Clearance rates continue to trend below 70 per cent across the combined capitals

From CoreLogic.

There have been 1,840 capital city auction results reported to CoreLogic so far this week, resulting in a preliminary auction clearance rate of 69.1 per cent across the combined capital cities. There were a total of 2,323 capital city auctions held this week, down from the 2,444 held last week. This week’s preliminary result indicates that clearance rates are continuing to soften, after last week saw the final clearance rate surpass the previous week as the lowest recorded over the year to date across the combined capitals (66.7 per cent).  With results still being collected, it is likely that the final clearance rate this week will revise even lower again. However, compared to results from one year ago clearance rates are relatively similar with the 67.4 per cent rate of clearance across a slightly lower volume of auctions (2,183).

Auction preliminary clearance rate of 69.6 per cent

From CoreLogic.

There were 2,407 auctions held across the combined capital cities this week, with a preliminary auction clearance rate of 69.6 per cent. Last week, the final clearance rate fell to 67.8 per cent, recording the lowest clearance rate year to date, across 1,279 capital city auctions. This is the 3rd week in a row now where the combined capital city clearance rate has trended below 70 per cent. At the same time last year, auction volumes were lower than this week, with 2,183 properties taken to auction and a clearance rate of 67.4 per cent. Across Sydney, preliminary results show an improvement in the rate of clearance after last week’s final result saw the clearance rate drop below 70 per cent, however as more results are collected it’s likely Sydney’s final clearance rate will again slip below the 70 per cent mark.  Melbourne’s auction results have also moderated, however the clearance rates remain well above 70 per cent, indicating some resilience in selling conditions relative to Sydney.

Is sentiment, particularly housing sentiment, turning negative?

From CoreLogic.

The Westpac and Melbourne Institute’s consumer sentiment index for June 2017 was released earlier this week.  The Index was recorded at 96.2 points which was the lowest monthly reading for the index since April 2016.

When the Consumer Sentiment Index sits below 100 points it means that consumers are more pessimistic than optimistic.  The Index has now been recorded below 100 points for seven consecutive months which is the longest run of negative sentiment the Index has seen since January 2015.

Before the most recent seven months of negative readings, sentiment had been optimistic for the four months from August to November 2016.  Remember that the Reserve Bank (RBA) cut the cash rate by 25 basis points in August 2016.  Sentiment was also optimistic between May and June 2016 following a 25 basis point cut in official interest rates in May 2016.  Over the previous few years, the only instances in which sentiment would reach optimistic territory coincided with those months in which the RBA cut official interest rates.  This would seem to suggest that consumers are extremely sensitive to interest rate movement, which really isn’t a surprise given that household debt is at a record high meaning households are very sensitive to fluctuations in mortgage rates.  While there has been no movement in the cash rate since August last year, many lenders have been increasing mortgage rates and it seems that this is feeding into a deterioration of consumer sentiment.

Further highlighting the sensitivity of households to movements in interest rates is the time to buy a dwelling index which is a subset of the consumer sentiment index data. In June 2017 the time to buy a dwelling index was recorded at 90.9 points and although that is slightly higher than over the previous month the time to buy a dwelling index is hovering around the lowest levels seen since the financial crisis.  Australians tend to be bullish on housing and its prospects however, this data shows that sentiment towards housing has been consistently negative since February of this year.

Across the states, South Australia is currently the only one in which sentiment towards buying a dwelling is currently trending higher.  In the two states which are home to the hottest housing markets, New South Wales and Victoria, on a rolling three month basis sentiment has consistently been more pessimistic than optimistic since March of this year and June of last year respectively.  Importantly, as the growth phase in Sydney and Melbourne dwelling values has continued there has been an ongoing sentiment decline.  Of course just because sentiment around purchasing homes has declined it hasn’t really stopped the growth in values but with more substantial declines recently perhaps this is signalling a realisation that the value growth has come or is coming to an end.

The quarterly release of consumer sentiment data highlights respondent’s selection for the wisest place for savings and over recent quarters there have been some significant declines in respondents choosing real estate.  The June 2017 quarter showed that 13.3% of respondents chose real estate as the wisest place for savings.  Of course, real estate isn’t just residential property but there has been a substantial weakening over recent years as highlighted in the above chart.  Although June’s result was higher than the March 2017 result, it remains well below recent levels.  Despite the moderate quarterly increase, the proportion of respondents choosing real estate as the wisest place for savings is sitting at historically low levels.

The consumer sentiment data is only one set of data suggesting sentiment towards housing may be turning however, it is a timely measure with a good track-record.  Furthermore when it is paired with other data there are now a number of data points indicating weaker housing conditions.  These include but are not limited to:

  • Monthly building approvals having fallen well below recent peak levels
  • The total value of housing finance commitments have eased, particularly for investors
  • Migration data showing that migration away from Sydney has accelerated which is likely a result of deteriorating housing affordability
  • The monthly change in housing credit growth slowing, particularly for investor housing
  • Auction clearance rates having eased from recent highs in both Sydney and Melbourne
  • In Sydney there has also been a noticeable increase in the number of properties advertised for sale relative to a year ago
  • Lenders have been increasing mortgage rates; more so for investors but owner occupier rates have also increased.

As time progress there is mounting evidence that housing markets, particularly Sydney which has been the hottest, have lost momentum.  The consumer sentiment data is also supporting the notion of a cooler housing market and we are growing increasingly confident that the housing market is at or extremely close to its peak if not slightly past the peak already.

Auction Rates Lower This Week

From CoreLogic.

The number of auctions held this week saw a significant decrease, with 1,265 properties taken to market across the combined capital cities, down from 2,578 over the week prior. The decrease in auction activity this week is attributable to the Queen’s Birthday public holiday this Monday, which has affected activity across most states, including Australia’s two largest auction markets. The lower volume is consistent with what is historically seen over this period, with 1,100 auctions reported over the same week last year. Last week saw the final auction clearance rate revise lower to reach 69.8 per cent; an equal second lowest clearance rate for the year so far.  The final clearance rate last week was the lowest over 2017 to date in Sydney and Melbourne.  This week the preliminary auction clearance rate increased slightly to 71.8 per cent, however it is typical to see clearance rates revise lower as final results are collected.

Preliminary clearance rate holds above 70% as the number of auctions held slips lower

Confirming the Domain data we reported on Saturday, CoreLogic says the first week of winter saw auction volumes fall, with 2,545 homes taken to auction, compared to 2,885 the previous week.

The preliminary clearance rate across the combined capital cities was higher (73.9 per cent) compared with last week’s finalised result, which was the third lowest clearance rate so far this year (71.3 per cent). With auction clearance rates typically revising lower as more results flow through, the final clearance rate is likely to be lower than what was recorded last week.  At the same time last year, both the combined capital city clearance rate and the number of auctions were lower, with 2,008 auctions held and 68.2 per cent reported as successful. The two largest auction markets, Melbourne and Sydney, saw their preliminary clearance rates rise compared with last weeks finalised results, with Sydney at 77.5 per cent and Melbourne at 75.4 per cent. Across the smaller capital city markets, week-on-week results show mixed results with clearance rates falling in Brisbane and Canberra.

NSW first home buyer demand set to surge post July 1

From CoreLogic.

Abolishing stamp duty for first home buyers is likely to create some headaches for eligible buyers who have recently entered into contracts. Additionally we can expect first home buyer activity to stall before surging higher on July 1 2017. The long term outcome may be self-defeating due to higher demand pushing up prices.

The decision yesterday by the News South Wales Government Premier Gladys Berejiklian to provide first home buyers with a stamp duty exemption for properties with a price tag under $650,000 is likely to boost demand for this under represented segment of the market. Based on recent Australian Bureau of Statistics (ABS) data, first home buyers comprised only 8% of owner occupier mortgage commitments in March 2017, which is only marginally higher than the record low of 7.5% recorded in September last year and well below the long term average of 17%.

According to the latest CoreLogic ‘Perceptions of Housing Affordability’ report, it highlighted that across New South Wales the largest proportion of respondents (48%) identified that stamp duty was the most significant obstacle to housing affordability. Additionally, almost three quarters of respondents (74%) felt that removing or reducing stamp duty would be an effective way to improve housing affordability in New South Wales.

Clearly the state government is responding to one of the most significant pain points for prospective buyers.

The current policy provides a stamp duty exemption to first home buyers purchasing a new home with a price tag under $550,000. The new policy has substantially broader scope, providing an exemption for both new and established housing with a price tag under $650,000 and sliding discounts up to $800,000.

To put these limits into context, over the past twelve months, 45.4% of dwellings sold across New South Wales had a price tag of $650,000 or less and 58% of dwelling sales had a price tag $800,000 or less. The proportion of properties that meet the exemption criteria falls away sharply if the analysis is confined only to the Sydney metropolitan area where 25.8% of dwelling sales over the past twelve months were at a price of $650,000 or less.

With a substantial premium on detached housing, the proportions are also substantially different between the broad product types. The past twelve months saw 20.0% of Sydney houses sell for $650,000 or less while unit sales comprised just over one third of all sales (33.5%) at or below this price.

Additionally, with investor demand likely to be slowing due to higher mortgage rates, tighter credit policies and low yields; there is the potential that a rise in first time buyer demand could fill the ‘hole’ left by fewer investors in the market and offset the recent slowdown in the pace of capital gains.

First home buyers still need to contend with the challenges of raising a deposit, which is another major barrier to market entry. Housing prices in Sydney are the highest amongst the capital cities, with the latest data from CoreLogic putting the median house price at just over $1 million and median unit price at just under $743,000. Those buyers who can’t stump up a 20% deposit have been given another leg up, with stamp duty for lenders mortgage insurance also abolished.

Stamp duty on lenders mortgage insurance is charged at 9% of the premium; so a first home buyer with a 5% deposit on a $650,000 property is likely to save themselves around $2,250 (based on a premium of $25,000).

Removing or reducing the transactional costs for first home buyers is likely to provide both positive and negative consequences across the New South Wales housing market.

From a positive sense, policies aimed at improving housing accessibility for first time home buyers are likely to be positively received. Sydney is Australia’s most unaffordable housing market by any measure, and for many buyers, the cost of entry, including stamp duty and raising a deposit, is the most significant barrier to entry. On a $650,000 dwelling purchase, a non-first home buyer would be paying stamp duty costs of around $25,000; so the exemption is a substantial cost saving for a first home buyer.

On the negative side, it’s widely accepted that policies aimed at stimulating demand tend to push prices higher; there is a possibility that the new policy could ultimately be self-defeating, increasing housing demand which could place further upwards pressure on the price of housing which will exacerbate the affordability challenges even further.

The new policy comes into effect on July 1st, so we can expect first home buyer sales to stall over the remainder of June and likely surge higher from the beginning of the new financial year. For those buyers who are potentially eligible for the new exemptions but have recently entered into contacts, there is likely to be some severe disappointment that these rules aren’t applied retrospectively.

Auction Clearance Rate Remains Strong

From CoreLogic.

The amount of auction activity across the capital cities increased slightly this week, up from 2,824 last week to 2,850 this week, while this time last year auction volumes were lower, with 2,480 homes taken to auction across the combined capital cities.

This week’s preliminary weighted average clearance rate across the combined capitals was 74.6 per cent, increasing from 73.1 per cent over the previous week and up from 67.7 per cent one year ago. Melbourne saw the highest preliminary clearance rate across the cities at 77.3 per cent, down slightly from last week, while across the remaining cities; clearance rates increased week-on week with the exception of Adelaide and Tasmania where clearance rates fell.

 

CoreLogic numbers dispel smashed avo theory

From The Real Estate Conversation.

The 20% deposit and stamp duty required to buy a house in Sydney is $158,933, based on new CoreLogic data. That’s equivalent to 20 years’ worth of smashed avo.

The 20 per cent deposit and stamp duty required to buy a house in Sydney is $158,933, according to new data from CoreLogic. That’s the equivalent of 7,224 serves of $22 avocado on toast – or avocado on toast every day for 20 years.

Even in the nation’s most affordable city, Hobart, buyers must accumulate $64,477 for the deposit on a house and to cover stamp duty. That’s 2,930 serves of your favourite brekkie – or avo on toast every day for eight years.

Source: CoreLogic.

The numbers put Bernard Salt’s jocular observation of young adults wasting money on smashed avo into perspective: even if young Australian do give up extravagant brunches and put the funds towards saving for a house, it will take years, even decades, to accumulate enough cash for the deposit and stamp duty on a home.

Core Logic has used house and apartment prices in the 25th percentile to compile the data, considering that first-home buyers are generally purchasing at the more affordable end of the property spectrum.

Cameron Kusher, research analyst with CoreLogic, said the research does not factor in stamp duty exemptions below a certain price threshold in some states.

Kusher also said it’s not always necessary to have the whole 20 per cent deposit, although a lesser deposit will usually mean that required lenders mortgage insurance, which is an additional cost for the home buyer.

In a paper on the research, Kusher said housing affordability is worsening as property prices soar higher as wages growth stagnates.

In the 12 months to April 2017, Sydney dwelling values increased by 16.0 per cent, and Melbourne values rose 15.3 per cent. Yet household incomes in Sydney only rose 4.6 per cent in the year to March 2017, while household incomes rose a mere 2.7 per cent in Melbourne, according to data from the Australian National University

“Entry into the housing market remains a real challenge,” said Kusher.

“Even in cheaper areas, household income growth is fairly slow which makes saving a deposit difficult,” he said.

“It is unclear as to how, absent a big fall in property prices, housing affordability for first home buyers can be greatly improved,” he said.

So eat your smashed avo and enjoy it; scrimping on brunch isn’t going to be enough to buy you a property in the current market.

Sydney and Melbourne Home Price Slide

Latest data from CoreLogic shows a continued slide in the major markets  this month. Brisbane (inc. Gold Coast) are the only positive markets.

Still too soon to know whether this is significant, (there were changes made to their index last year which may impact the results), but the annual changes are still strong in the two largest markets.

 

Auction activity rises week-on-week

From CoreLogic.

Auction activity across the combined capital cities increased this week, up from 2,409 auctions last week, to 2,794 this week, making it the sixth busiest week this year. This weeks weighted average clearance rate across the combined capitals was 77.2 per cent, increasing from a final clearance rate of 72.8 per cent over the previous week, while at the same time last year, both volumes (1,920) and the clearance rate (68.9 per cent) were lower.

The two largest auction markets, Melbourne and Sydney, saw their preliminary clearance rates rise, with Sydney at 80.7 per cent and Melbourne at 79.2 per cent, although Sydney, and to a lesser extent Melbourne, tend to revise down over the week when the remaining results are captured. Over the previous week, Sydney’s preliminary clearance rate of 79.4 per cent was revised down to 74.5 per cent when finalised.  Across the smaller capital city markets, Brisbane was the only city where preliminary clearance rates fell week-on-week so again it will be interesting to see how the clearance rates hold when the final figures are released on Thursday.