Property demand continues to outstrip supply, the global housing boom, international borders, how Darwin has taken Australia by storm and what’s the story with Perth? Market update (Ep.113)

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In this week’s episode, Dave, Cate and Pete take you through:

Value growth tapers over July. National housing values increased a further +1.6% in July. Although still a strong result, value growth has been tapering from the recent peak in March 2021, where value growth reached +2.8% for the month. The trio explore the drivers contributing to the dissipating steam in the market, from affordability, seasonal factors and recent lockdowns in major capital cities.
Annual growth rates inch closer to record highs. CoreLogic annual growth rates report +16.1% growth for the national market over the last 12 months. This is not far off the standout year of 2003, where growth reached +19.3%. The trio discuss the likelihood of 2021 topping this record high, where already for the months of January through to July this year, growth has achieved +14%. Annualised, a forecasted figure of +21% results, but what impact will the lockdowns have?
Hobart, Darwin and Canberra over 20%. The nation’s smallest capital cities of Hobart, Darwin and Canberra are leading the pack for annual growth. Interestingly, Darwin is at the top of the ladder recording a whopping +23.4% annual growth, but is also the cheapest capital city with a median price of $486,054. Darwin’s history has been volatile in terms of property price increases and decreases, so no one is suggesting to jump on board the Darwin bandwagon. The trio wonder whether the large increase in property listings for Darwin, (which is up +39% from last year), indicates that Darwin property owners are taking advantage of the growth spurt to jump ship.
Housing boom takes on the world. Of the 40 countries covered by the OECD, only 3 have experienced declining house prices in the first three months of 2021. This is the smallest proportion since the OECD began tracking this data in 2000. This global phenomena can be put down to all the stimulus money floating around, as countries fight off the economic impacts of the pandemic. Despite our friends in New Zealand abolishing negative gearing and implementing macro prudential measures to take the heat out of the market, prices continue to rise. This indicates that it’s not investors who are driving up prices.
Lending indicators continue to show increased activity from investors. Recent ABS data shows that new loan commitments relating to housing fell overall -1.6% in June. First home buyers took the biggest hit, falling -7.8%, while investors showed a modest increase of +0.7%. The trio discuss buyer fatigue, increasing unaffordability and the end of government incentives which mark the shift. However, investors make up 28.7% of the current residential property lending market, which is still a way off 2015 levels of 45% which sparked APRA intervention.
Regionals continue steady growth. Regional cities continue their strong growth run, posting +1.7% growth vs capital cities +1.6%. Whilst covid certainly sparked an ‘escape from the city attitude’, the trio pose the question whether the increased dwelling sizes and affordability to purchase larger homes are actually what’s driving regional interest.
Property listings tell the story of demand far outstripping supply. The number of listings that have been on the market for over 6 months has reduced drastically, down 49.8% from the last year. This indicates that demand is so strong, less desirable properties are being snapped up due to the current level of competition in the market. The past 12 months has seen nearly 600,000 dwellings sold across the country, which is about 31% (140,500) more than the decade average. This is coming close to the record high annual sales EVER recorded, which reached 622,000 in 2003. The recent lockdowns may have an impact on annual sales, however it’s looking likely that 2021 will set new records.
CPI at strong levels but not tipped to last. ABS data reveals over the June 2021 quarter, annual CPI rose to 3.8%. This is above the RBA target level, however the central bank expects that this won’t last. The June quarter saw an increase of 0.8%, up from the 0.6% reached in the March quarter. With Sydney lockdowns, the next quarter could potentially be negative, but the RBA has confidence in post lockdown rebounds, which Melbourne has evidenced over the last 12 months.
RBA minutes. In it’s latest statement of monetary policy, the RBA has reiterated its stance that interest rates will stay at the same level until 2024. In more positive news, the outlook for unemployment has improved, with expectations that unemployment will reach 4.25% by the end of 2022 and 4% at the end of 2023. The central scenario from the RBA expects he majority of the population to be vaccinated by the end of this year, meaning that lockdowns will become rarer and allow for international borders to open up from the middle of 2022. Coincidentally, this aligns with the period after the next election, presumably when politicians will be less nervous about making this move.
Borders tipped to open mid-2022. With borders expected to open towards the middle of next year, our education exports, (which are the top export for South Australia and Victoria) are expected to take a hit. This is because other major education exporting nations of US, UK and Canada are tipped to open the gates before Australia. This is likely to have a flow on effect for four years, (the length of most university degrees) and will pose a continuing issue for rental vacancies, particularly for student accommodation. However, property prices are on the up, despite the lack of international migration, which will only add further fuel to fire once up and running again.
Perth – a riddle, wrapped in a mystery, inside an enigma. Perth was the only capital city that didn’t exhibit growth over +1% for the month of July. The trio ponder the story behind Perth’s +0.3% growth in housing values. Yet, rental markets for Perth have shown the second highest increase behind Darwin, with houses increasing +16.6% over the last year and units +14.6%.

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Show notes

July figures
Still heady, but not at the same crazy rate. Could it be winter or buyer fatigue?
Seasonal factors, long weekends, more Saturdays in the month (eg: 5 instead of 4)
When talking about medians, that’s the middle value, it doesn’t mean house prices are dropping necessarily, we could just be getting more sales at a lower price point.
Australian housing values increased a further 1.6% in July
There has been a general decline in price growth since the peak in March which was the highest monthly growth rate since 2003.
Rising prices make it harder for people to buy, less affordable. Rising prices in and of themselves start to slow down price growth.
Sydney lockdown, interesting to see how that plays out. Melbourne lockdowns impacted negatively on the property market. Likely to have a similar impact, but perhaps not as strong as the Melbourne one was. We’re more aware of the rebounds that occur post the lockdowns.
Last 12 months jumped up to 16.1% – not far off the best year of 2003 in 19.3%. For the first 7 months of the year, it’s been 14%, so if you annualise that, it’s 21%.

Hobart, Darwin and Canberra done over 20%
Darwin done the best but has the cheapest.
Darwin is volatile in terms of price increases and decreases, so not suggesting that people should go out there and invest, but it is an interesting case study.
People are jumping ship from Darwin and Perth, the year on year change for Darwin in new listings is up the most for Darwin of 30%.
Regionals 20% in the last year – fuelled by the pandemic, don’t need to be at work every day. Opportunity to work in a lifestyle area, is quite attractive.
Global housing boom
Of the 40 countries covered by OECD data, just three experienced real-terms house price falls in the first three months of this year – the smallest proportion since the data series began in 2000.
All the stimulus has pushed up property prices, as well as share markets.
NZ – properties are still growing, despite abolishing negative gearing and starting macro prudential measures.
If they’ve abolished negative gearing, maybe it’s not investors who are driving up the prices.

New loan commitments
In Aus, now that first home owner incentives have diminished, investors are jumping back in.
Fell 1.6% for Housing overall
Fell 2.5% for owner occ
Increased 0.7% for investors
First home buyers fell 7.8%
People who were reaching the end of the incentive period thought, ok, I’ve run out of time.
Buyer fatigue, people who are over searching and others who think prices are just getting too high and not going to step into the market.
Investors up to 28.7% of finance. Still below levels where APRA stepped in, it was at 45%.
Construction of dwellings fell 17.5%
Purchase of newly erected increased 6.3%
Purchase of existing fell 0.1%

Listings
Such strong demand, that there is half the number of old listings available because they’ve all been snapped up.
Pushing up to record high – the most sales ever occurred in 2003 $622,000
The past 12 months has seen nearly 600,000 dwellings sold across the country, approximately 140,500 more sales (+31%) than the decade average.
But people are saying there’s not enough stock, that’s because the appetite to purchase is through the roof.
Sales volumes are up, we’re selling about 60,000 per month and new listings are at 40,000 per month. 20,000 shortfall.
Likely to peak above the record year

CPI
Over the twelve months to the June 2021 quarter, the CPI rose 3.8%. This is above the RBA target but they don’t expect that to last.
This quarter was up 0.8%, which is up from 0.6% in the March quarter.
They think this is a bounce back after the impact of covid and supply chains, certainly Sydney lockdown will have a negative impact and talks about potentially a negative quarter coming up.
A lot of people worrying about inflation being a potential problem, but the RBA doesn’t think it is, they are saying nothing to see here.
RBA statement of monetary policy
No increase to interest rates, still saying they expect them to stay at the same level until 2024.
2022 – lowered its unemployment outlook at the end of the same year from 4½ per cent to 4¼ per cent.
In the central scenario, the unemployment rate continues to trend lower next year, to be around 4¼ per cent at the end of 2022 and 4 per cent at the end of 2023.
We’ve seen the bounce back from lockdowns and they are comfortable that the Sydney lockdown is not going to have a lasting impact.
Economic recovery scenario is based on a significant share of the population being vaccinated by the end of this year, lockdowns will become rarer and a gradual opening up of the international border from the middle of 2022.
No coincidence after the election is held. Politicians won’t be as nervous about opening up the boarders. At that point, we’re probably likely to see more infections in the community than we’ve ever seen.

Exports of international education
A lot of international students, they get an offer to US, UK and Canada and they’ll be opening up before us.
Once we open the borders, they’ll come back
Most degrees are 4 years, so that shortage will go through the pipeline for 4 years.
SA and VIC, number 1 export
Melbourne rents
Problem for rental vacancies for student accommodation.
Annual change in rents for units still at –5% – a lot of landlords took a hit for rents.
Property prices are going up already, without any migrants, image what that will do when international migration picks up again.
Perth – a riddle, wrapped in a mystery, inside an enigma
0.3%, the only capital city not over 1% for the month
But rental growth has been 2nd highest of the capital cities.
What is going on there?

Gold Nuggets

Cate Bakos – The Property Buyer’s Golden nugget: having a look at what else has filled the growth we’ve seen in the regions. There is a factor we haven’t focused in on, covid created desire to escape the city, but also a need to have more internal floor area and more rooms. A preference shift away from higher density housing options, has seen house values rise substantially more than unit values. A lot of people in the capital cities, can’t just pivot and go and buy a house when they’ve been living in a unit. So, a lot of people turned to the regions, not to get away from the city, but because they wanted to buy a house.

David Johnston – The Property Planner’s Golden nugget: being a country by, always wanted to live in the city. Wanted a big block of land, fortunate enough to get, we certainly value that large block of land and dwelling. Something we touched on in the last episode, the years that we had the largest capital growth in 2003, there was a large growth in dwelling sizes in the lead up. The impact on price growth, because dwellings are getting bigger, there is something in that to be looked into.

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