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

  1. Property market acceleration is reducing, but still going strong. June’s growth rate of 1.9% is down 30 basis points from May 2021 2.2%, and 90 basis points from a recent peak in March 2021 2.9%. All capital cities except Canberra have posted weaker results than in May.  Most notably Perth and Darwin are trailing, where they fell to 0.2% growth and 0.8% growth respectively. The trio discuss the reasons for reasons for deceleration, given that Perth was predicted to be on the top of the property ladder for 2021.
  2. Upper quartile shows the largest deceleration. Across the top 25% of dwelling values in the combined capital cities market, growth in dwelling values in the June quarter was 8.0%, down from 9.2% in the three months to May. While this 8.0% uplift was still the highest seen among the value tiers analysed, the growth rate also had the largest month-on-month deceleration. It’s likely that we’ve hit the peak rate of growth and values will continue to decelerate.
  3. Capitals vs regionals. Combined capital cities are neck and neck with regionals since February 2021 this year. However, over the last year, capitals up 12.4% and regionals 17.7%. It’s likely that we’ll see some regions that will continue to flourish, particularly those that were on the rise pre-covid and that are within commuting distance to a capital city.
  4. The emerging rental crisis. All capital cities have seen an increase in house rents over the last year, with Darwin leading the pack with 23.6% growth. The story is similar for units, bar Melbourne and Sydney where the CBD apartment market has been most affected due to covid. The trio discuss the emerging rental crisis, where the most vulnerable will find it very difficult to get a roof over their head. A possible answer is increasing investor incentives, to get mum and dad investors into the market to share some of the housing load with the government. However, the government hasn’t rolled out the welcome mat for investors and tax continues to be a hurdle, but possibly an area that could be re-evaluated.
  5. Investor activity continues to increase. ABS data shows that for 5 out of the last 6 months (Dec 2020 to May 2021) – investor activity has outstripped owner occupied activity for new lending. This could signal we’re headed in the trajectory for more stock to be on the market for renters, which would increase rental affordability.
  6. Profit making resales trending up. CoreLogic data shows 9 out of every 10 properties are being re-sold for a profit, up from 89.1% in the previous quarter and the covid-induced low of 86.0% in the three months to June 2020. What can be seen is a large discrepancy between units and houses, with 16.8% of units selling for a loss vs 6.8% of houses selling for a loss in the March quarter. This is reflected in current growth rates as well, where all capital cities except Hobart showing houses increasing at a faster rate than units. The trio discuss how land to asset ratio will be a driving factor of this discrepancy.
  7. Listings take a dive. The number of new and total listings are looking pretty grim, with each capital city posting decreases except Darwin. Canberra and Melbourne have the biggest drop in new listings, with 10.1% and 21.7% respectively. These markets are more impacted by the colder months of winter, were stock on the market declines, due to the misconception that winter is not a good time to sell. The trio give an important tip to those looking to make great property decision, which is to sell during winter. There are less properties on the market and more competition for each property.
  8. The latest from the RBA. The Property Planner gives an update from the latest RBA meeting in early July. Government bond buying will taper from $5m per week to $4m until mid-November, while the April 2024 bond will be retained at a target of 10 basis points. The target cash rate at 10 basis points will be maintained until inflation and wage growth hits the target rates and noted that although other central banks are lifting rates, Australia’s inflation and wage growth is behind other first world and OECD countries.

Resources

Show notes

  • Rate of monthly acceleration is reducing, but it’s still at high numbers.  
  • This month’s growth rate of 1.9% is down 30 basis points from May 2021 2.2%, and 90 basis points from a recent peak in March 2021 2.9%. 
  • ALL capital cities except Canberra have weaker results than in May.  
  • Perth and Darwin trailing. Across the capital cities, a loss of momentum was most evident across Perth and Darwin.  
  • For Perth dwellings, the monthly growth rate in values had averaged 1.4% between January and May 2021, but fell to 0.2% through June.  
  • Across Darwin, the monthly growth rate in dwelling values averaged 2.1% between January and May, but was just 0.8% through June. 
  • We predicted Perth to be the best performance this calendar year, we feel like maybe the stringent approach to shutting down the boarder has meant the Eastern seaboard money hasn’t sought holiday houses as much in Perth. 
  • If iron ore is going so well, why is the Perth market not going that well? 
  • A lot of house and land, there is a lot of land release. If there is a lot of affordable housing, then that will affect the median.  
  • Hobart and Canberra stock levels dropped the most in the last month. We know during winter people have a perception that it’s not a good time to sell. I wonder how much of an impact that has on Hobart and Canberra continuing to fly. They have smaller populations as well.  
  • Sydney is right up there, geography is limited in terms of ability to spread and provide new plots of land.  
  • We still have elasticity in what people are comfortable to spend v what they could stretch to spend.  
  • Upper quartile analysis 
  • Softer growth rates are also emerging at the ‘high end’ of the market.  
  • Across the top 25% of dwelling values in the combined capital cities market, growth in dwelling values in the June quarter was 8.0%, down from 9.2% in the three months to May.  
  • While this 8.0% uplift was still the highest seen among the value tiers analysed, the growth rate also had the largest month-on-month deceleration. 
  • Peak rate of growth has been hit.  
  • It’s tapered, but still growing strongly, pretty much everywhere except for Perth and Darwin.  
  • Capitals v regionals 
  • Combined capitals 1.9%, just under regionals 2.0% 
  • Since Feb 2021, capitals have been neck and neck with regionals.  
  • In those 5 months, capitals have been above regionals twice. 
  • Over the last year, capitals up 12.4% and regionals 17.7% 
  • Some regions that will continue to flourish, especially if within commuting distance to a capital city.  
  • Rentals 
  • Is there an emerging rental crisis – shortage of supply.  
  • The highest annual growth in rent values was across Darwin, where rents have increased 21.8% across the dwelling market. This was followed by Perth (16.7%). 
  • For units, Melbourne and Sydney are the only capital cities in negative territory, which have the worst affected rental market due to city apartments and high rises. However, these are on the improve as well.  
  • The most vulnerable are going to find it very difficult to get a roof over their head, there is no way that our government can house everyone. It’s why we have negative gearing and other incentives that will get mum and dad investors in the market to share some of the load.  
  • The biggest hurdle in the last 5 years was credit policy – at the moment we have hefty taxes, land tax issues, stamp duty at different rates – not really rolling out the welcome mat to get investors on board. Tax needs to be re-evaluated. 
  • Investors 
  • Availability of finance to investors – it was in 2017 when there were extra restrictions put on investor loans, and nationally we saw the vacancy rates start to drop. There will be a time where vacancies start to drop and rents go up.  
  • Investor numbers are back on the increase – For 5 out of the last 6 months (Dec 2020 to May 2021) – investor activity has outstripped owner occ activity. We’re headed in the trajectory for more stock to be on the market and become more affordable for renters.  
  • Resales 
  • 9 out of every 10 properties are being re-sold for a profit.  
  • Up from 89.1% in the previous quarter  
  • And the COVID-induced low of 86.0% in the three months to June 2020. 
  • In the March quarter – there is a huge discrepancy between units and houses. 16.8% of units sold for a loss vs 6.8% of houses sold for a loss. 
  • Sydney – Houses have improved by 19.3% but units only 5% 
  • Melbourne – houses 8.9%, units 4.7% 
  • Hobart, slight difference in capital growth.  
  • Land to asset ratio – not all units are poor investments, you can still get a higher land to asset ratio in established units that have less units on the land. 
  • Listings – pretty grim 
  • Down in every capital city over the month of June, except Darwin 
  • For those looking to make great property decisions, sell during winter. There are less properties on the market and more competition for each property.  
  • Canberra and Melbourne have the biggest drop in new listings, with 10.1% and 21.7% respectively.  
  • Something other than supply that is driving the market – Hobart has 40% less listings than a year ago. However Darwin has 2% more. 
  • What’s driving the huge listings, is it the fact that prices have gone up 20% and people were holding on to underperforming properties? Is it developers flogging units? 
  • Consumer confidence and availability of finance driving the market, rather than interest rates.  
  • The cities that have had the strongest growth, there is a connection to smaller populations – Canberra, Hobart, Darwin. Which feeds into the strength of the regionals with smaller populations as well.  
  • Coming out of it, I think Melbourne will go for longer.  
  • RBA minutes 
  • Retain the April 2024 bond as the bond for the yield target and retain the target of 10 basis points 
  • Continue purchasing government bonds after the completion of the current bond purchase program in early September. These purchases will be at the rate of $4 billion a week until at least mid-November. 
  • Maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances of zero per cent. 
  • Inflation and wage growth is behind other 1st world countries and OECD countries.  
  • The dollar has come down to 75 cents, which they are pleased about. 

Gold Nuggets

David Johnston – The Property Planner’s Golden nugget: investor loans equated to 28% of housing loan commitments in May this year, but they were at 46% in 2015, it signals there is potentially a way to go to ensure there is a good supply of rental properties, to ensure they don’t become too expensive.

Peter Koulizos – The Property Professor’s Golden nugget: when you’re looking at explanations, why things might be happening in the property market, you need to look deep down into the stats. Do your own research.

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