Property cycle: capital city and regional update

There are signs the strong Sydney and Melbourne residential property markets are beginning to slow, which is usual at this time of year. At the same time, other capital city markets are only exhibiting modest, if any, growth.

Cameron Kusher, head of research for Australia at CoreLogic RP Data, says clear signs are emerging that the heat in the housing market is starting to dissipate, particularly in Sydney and Melbourne.

“Our data has shown a decline in both cities. That’s usual at this time of year. But if you look at other evidence, we’ve seen fewer sales, the number of properties on the market has been increasing, and properties are taking longer to sell,” says Kusher.

“We’ve seen auction clearance rates in Sydney and Melbourne soften. They’re still quite strong, but they have been dropping,” he adds.

According to the CoreLogic Home Value Index, combined capital city dwelling values fell by -1.1 per cent in May 2017. 

During the month, dwelling values fell in Sydney (-1.3 per cent), Melbourne (-1.7 per cent), Perth (-0.4 per cent), Hobart (-4.8 per cent), Darwin (-3.5 per cent) and Canberra (-0.1 per cent). 

Meanwhile, moderate increases were recorded in Brisbane (0.3 per cent) and Adelaide (0.8 per cent).

While capital values have been broadly falling, yields have seen a slight commensurate rise. “Because the market was so weak in May, we did see yields tick up slightly, but across the capital cities gross rental yields are at historic low levels, largely driven by Sydney and Melbourne,” says Kutcher.

“That says to me investors active in the market are not necessarily focusing on rental return; they’re looking for capital growth potential. With some of the heat coming out of the Sydney and Melbourne housing markets, you might find investors start looking outside those two cities,” he adds.

When it comes to regional areas, Wollongong, Lake Macquarie and Newcastle in New South Wales are experiencing strong capital growth. In Victoria, the growth from the Melbourne market is starting to filter out towards the Geelong housing market.

“The Gold Coast and Sunshine Coast markets are seeing stronger levels of growth than Brisbane. That’s a story of people with equity in their properties starting to look for holiday and retirement properties in those areas,” Kusher explains.

For the rest of the year, RP Data predicts house price values are likely to keep rising in Sydney and Melbourne, but at a much slower pace than they have recently.

Moderate growth is forecast for Brisbane and Adelaide, with stronger price hikes expected in Hobart. Values are expected to continue falling in Perth and Darwin, but the rate of decline should start to slow.

“The number of properties on the market is starting to fall in both markets and we’re starting to see sales volumes pick up. Possibly by the end of the year we’ll see the bottom of the market in both of those cities,” Kusher says.

Overall, continued albeit slower growth is forecast in Sydney and Melbourne, with other cities displaying variable conditions for the remainder of the year.