Australian housing values continue to drift lower, according to CoreLogic, falling 0.6 per cent in July.
Australian housing values racked up a third consecutive month of declines in July, with CoreLogic’s home value index dropping 0.6 per cent over the month, a slight improvement from June when the national series was down 0.7 per cent.
Across the capital cities, only Canberra (+0.6 per cent) and Adelaide (+0.1 per cent) posted a rise in dwelling values over the month, while Melbourne (-1.2 per cent) and Sydney (-0.9 per cent) led the decline, recording the largest month-on-month falls in July.
Regional markets are generally showing more resilience to falling values.
At a Glance:
Across the combined regional areas, housing values were unchanged in July compared with a 0.8 per cent fall across the combined capital cities index.
Regional Victoria (-0.5 per cent) and regional Western Australia (-3.2 per cent) were the only non-capital city markets to record a fall in values over the month.
Source: CoreLogic
According to CoreLogic’s head of research, Tim Lawless, housing markets have remained relatively resilient through the COVID period so far.
“The impact from COVID-19 on housing values has been orderly to-date, with CoreLogic’s national index falling only 1.6 per cent since the recent high in April and housing turnover has recovered quickly after it’s sharp fall in late March and April," said Mr Lawless.
“Record low interest rates, government support and loan repayment holidays for distressed borrowers have helped to insulate the housing market from a more significant downturn.
"Advertised supply levels have remained tight, with the total number of properties for sale falling a further 4.3 per cent in the 4 weeks to July 27th , sitting 15.2 per cent below where they were this time last year.
"Additionally, increased demand driven by housing specific incentives from both federal and state governments, especially for first home buyers, have become more substantial.”
Source: CoreLogic
However, with fiscal support set to taper from October and repayment holidays expiring at the end of March next year, Mr Lawless believes the medium term outlook remains skewed to the downside.
“Urgent sales are likely to become more common as we approach these milestones, which will test the market’s resilience," said Mr Lawless.
"Similarly, the recent concerns of a second wave of the virus and the potential for renewed border closures and stricter social distancing polices are likely to further push consumer sentiment down.
"This is likely to weigh on both home buying and selling activity more broadly.”
Real estate agent activity
After plummeting by around 60 per cent between mid-March and Easter, real estate agent activity across CoreLogic platforms is now tracking at similar levels compared with 2019.
Real estate agent activity is highly correlated with the number of new listings coming on the market, with a two week lead.
The number of newly advertised properties is up 46 per cent from the recent lows of early May.
Source: CoreLogic
Nationally, the rolling 28 day count of new listings was 1 per cne% higher than a year ago, with new capital city listings tracking 8.9 per cen% above levels recorded this time last year.
The recovery in new listing numbers aligns with higher consumer sentiment readings; although measures of consumer sentiment have recently trended lower, consumer spirits remain well above the recent April lows.
The rise in fresh listings implies home owners have become more willing to test the market.
While new listings are ramping up, the total listing count remains 15.2 per cent below last year’s level nationally and 12.5 per cent lower across the combined capitals.
The diverging trend between new and total listing numbers implies a strong rate of absorption where demand for established housing stock is outweighing advertised supply.
Auction markets
Auction markets showed a temporary recovery through June and early July but have since weakened as Melbourne moved back into lockdown.
Source: CoreLogic
Auction volumes have been tracking higher than a year ago since late June and auction clearance rates had been hovering around the decade average (61 per cent) since the second week of May.
Since early July, clearance rates have trended lower due to a substantial rise in withdrawn auctions in Melbourne.
Consumer sentiment
Consumer sentiment readings weakened through July signposting a reduction in housing market activity.
After recovering from recessionary lows in April, consumer sentiment is again weakening due to concerns associated with the second wave of the virus in Melbourne, and growing case
numbers nationally and internationally.
Consumer sentiment readings show a high correlation with housing market activity, so the recent downward trend implies home buyers and sellers may once again retreat to the sidelines.
Sales activity
Sales activity has trended higher since May.
After home sales plunged by about one third in April, sales activity has consistently improved.
CoreLogic estimates for national sales over the past three months were tracking 2.9 per cent higher than the same period in 2019.
Source: CoreLogic
The rebound in CoreLogic estimates of sales activity is validated by the strong rate of listings absorption, a similar lift in purchase related valuations and improvements in consumer sentiment.
However, the recent slump in sentiment amidst a new wave of the virus could interrupt the rise in home sales until restrictions are lifted and confidence returns.
The most expensive quartile of housing continues to lead the downturn.
“Higher value markets tend to be more reactive to changes in the economic environment, having led both the upswing and the downturn over previous cycles," said Mr Lawless.
"The COVID related downturn has seen this trend playing out again, with upper quartile values down 2.9 per cent across the combined capital city index since the end of March, while lower quartile values have fallen by only 0.5 per cent.”
This capital city trend is driven mostly by Sydney and Melbourne, while the smaller cities have shown a mixed result across value segments.
In Sydney, upper quartile values are down 2.5 per cent over the past four months, while lower quartile values are virtually flat at -0.1 per cent.
Similarly, over the same period in Melbourne, upper quartile values are down 5.2 per cent while lower quartile values have declined a more modest 1.2 per cent.
Importantly, the upper quartile of these markets also recorded the most significant run-up in values throughout the second half of last year and into early 2020.
Rental rates
Rental rates have continued to trend lower through July, with the weakest rental conditions emanating from Hobart, Sydney and Melbourne, and the unit sector driving the largest falls.
Since March, capital city house rents have dropped by only 0.3 per cent while over the same period unit rents are down a more substantial 2.6 per cent.
Hobart stands out as recording the largest decreases, with rents for houses down 2 per cent, and units down 4.4 per cent since March.
According to Mr Lawless, weaker rental conditions are most evident in those markets where rental demand has been impacted by border closures and supply additions.
“Some inner city areas of Melbourne and Sydney have seen rental listings more than double since March due to the combined effect of temporary migrants departing, and overseas arrivals, including foreign students, stalling.
Source: CoreLogic
Compounding this weak demand position is the surge in construction activity and investment over previous years, which has added to inner city rental supply.
Mr Lawless notes other factors are also impacting rental markets.
“Anecdotally, the transition of short-term accommodation, namely Airbnb, to permanent rentals is temporarily adding to supply," said Mr Lawless.
"Additionally, the significant employment decline across food and accommodation services, arts and recreation services is compounding the weak rental demand as these sectors workers are more likely to rent.
"To date these sectors have seen the largest number of job losses and impact to wages.
"With the second wave of social distancing policies and border closures, these workers are once again facing hardship.”
Perth and Adelaide are showing the strongest rental conditions amongst the capital cities.
These markets have also generally seen lower levels of investor participation, and less ‘investment grade’ construction over recent years, which has kept rental supply
reasonably tight.
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