Aussie rents boom as house prices bust

CoreLogic has released its full dwelling value results for July, which shows that values nationally fell by 1.3%, with price falls recorded across five capital cities and the combined regions:

CoreLogic index results for July 2022

Monthly and quarterly dwelling value falls.

As already documented, Sydney and Melbourne led the price falls on both a monthly and quarterly basis. In fact, Sydney’s price decline is the sharpest in around 40 years.

Quarterly dwelling values are now falling across both the combined capital cities (-2.6%) and the combined regions (-0.2%):

Capital and regional dwelling value growth

Quarterly falls spread across Australia.

Commenting on the results, CoreLogic research director Tim Lawless noted that “housing market conditions are likely to worsen as interest rates surge higher”:

“It’s abundantly clear markets have weakened quite sharply since the first rate rise on May 5”.

“Although the housing market is only three months into a decline, the national Home Value Index shows that the rate of decline is comparable with the onset of the global financial crisis (GFC) in 2008, and the sharp downswing of the early 1980s. In Sydney, where the downturn has been particularly accelerated, we are seeing the sharpest value falls in almost 40 years”.

“Due to record high levels of debt, indebted households are more sensitive to higher interest rates, as well as the additional downside impact from very high inflation on balance sheets and sentiment.”

However, while dwelling values are tanking, rents continue to boom. Rents nationally rose another 0.9% in July to be up 2.8% over the quarter and 9.8% higher year-on-year:

Annual rental growth

“Rental markets are extremely tight, with vacancy rates around 1% or lower across many parts of Australia. The number of rental listings available nationally has dropped by a third compared to the five-year average, with no signs of a lift in rental supply. On top of already tight rental supply, it’s likely demand will continue to increase as overseas arrival numbers climb,” Mr Lawless said.

“Such widespread and rapid rental growth is likely to remain one of the key domestic factors pushing up inflation, along with construction, food, transport and energy costs. While some of these can be attributed to global supply chain issues, the rental situation is a domestic one caused by a combination of tight supply and amplified demand”.

Thus, owner-occupied mortgage holders are getting crucified by soaring mortgage rates at the same time as renting households are being squeezed hard by soaring rents.

Property investors are relatively well placed, however, since they are enjoying higher income growth via rents while any increase in mortgage costs is tax deductible.

Unconventional Economist
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Comments

  1. Hugh PavletichMEMBER

    Australia and New Zealand are the “California’s of the south west Pacific’ with grossly excessive dwelling prices and mortgage load ‘stretch’…

    California exodus continues, with L.A., San Francisco leading the way: ‘Why are we here?’… Summer Lin … The Los Angeles Times

    https://www.latimes.com/california/story/2022-07-29/california-exodus-continues-l-a-san-francisco-lead-the-way

    … extracts …

    … San Francisco and Los Angeles rank first and second in the country, respectively, for outbound moves as the cost of living and housing prices continue to balloon and homeowners flee to less expensive cities, according to a report from Redfin released this month. …

    … Redfin chief economist Daryl Fairweather cited a June report that tracked the change in spending power of a homebuyer on a $2,500 monthly budget. While 11.2% of homes in Los Angeles were affordable on that budget, using a 3% interest rate, that amount swelled to about 72% in Houston and about 50% in Phoenix. …

    … The state is also seeing a dwindling middle class, said Ohanian, who cited a report from the National Assn. of Realtors, outlining that the national median home sales price has reached $416,000, a record high. Meanwhile, California’s median home price has topped $800,000. … read more via hyperlink above …
    .
    .
    SF Bay Area Housing Prices Suffer Largest One-Month Drop On Record … Zerohedge

    https://www.zerohedge.com/economics/sf-bay-area-housing-prices-suffer-largest-one-month-drop-record
    .
    .
    California didn’t learn any lessons out of the GFC … and still hasn’t.

    Sorting out fringe land supply artificial scarcity values and properly debt financing infrastructure must be the focus.

    The fringes are simply the essential ‘inflation vent’ … allowing all dwelling types to be affordable …

    https://www.macrobusiness.com.au/2022/07/reserve-bank-overshoot-pummel-new-zealands-housing-market/#comment-4295045

    Even in 2009 … adjusted for population … California had about a million less dwellings than Texas.

    What is the situation now … some 13 years on ? …

    Housing Bubbles: Jumbo Mortgages = Jumbo Problems … Hugh Pavletich … Scoop NZ News(March 2010)

    https://www.scoop.co.nz/stories/WO1003/S00019/housing-bubbles-jumbo-mortgages-jumbo-problems.htm

    • 2023HomelessMEMBER

      The 7% monthly fall in California’s wide Bay Area is wild. These big price falls in California are during the peak selling season as listings swell. The prices there look similar to Sydney. While I can’t see a 7% monthly decline in Sydney. Maybe a peak decline near 5% in one of the Summer months as the spring stock fails to clear?

  2. Tassie TomMEMBER

    “Property investors are relatively well placed”, errr, rents up 3%, interest up 40% (soon to be over 50%) in the last 3 months?

    Well at least they’ll be able to negative gear again.

    • Yes hilarious when you realise most rentals are price fixed for a year while mortgages cost are rising monthly. And that’s not even accounting for leveraged capital losses with most of the covid blow up being investors jumping in. When you consider my rental cost per year is 3% of the house value, which has fallen 5% minimum while interest will have risen 1.75%

    • Strange EconomicsMEMBER

      Rents are up because Air BNB is big without Aussies travelling overseas.
      Air BNB pays higher than long term renters can afford – ( a renter can only pay 50% of their income without starving,.)
      Ask anyone where they stay when they go away on a weekend.
      And it destroys the motel hotel industry.
      Air BNB should not be permitted for whole houses or units, and should be taxed as a business
      In some towns now there are 40 air bnb and 1 long term rental.

  3. Hugh PavletichMEMBER

    Sydney’s Home Prices Slide for Sixth Month With No Relief Seen … Swati Pandey … Bloomberg

    https://www.bloomberg.com/news/articles/2022-07-31/sydney-s-home-prices-slide-for-sixth-month-with-no-relief-seen

    Shaky Housing Adds $7 Trillion Hazard to Australia’s Economy … Swati Pandey … Bloomberg

    https://www.bloomberg.com/news/articles/2022-06-29/shaky-housing-adds-7-trillion-hazard-to-australia-s-economy

    Australia’s Aggressive Policy Tightening Set to Weigh on Economy … Swati Pandey … Bloomberg

    https://www.bloomberg.com/news/articles/2022-07-31/australia-s-aggressive-policy-tightening-set-to-weigh-on-economy?srnd=premium-asia

  4. ErmingtonPlumbingMEMBER

    One of my Ermo customers who did a knock down/duplex rebuild on his own house lives in one side is trying to sell the other.
    He is disappointed he knocked back a 1.7 million dollar offer back in April/May as that was 50k less than they were prepare to sell it for.
    Last week he is telling me the highest offer he has gotten since was well under under 1.6!
    He isn’t going to sell it for any less than 1.6 he continues and tells me Rents are really going up so he’s decided to just rent it out for the next couple of years so he can get the 1.7 he was originally offered, (He doesn’t just want to give it away)
    I suggested it might take more than a decade for prices to return to recent highs. He Laughed and said no way a couple a years tops.

    How far prices drop seems less relevant to me than how long they stay down for. Esp in terms of breaking that,…You can’t go wrong investing in property/safe as houses mentality.

    • Yeh, a young guy at work said something similar to me the other day. He’s an aspiring property investor and still looking to buy despite rising interest rates and falling prices. His view is that the long term benefit will trump any short term volatility. I asked him what ‘long term’ meant to him. “Oh, around 5 years.”

    • Ronin8317MEMBER

      He will change his mind once he sees his landtax bill.

      Being the landlord of a duplex when you live next door cause all kinds of issues, so better make sure the tenant doesn’t know the landlord is next door.

    • If you are not too fond of this customer you can report him to the ATO, if he built a duplex he would have been carrying on a business and would have been entitled to claim the GST during the build for all the construction costs. If he decides to rent it out he must pay back the GST he claimed. Add along any interest and outgoings his cash flow should be very negative.

    • charles bukowskiMEMBER

      well, he better start to rent quick, i’m seeing rentals drop price and sit on the market in 2111. Rental prices dropping back to 2018 levels & lower.

    • charles bukowskiMEMBER

      agree, i’ve seen heaps of rentals clear in a week over the last 3 months in 2111 gladesville area sydney, now houses sitting longer, asking prices dropping below 1015-2019 prices,

  5. Could you please elaborate on the corelogic data? I am in Newcastle and am seeing much larger drops than the %. More like 5% to 10% or more. Is the there a lot of variation in the corelogic average? i.e. is it buoyed by a certain price range of property?

    What I am seeing in Newcastle is that “Sydney weekender” or “airbnb potential” properties are holding higher. Other areas are dropping fast.

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