

This trend is most evident in Sydney and Melbourne where the top quartile of the market is outperforming the broad ‘middle’ of the market and lower quartile. Values across Sydney’s top quartile were up 7.4% over the three months ending November, compared with a 3.8% rise across the lower quartile. Similarly, in Melbourne, top quartile values were up 8.1% over the same three month period compared with a 4.2% rise across the lower quartile. Brisbane, Perth and Darwin are also recording a similar trend where premium value properties are outperforming lower value properties.

“The stronger performance across the higher value end of the market can likely be attributed to a combination of values falling more in this sector during the downturn, as well as recent adjustments to serviceability rules which has boosted borrowing capacity. Additionally, the scarcity value of detached homes in many of the blue-chip property markets is another factor supporting strong capital gains.

“As housing values become less affordable in these high-end markets, demand is likely to ripple outwards to the more affordable areas,” Tim Lawless said.

According to Tim Lawless who heads up CoreLogic Research, a host of factors are supporting the strong gains in housing values:

“The synergy of a 75 basis points rate cut from the Reserve Bank, a loosening in loan serviceability policy from APRA, and the removal of uncertainty around taxation reform following the federal
election outcome, are central to this recovery.

“Additionally, we’re seeing advertised stock levels persistently low, creating a sense of urgency in the market as buyer demand picks up. There’s also the prospect that interest rates are likely to fall further over the coming months and an improvement in housing affordability following the recent downturn are other factors supporting a lift in values.”

However, Lawless has doubts that the recovery is sustainable:

“The Australian housing market is now five months into an unexpected period of rapid recovery. The question is, how long can such a high pace of capital gains be sustained?”

“Annualising the growth rate over the past three months implies the national index is already tracking well above double digit annual growth (+15.3%), while Sydney and Melbourne dwellings are
tracking around the mid-twenty percent range for annualised capital gains based on the most recent three month trend.

“Considering wages and household income growth remains low, economic conditions are losing momentum and housing affordability is once again worsening (from an already high base in the largest cities), there are likely to be some headwinds in maintaining such a fast recovery.”

“Additionally, the market is yet to be tested on higher supply levels. Advertised listing numbers have remained seasonally low throughout spring due to low new listing numbers and an increased rate of absorption as buyer demand lifts.”

“With selling conditions looking very strong, there is a high probability that listing numbers will show a material lift through the first quarter of 2020 which will test the depth of the market, and
likely ease some of the urgency that is contributing to higher prices.”

That’s a fair assessment. Full report here.

Unconventional Economist
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