Auction Volumes Surge Past 2,000 This Week

From CoreLogic.

The combined capital city preliminary clearance rate remained in the high 70 per cent range over the week, despite auction volumes reaching the highest level so far this year.  There were 2,280 dwellings taken to auction this week, significantly increasing from 1,591 over the previous week, with 77.0 per cent of auctions reported as successful.  The larger number of auctions was driven by a substantial rise across the Sydney and Melbourne markets, while the number of auctions held actually saw a decrease across the smaller capital cities over the week.  The strongest clearance rates, based on preliminary data, were in Sydney and Canberra, where 83.5 per cent and 81.5 per cent of auctions returned a successful result.  Melbourne also recorded a strong preliminary clearance rate, with 76.7 per cent of auctions clearing.  The preliminary combined capital city clearance rate was higher this week than what was seen over the same period last year, however, the number of auctions held was lower, with 2,347 auctions held over the same week last year, returning a 71.8 per cent clearance rate.

Land Sales Recover, as prices rise

Residential land sales increased for the second consecutive quarter as prices reached a new high during the three months to September 2016 according to the latest HIA-CoreLogic Residential Land Report published today by Housing Industry Association and CoreLogic.

Today’s HIA-CoreLogic Residential Land Report shows that the land lot price nationally rose by 3.3 per cent during the September 2016 quarter to another record high of $243,585. During the quarter, 18,510 land lot transactions are estimated to have occurred across Australia, 6.4 per cent higher than the previous quarter but 7.3 per cent lower than a year earlier. During the six months to September 2016, land transactions experienced the largest increase in Perth (+5.5 per cent) compared with the same period year earlier. Land turnover also increased in Hobart (+2.1 per cent) over the same period. Land sales saw the largest reduction in Sydney (-29.9 per cent) over the same period. Turnover also fell back in Melbourne (-13.5 per cent), Adelaide (-5.1 per cent) and Brisbane (-3.3 per cent).

“During the September 2016 quarter, the volume of land sales increased by 1,121 lots compared with the June 2016 quarter,” said HIA Senior Economist, Shane Garrett.

“However, the number and size of government taxes, fees, levies and charges on new residential land needed to accommodate our growing population continues to weigh down on our national housing affordability challenges,” explained Shane Garrett.

“In addition to removing the excessive taxes on new land, long term commitment from all levels government in the areas of planning, land release and infrastructure funding is necessary.”

“Price pressures in the residential land market are greatest in the capital cities, with Sydney prices now approaching $1,000 per square metre,” concluded Shane Garrett.

According to CoreLogic research director Tim Lawless, “with median land prices rising consistently since mid-2013 it is clear that one of the primary drivers of broader housing market growth has been the underlying appreciation of land values, which is pushing the overall value of housing higher. The median dollar value per square metre of vacant land was recorded at $927 in Sydney, which is 32 per cent higher than the next most expensive capital city, which is Perth where the rate per square metre is $701. The high land costs are a significant contributor to the unaffordability of housing across Australia’s largest capital city.”

“With housing affordability one of the most topical housing market issues, the underlying drivers of high land costs need further scrutiny. Government policies around land release and headworks costs are central to the debate around housing affordability and the cost of vacant land,” continued Tim Lawless.

“The trend towards a larger number of land sales over the September and June quarters of last year is very welcome, however land sales remain more than 7 per cent lower than their previous 2015 peak. With capital city transactions rising by almost 10 per cent over the September quarter compared with a 1.1 per cent rise across the combined regional markets, it is clear that demand for vacant land is most concentrated across the capital city markets where economic conditions are generally stronger,” concluded Tim Lawless.

Preliminary clearance rates surges to 76.6 per cent

From CoreLogic.

It has been strong week for auction activity across the capital cities, with the number of auctions more than doubling compared with last week in Sydney and Melbourne.  Despite the surge in the number of auctions held, the combined capitals region recorded a preliminary auction clearance rate of 76.6 per cent, up from last week, when the final clearance rate dipped to 68.7 per cent.  Auction volumes saw a significant increase over the week, with volumes rising week-on-week across all of the capital cities, with the exception of Adelaide which saw a decrease over the week.  There were 1,564 properties taken to auction across the combined capital cities this week, compared to last week’s 881. At the same time last year, auction volumes were lower, with 1,400 capital city auctions held with a lower rate of clearance (71.8 per cent).  The two largest auctions markets, Sydney and Melbourne, recorded a preliminary clearance rate of 84.8 per cent and 75.4 per cent respectively, suggesting that vendors are still very much in the driver’s seat across these markets.

Since 2008 only four capital cities have recorded real growth in home values

More nice, if sobering analysis from CoreLogic.

With the Australian Bureau of Statistics releasing the Consumer Price Index for the December 2016 quarter recently, using the CoreLogic Home Value Index we can adjust changes in dwelling values for the effects of inflation.  The value of looking at inflation-adjusted or ‘real’ home value changes is that it highlights whether housing values are moving higher or lower relative to other costs across the economy.

Combined capital city dwelling values increased by 10.9% throughout 2016 while headline inflation increased by a much lower 1.5%.   When adjusted for inflation, value growth is lower across all cities (as you’d expect) with values having fallen over the year in both Perth and Darwin.

In 2008 home values fell by 6.1% between the end of the March and December quarters.  In real terms, capital city dwelling values fell by a larger -8.3% over the same period.  Both in nominal and real terms values started to rise once again from the end of 2008.  This recovery in growth was fueled by generous grants to first home buyers and the stimulus of extremely low interest rates.  Over the eight years from December 2008 to December 2016 only Sydney and Melbourne have recorded real dwelling value growth in excess of 12%.  Outside of Sydney and Melbourne, Darwin (2.6%) and Canberra (11.7%) are the only two cities that have recorded a real increase in values.  In Brisbane (-2.3%), Adelaide (-2.6%), Perth (-9.0%) and Hobart (-8.6%) real home values are lower than they were eight years ago.

The chart above shows the real change in individual capital city home values from their previous market peak.  The chart shows that in only Sydney and Melbourne are real values above their previous peak.  In Sydney, values are 37.8% higher than their March 2004 previous peak.  Real Melbourne home values are 19.4% higher than their September 2010 peak.  In Brisbane, real home values peaked over the March 2008 quarter and at the end of 2016 they were still 9.1% lower than they were at that time.  Adelaide home values were 5.3% lower in December 2016 than they were at the time of their real value peak in June 2010.  Perth home values peaked in real terms all the way back in September 2007 and at the end of 2016 they were still -18.5% lower in real terms.  Real dwelling values peaked in December 2007 in Hobart and at the end of 2016 were still -14.3% lower.  Following their peak over the September 2010 quarter, Darwin dwelling values are currently -19.8% lower in real terms.  Finally in Canberra, real dwelling values are -1.4% lower than their June 2010 peak.

Although most people tend to not look at the world in inflation-adjusted terms, it is important to consider housing costs from this aspect from time-to-time.  It highlights that although the cost of housing at times escalates quickly (particularly so in Sydney and Melbourne at the moment) in real terms the growth may not be substantial. It is undeniable that Sydney home values have risen rapidly over recent years however, consider that since their previous March 2004 peak, they have only increased at a rate of 2.5%pa.  This is largely due to the fact that values fell in real terms between March 2004 and March 2014.

With inflation remaining low and values continue to rise we would anticipate that in real terms values are likely to continue to rise across most of the capital cities throughout 2017

Strong capital gains drive a surge in the number of million dollar suburbs during 2016

CoreLogic says over the five years to December 2016, the number of suburbs nationally with a median value of at least $1 million has increased by 176%. The gap between property owners and those wanting to buy has never been wider.

There was a time in which having a dwelling worth $1 million or more meant that the property was exclusive and rare.  Today dwellings with a $1 million valuation are becoming much more common.  At the end of 2016, there were 760 suburbs nationally that had a median value of at least $1 million.  This figure has increased from just 275 suburbs nationally five years earlier. Units have been the big mover with the number of $1 million suburbs increasing by 479% over the five years compared to a 160% increase for houses.

No. of suburbs with median value of at least $1 million, by state, Dec -11 vs. Dec-16

2017-02-02--image1

87% of the suburbs nationally that had a median value of at least $1 million were located in either New South Wales (70.3%) or Victoria (16.7%) up from 75.6% in New South Wales (60.4%) and Victoria (15.3%) five years earlier.

The combined capital cities accounted for 93.5% of all the $1 million suburbs in 2011 and this increased marginally to 93.6% in 2016.  This is representative of the higher cost of housing in capital city markets.  It also highlights the relatively weaker value growth performance of regional housing markets throughout recent years.

No. of suburbs with median value of at least $1 million, by capital city, Dec-11 vs. Dec-16

2017-02-02--image2

Escalating dwelling values in Sydney, and to a lesser degree Melbourne, have resulted in an increasing proportion of the suburbs with a median value of at least $1 million over the past five years.  At the end of 2011, 57.8% of the suburbs nationally with a median value of at least $1 million were in Sydney, by the end of 2016 the proportion had risen to 65.4% of suburbs nationally.  The proportion of $1 million suburbs in Melbourne has increased to 16.4% of suburbs nationally at the end of 2016 from 15.3% at the end of 2011.

Further highlighting the rapid increase in values over recent years is the data for suburbs with a median value of at least $2 million.  At the end of 2011, 39 suburbs nationally had a median value of at least $2 million.  By the end of 2016, this figure had risen to 136 suburbs nationally, an increase of 249% over five years.  At the end of 2011, 30 of the 39 suburbs were located in Sydney and by the end of 2016, 115 of the 136 suburbs were located in Sydney.

Nation’s most expensive suburbs based on
median value, December 2016

2017-02-02--image3

While rising housing values increase the asset wealth of owners, it is also reflective of the fact that for those who don’t yet own a home it is becoming increasingly difficult to save a large enough deposit in order to purchase a home.  This is particularly the case in Sydney and Melbourne where over the past five years, dwelling values have increased by a total of 68.1% and 43.3% respectively.  Meanwhile, wages are increasing at their slowest pace on record and housing affordability is once again a central them in the political debate.  The rise in suburbs with a median value of at least $1 million over recent years is reflective of the growing chasm between those that own homes and those who don’t.

Auction Clearance Rates Remain Firm

From CoreLogic.

The auction market will start to gather momentum coming into February after the seasonal slowdown over the holiday period, with auction numbers doubling over the week across the combined capital cities. There were 867 auctions being tracked by CoreLogic this week, with a preliminary clearance rate of 70.8 per cent, compared to last week’s 71.6 per cent across 368 auctions.  Although auction activity has shown a significant uplift over the week across the combined capitals; auction volumes are increasing at a slower rate than what was seen over the corresponding period last year, when 916 auctions were recorded with a similar rate of clearance (70.1 per cent). The lower volumes can be attributed to slower activity across the Sydney market, which was also evident over the same week last year, when volumes were lower over the given period compared to previous years. While the combined capital city clearance rate returned a strong result over the week, as auction numbers continue to gather pace we will get a clearer understanding if auction trends remain as strong as they were at the end of 2016.

The proportion of Australian homes selling at a loss is rising, particularly for units

From Business Insider.

Residential property prices skyrocketed in Sydney and Melbourne last year.

They jumped by more than 10%, taking the increase in the median property price in both cities from 2009 to over 80%, according to data released by CoreLogic.

Enormous gains in anyone’s language, delivering some equally enormous profits to owners for simply holding property.

That fact is underlined by the latest “Pain and Gain” report from CoreLogic, a snapshot on the proportion of properties that sold for a higher price than which they were previously bought for during a particular quarter.

In the September quarter last year, only 2.3% of all properties sold in Sydney, and 4.9% in Melbourne, were done so at a loss, well below the national average of 9.4%.

And, as this table from CoreLogic shows, the proportion of loss-making sales for houses were well below those for units during the quarter, with the exception being Sydney.

Source: CoreLogic

“Across the combined capital cities, the report shows that houses were almost half as likely to be resold at a loss compared to units over the September 2016 quarter, with the figures recorded at 5.6% and 10.2% respectively,” said CoreLogic.

With most properties selling for a higher price than what they were bought for, CoreLogic said that $A17.0 billion in realised profits were recorded during the quarter, dwarfing the $A477.9 million figure seen for loss-making sales.

Put another way, the average gain for a profitable sale was $A262,672 during the quarter. In comparison, the average loss was just $A71,529 over the same period.

While the proportion of loss-making sales in Sydney and Melbourne remain at historically low levels, from a national perspective, CoreLogic says the proportion of loss-making resales for both houses and apartments have trended higher over the past year.

This chart from CoreLogic shows the national percentage of loss-making house and unit transactions going back to 1998.

Source: CoreLogic

And while loss-making sales in Sydney and Melbourne remain low from a historical perspective, that was offset by a noticeable lift in those capitals most aligned to the mining sector.

“Although the occurrence of losses rose over the quarter, in most cites the instances of homes reselling at a loss is low with the exceptions being Perth where almost two out of every five dwellings resold at a loss and Darwin where approximately three out of every 10 resales was at a loss over the quarter,” said Cameron Kusher, head of research at CoreLogic.

Here’s the historic trend in loss-making sales in Sydney, Melbourne, Brisbane and Adelaide.

Source: CoreLogic

And for Perth, Hobart, Darwin and Canberra.

Source: CoreLogic

While loss-making sales in Perth and Darwin remain well above the national average, there’s tentative evidence to suggest that the price cycle in both these capitals is now close to bottoming, suggesting that the proportion of properties being sold for less than what they were bought for may begin to decline in the quarters ahead.

We’ll get further clarification on that front later this week when CoreLogic releases its monthly capital city home value index for January.

More than 50% Investment Lending In NSW

From CoreLogic.

The Australian Bureau of Statistics (ABS) released lending finance earlier today and when it is paired with the earlier housing finance data release, the figures provide insight into the value of mortgage lending over the month in each state and territory.  Over recent months investor demand for mortgages has been trending higher and this is being largely driven by resurgent investor demand in New South Wales and Victoria.  Of course the capital cities of these two states have consistently recorded the strongest value growth of all capital cities over the past five years and also have the lowest rental returns.

The data analysed is based on the value of mortgage finance commitments.  Given this it is important to consider that more expensive markets (such as NSW) will tend to result in borrowers taking out larger mortgages whereas borrowers in more affordable markets will generally take out smaller mortgages.  More than half of all the mortgage lending to investors in November 2016 was lent in New South Wales and with a further 24.5% in Victoria, three quarters of all mortgage lending to investors occurred in the two most populous states.

Looking only at new lending (that is excluding refinances) investors accounted for 56.7% of the value of lending in New South Wales in November 2016.  Looking over the past four years, the value of new lending to investors in New South Wales has been greater than new owner occupier lending for 42 of the past 48 months.  Victoria was previously seeing slightly more than 50% of new lending to investors but was recorded at 45.0% in November 2016.  Across the remaining states and territories, the proportion of total new lending to investors in November 2016 was recorded at: 39.7% in Queensland, 37.1% in South Australia, 31.0% in Western Australia, 26.1% in Tasmania, 40.3% in the Northern Territory and 38.7% in the Australian Capital Territory.

It’s clear that demand for mortgages from the investor segment is picking up, particularly in New South Wales and Victoria, which are proxies for Sydney and Melbourne respectively.  With a low cost of borrowing and many owner occupiers having seen substantial increases in housing equity in Sydney and Melbourne over the past 4.5 years it is easy to understand why investor demand is rising.  On the other side of things, you have a value growth phase that has now run for 4.5 years, largely focussed on two major cities and rental returns at historic low levels in these cities.  Investors should be considering the potential risks, especially as housing supply is responding and that the value growth phase is now quite mature.  While many have seen a substantial increase in the value of properties and may continue to do so, at some point growth will slow.  With record low yields, slow rental growth and additional housing supply entering the market over the coming years, if investors need to start relying on rental returns rather than increase in the asset value, boosting those returns is likely to prove difficult.

Channel Nine News Does House Prices and Mortgage Defaults

A segment today from Channel Nine featured the latest data on Sydney residential property, and featured data from the Digital Finance Analytics mortgage default heat mapping, as well as the latest from CoreLogic on Home Prices.

 

Home Prices Gallop Away

The latest data from CoreLogic to December 2016 shows Perth apart, home prices rose significantly.

December 2016 saw capital city dwelling values rise by 1.4%, taking the annual capital gain for 2016 to 10.9% – the highest  growth rate for a calendar year since 2009.  Factoring in gross rental yields and capital gains, housing as an asset class, earned a total annual return of 14.7% based on the combined capital cities index results.

Across Australia’s capital cities, the annual change in dwelling values for 2016 ranged from -4.3% in Perth to 15.5% in Sydney, with Melbourne and Hobart also showing annual capital gains higher than 10%.

Whilst there may be issues with the basis of the index, this rise is so strong that it underscores the need to tighten macro prudential controls. The regulators have simply been too lax.