Australian property markets have kicked off 2017 on an encouraging note, with all but one of the capital cities posting value rises in January.
CoreLogic reports a rise of 0.7% for the month across the combined capitals, with Hobart (up 1.4%), Sydney (up 1%) and Melbourne (up 0.8%) recording growth above the average. January’s monthly gain was higher than readings in October and November.
Only Darwin has gone backwards in 2017 so far, with a monthly fall of 1.7%, although Darwin and Hobart’s relatively small markets mean value movements can be more volatile compared with the other capitals.
The January figures reflect 2016 trends that saw Sydney, Melbourne and Hobart perform strongest of the capitals for value growth.
“Clearly the Hobart housing market is now well into its growth cycle,” said CoreLogic head of research, Tim Lawless.
“Strong housing market conditions are being driven by positive affordability of housing, as well as improving economic conditions and stronger migration trends.”
Of the remaining markets, quarterly value growth was flat or marginal in Canberra, Adelaide and Brisbane, while Perth’s gain of more than 2% over the three months to 31 January appears to point to some kind of recovery in the struggling WA capital.
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CBA senior economist, Michael Workman, argued “today’s CoreLogic housing price data indicates a re-acceleration in prices which, combined with yesterday’s credit trends, will give the RBA and APRA some concerns”.
The RBA this week released its monthly credit numbers which pointed to an increase of 0.5% in housing credit over December, fuelled by an acceleration in property investor lending. The most recent ABS figures indicate investors account for 58% of the value of all new mortgage demand (excluding refinances) in NSW, and 45% in Victoria.
“CoreLogic continues to note that investors are driving key housing markets such as Sydney and Melbourne,” said CommSec chief economist, Craig James. “But CoreLogic also continues to highlight the risks, with investors relying on expected capital appreciation for returns on their investment rather than rising rents.
“More apartments are being built, supply will catch up to demand and growth of home prices will ease over the next few years. Investors need to be aware of the risks, including further actions by regulators to slow housing demand.
“The broad-based health of Australian housing markets reduces the potential for further rate cuts,” he argued.
James’ observation that property investors are relying on capital growth rather than rising rents for their returns appears to hold true in Sydney and Melbourne at least, where investment continues to ratchet higher despite both cities seeing record low gross rental yields.
By contrast, Hobart continues to show both healthy capital growth and the highest yields of all the capitals for both houses and units.
Looking ahead, Lawless predicted that “while the pace of capital gains remained strong in January, our view is that growth rates will trend lower over 2017”. He cited affordability constraints, especially in Sydney, along with the large number of high-rise units currently under construction in the bigger capitals and an expected “increase in supervisory focus from APRA and risk committees” as among the key factors likely to lead to a slowdown in value growth this year.