The Australian property market has delivered an early Christmas present to sellers, in the form of the past month’s surging house prices – a leap of 1.7% across the country. The increase is bigger than for any one month in the last 16 years. And with interest rates once again frozen after the Reserve Bank of Australia’s last monthly meeting for the year, surface indications are that the market will be kind to potential buyers as well. However, a few contradicting factors may dampen any run away enthusiasm in the market’s future, and infuse a little caution into the mix.
November 2019 marks the fifth month in a row where prices have increased nationwide. The usual suspects of Sydney and Melbourne led the way, recording upswings of 2.7% and 2.2% respectively. Sydney’s November result was the highest for any month since the heady days of 1988, when property prices recorded a dramatic 3.5% spike. Perth recorded its first monthly increase for two years with a 0.4% price lift, while Adelaide prices increased by 0.5%. Darwin was the only major centre to miss out.
Solid structural data
Not surprisingly, the Federal Government was quick to jump on the Australian real estate surge as evidence of greater confidence across the economy since the May election. Treasurer Josh Frydenberg argued the Coalition’s rejection of new taxes has put the market back on a stable footing.
That may be political spin, but the Government is justified in putting up the Christmas lights in the property sector. One significant factor in the market’s confidence is the RBA’s willingness to keep lowering or holding the floor on interest rates. Added to this are regulatory changes introduced by the Australian Prudential Regulation Authority (APRA), which have done away with minimum serviceability levels on mortgage repayments, clearing room for more buyers to enter the market.
Another upside for sellers is the lack of supply of new housing stock. Australian Bureau of Statistics figures show a 0.8% drop in approval for new construction over the last month. This rolls into an annual trend showing overall dwelling approvals have dropped by 23.6% in the year to October 2019.
Other, broader indicators offer a more sobering perspective on these latest figures – that is to say, this is a Christmas gift that still needs to be unwrapped.
- The business landscape is tightening, with capital expenditure for the September quarter dropping by 0.2% and gross profits falling off by 0.8% in the same period.
- Consumer spending is also showing signs of weakening, although “Black Friday” sales added a much needed boost.
- Lowering consumer confidence is being aided by less than inspiring employment figures with unemployment at 5.3%, underemployment at an alarming 8.5% and sluggish wage growth for those in work.
- Poor GDP growth for the last few years adds a further drag to consumer confidence, with a resultant knock-on effect for prospective buyers.
According to CoreLogic’s national market assessment to the end of October 2019, the broad decline in property values between October 2017 and June 2019 is starting to recover. National dwelling value is now 2.9% higher than the June 2019 low point. But, with current values still 5.7% short of their peak, there’s still room to recover.
The spread of housing value increases suggests a more diverse trend, with 38 of the 46 capital city sub-regions that CoreLogic surveyed showing property values increasing in the three months to the end of October 2019. Regional areas around Sydney and Melbourne as well as numerous coastal hot spots also contributed to the geographic spread of this recent trend.
Six months ago, many in the property sector were gnashing their teeth as they stared into a sharply falling market and a looming election. The worst of that period now may be over as some areas report their strongest activity for many years.
All told, property sellers can now look forward to a Christmas of good cheer, and a renewed outlook for the coming year.