Housing prices and market conditions continue to be softening across most of the capital cities, with Melbourne and Sydney both posting atypical falls in dwelling values over the month of May.
House prices fell by 1.5% in Melbourne last month and apartment prices by 3.8%, according to the latest CoreLogic Home Value Index (HVI), while in Sydney, house and unit values went backwards by 1% and 2.7% respectively.
These falls in the two largest property markets meant a monthly fall of 1.1% across the combined capitals, with only Adelaide and Brisbane showing any gains in May.
CoreLogic head of research, Tim Lawless, cautioned that “the May results should be viewed in the context of demonstrated seasonality; values have fallen during May in four of the past five years”.
However, modest quarterly figures also appear to point to a slowdown in capital gains. Values in the combined capitals nudged up by just 0.4% over the three months to 31 May, with only Melbourne, Brisbane and Adelaide posting positive growth in that time.
“Reading through the seasonality indicates that value growth in the market has lost momentum, particularly in Sydney and Melbourne where affordability constraints are more evident and investors have comprised a larger proportion of housing demand,” Lawless said.
CommSec senior economist, Savanth Sebastian, suggested that “policymakers are unlikely to be overly concerned by the fall in home prices. In fact it might be a welcome relief – particularly in Sydney and Melbourne, where property prices have surged over the last year”.
Other signs of slowdown
It’s not just flat or negative value growth that’s symptomatic of a weaker national housing market. The CoreLogic report also highlights moderating dwelling turnover and auction clearance rates, as well as increasing advertised stock levels, particularly a “surge” in Sydney, where total advertised listings are now 6.3% higher than a year ago.
Significantly, rental yields are also stabilising. Capital city asking rents are more than 4% higher now than 12 months ago, the strongest growth rate in more than three years, as rental income looks to start catching up to runaway capital growth in the major markets.
“The rise in rents relative to the slip in dwelling values was enough to push gross rental yields off their record lows,” Lawless said, though he also noted that “despite the moderate increase, gross rental yields remain well below their long-term average in Sydney and Melbourne”.
“If investors are concerned about the run of capital growth in the two largest cities coming to an end, the more astute investors may change their focus towards the rental return given the possibility of lower capital growth potential,” Lawless said.
Hobart continues to offer the highest gross rental yields of all the capitals for both houses and units.
Has the market peaked?
Despite the weak quarterly growth figures and other signs of moderation, Lawless argues “the jury is still out on whether the housing market has peaked, however if it hasn’t, a peak could be just around the corner”.
Citing APRA’s announcements at the end of March for a new round of macroprudential measures designed to slow the pace of interest-only lending, CommBank economist Kristina Clifton observed that “it looks like higher mortgage interest rates as well as APRA’s new lending measures… are starting to have some impact on housing market activity”.