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Quarterly Economic ReviewThe Australian Residential Property

Market and Economy

Released May 2018

The Australian Residential Property

Market and Economy

Introduction 3

Housing Market 4

Mortgage Lending 11

Housing Supply 17

Demographic Overview 20

Household Finances 22

National Accounts 25

Inflation 26

Consumer Sentiment 27

Conclusion 28

About CoreLogic 30

Disclaimers 31

Contents





Market and Economy

Nationally, dwelling value growth has stopped in its

tracks, in fact, over the first quarter of this year,

national dwelling values have fallen by -0.5%.

Although the quarterly rate of decline has slowed

compared to recent months, it was the largest fall in

values over a first quarter of the year since 2016. Over

the 12 months to March 2018, dwelling values

increased by 1.2% which was much lower than the

9.1% a year earlier and the slowest annual rate of

growth since December 2012.

The slowdown in dwelling value growth is occurring in

most capital cities, with Brisbane and Hobart the only

two cities to have recorded value falls to-date. Sydney

is leading the recent slowdown with values falling by

-3.9% from their peak while Perth (-10.8%) and Darwin

(-21.6%) have been in decline for a number of years,

the falls in Melbourne (-0.7%), Adelaide (-0.4%) and

Canberra (-0.2%) have been fairly minor to-date.

The decline in dwelling values across most capital

cities is interesting. A fall in values in Sydney and

Melbourne is somewhat understandable given surging

values over recent years which have led to

deteriorating housing affordability and record low rental

yields. Furthermore, investors were a key driver of

demand and increased regulation leading to higher

interest rates have led to a slowing of demand from this

segment. But outside of Sydney and Melbourne values

have not really surged nor have investors comprised a

larger than normal proportion of market activity. The

recent weakness is likely linked to overall housing

market sentiment and tighter credit policies impacting

on other capital city markets.

While capital city markets may be seeing weaker

housing conditions, regional markets, particularly those

in lifestyle areas close to capital cities are faring much

better. Geelong is now experiencing a faster rate of

annual growth than Melbourne. Annual growth in

Illawarra, as well as Newcastle and Lake Macquarie is

stronger than that of Sydney. The Gold and Sunshine

Coasts have recorded stronger annual value growth

than Brisbane. It seems that many of those who have

seen the value of their properties rise substantially in

Sydney and Melbourne over recent years may be

cashing out and moving to lifestyle markets where

housing costs are much lower than those in these

capital cities. Additionally, the more affordable price

points are likely seeing demand ripple away from

Sydney and Melbourne as buyers look to purchase

within their budgets.

The past few years have been characterised by high

rates of population growth nationally and a heightened

level of new housing construction activity, particularly

for units. The construction boom has facilitated an

increase in dwelling accommodation however, it has

also occurred at the same time as historic high levels of

investment activity in the housing market, with

investment largely focused within Sydney and

Melbourne. Residential developers have ramped up

the construction of new dwellings, supported by strong

demand for their stock, with much of this demand

coming from investors that have been attracted by the

strong capital gains on offer in Sydney and Melbourne,

as well as tax deductibility of investment costs. Over

the period Australia has also seen a sharp rise in the

level of foreign investment in housing stock. More

recently investment has slowed due to a combination of

credit rationing and higher mortgage rates for investors

as well as those not paying down the principal on their

mortgage. This has also occurred in line with a slight

pull-back in new housing construction. Although both

investment and construction activity has slowed both

remain substantially higher than long-term average

levels.

CoreLogic previously had concerns that heightened

levels of new housing construction and investor

participation would cause rents to fall. The latest data

indicates that although rents are still higher over the

year the rate of growth is slowing. In fact, the first

quarter of this year was the weakest first quarter for

rental growth in Sydney since 2009 and the weakest in

Melbourne since 2012. While rental growth is slowing

in most capital cities, a lack of supply is leading to

surging rents in Hobart.

Low mortgage rates have not been enough to avoid

recent dwelling value declines. While affordability is

stretched in Sydney and Melbourne and falls are

somewhat understandable, tighter new mortgage

policies are likely a key driver of the housing market

weakness. With a Royal Commission underway into

banking it is reasonable to expect that getting a new

mortgage is set to become even more difficult. Given

this, it is reasonable to anticipate that values are likely

to continue to decline over the coming quarters,

particularly in Sydney and Melbourne where mortgage

demand is strongest. What will be interesting to view is

the extent to which any weakness in Sydney and

Melbourne infects other housing markets across the

country.

Introduction

$7.5 trillion $2.5 trillion $1.9 trillion $0.972 trillion

Value of Residential

Property

Value of Australian

Superannuation

Value of Listed Equities Value of Commercial

Real Estate




-2.1%

5.3%

1.3% 1.7%

-2.4%

13.0%

-7.5%

2.9%0.8%

2.6%1.2%

-10%

-5%

0%

5%

10%

15%

Change in dwelling values,12 months to March 2018

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%Quarterly and annual change in national dwelling values

Quarterly change Annual change


Market and Economy

► National dwelling values fell by -0.5% over the first

quarter of 2018, following a -0.3% fall over the

previous quarter.

► Combined capital city dwelling values fell -0.9%

over the quarter while combined regional areas saw

values increase 1.1%.

► Both capital city and regional markets are recording

slower quarterly growth than they were a year ago

► Values were lower over the quarter in Sydney

(-1.7%), Melbourne (-0.5%), Adelaide (-0.4%),

Perth (-0.2%), Darwin (-0.1%) and Canberra

(-0.2%) while they were unchanged in Brisbane and

higher in Hobart (+3.4%).

► Over the past 12 months, national dwelling values

increased by +1.2% with combined capital city

values +0.8% higher and combined regional market

values up +2.6%.

► Annual value growth nationally was the slowest it’s

been since December 2012 and combined capital

city value growth is the slowest it’s been since

November 2012.

Housing Market

► Since the annual rate of dwelling value growth

peaked at 10.4% in May 2017, the rate of growth

has now slowed to 1.2%.

► Both the combined capital cities and the combined

regional markets have recorded slower annual

value growth over the past 12 months than the

previous 12 months when values were up 10.1%

and 5.2% respectively.

► While Hobart recorded the strongest annual value

growth of +13.0%, Melbourne was the only other

capital city in which values rose by more than 5%

(+5.3%).

► The other cities in which values increased over the

year were: Brisbane (+1.3%), Adelaide (+1.7%) and

Canberra (+2.9%).

► Dwelling values were lower over the year in Sydney

(-2.1%), Perth (-2.4%) and Darwin (-7.5%).

► In each capital city except for Perth and Hobart, the

annual change in dwelling values to March 2018

was lower than the annual change to March 2017.

► Over the March 2018 quarter, Sydney house values

were -2.1% lower and unit values were down -0.9%

while over the year houses were -3.8% lower and

units were +1.9% higher.

► Melbourne house values fell -0.6% over the quarter

but were +4.9% higher over the past year while

units values were unchanged over the quarter and

+6.6% higher over the year.

National dwelling values declined by -0.5% over the first quarter of 2018

Hobart was the only capital city to record double-digit value growth over the 12 months to March 2018




0.9%

8.4%

5.2% 6.1%

1.5%

18.7%

-2.3%

7.5%

4.1%

7.9%

4.8%

-5%

0%

5%

10%

15%

20%

Total returns over the 12 months to March 2018


Market and Economy

House values in Brisbane were unchanged over the

March 2018 quarter and were +1.8% higher over the

past year. Unit values were -0.5% lower over the

quarter and -1.4% lower over the year.

Over the March quarter, Adelaide house values fell -

0.5% and unit values increased +0.5%. Over the past

12 months, house values were +2.0% higher and unit

values were unchanged.

Perth house values increased by 0.2% over the quarter

but were -2.3% lower over the year. Unit values were -

2.2% lower over the quarter and -3.1% lower over the

year.

House (+3.4%) and unit (+3.6%) values were higher

over the quarter in Hobart and rose +13.4% and

+10.8% respectively over the past year.

Darwin house values increased by +1.8% over the

quarter while unit values fell -3.9%. Over the year,

house values were -6.0% lower and unit values were -

10.5% lower.

Canberra house values were unchanged over the

quarter and +3.7% higher over the year while unit

values were -0.7% lower over the quarter and +0.4%

higher over the year.

Annual total returns from housing are the lowest

they’ve been since October 2012

► The 4.8% total return from housing over the past 12

months is the lowest annual return since October

2012.

► Annual total returns across the combined capital

cities were recorded at 4.1%, the lowest returns

since September 2012.

► Total returns across the combined capital cities

were recorded at 7.9% over the past year, their

lowest returns since May 2015.

► Hobart was the only capital city in which double

digit returns were generated over the past 12

months.

► While returns were positive in all capital cities

outside of Darwin (-2.3%) each city other than

Hobart and Perth have recorded a fall in total

returns over the past year.

► Sydney’s total returns have fallen from +19.3% a

year ago to just +0.9%, the lowest they’ve been

since April 2009.

► Over the past five years, total returns nationally

have been recorded at 10.7% p.a. while Sydney

(13.7% p.a.), Melbourne (12.6% p.a.) and Hobart

(12.0% p.a.) have generated much higher returns,

while returns in Perth (2.9% p.a.) and Darwin (1.0%

p.a.) have been much lower.

Housing Market




91.1% 89.3%

19.3%20.9%

4.5%

39.6%

-1.6%

31.1%

63.0%

22.9%

53.3%

-20%

0%

20%

40%

60%

80%

100%

Change in dwelling values,January 2009 to March 2018

67.8%57.7%

20.7% 18.2%1.1%

37.1%

-10.3%

16.6%

45.8%

19.7%

39.6%

-20%

0%

20%

40%

60%

80%

Change in dwelling values over the current growth phase to March 2018


Market and Economy

► Following a decline of -6.5% between June 2010

and February 2012, national dwelling values have

increased by 39.6% since that time to March 2018.

► The chart below shows the increase in home

values across the current phase in each capital city

with Sydney and Melbourne recording a

substantially higher level of growth than all other

capital cities.

► Considering that Hobart has recorded the third

highest rate of growth at just 37.1%, with most of

that growth over the past two years, it is clear that

this growth phase has been very much focused on

Sydney and Melbourne.

► Outside of the two major capital cities and Hobart,

values have increased by 20.7% in Brisbane,

18.2% in Adelaide and 16.6% in Canberra.

► Over the period, Perth has recorded a value

increase of just 1.1% while Darwin values are

-10.3% lower.

► Interest rates are usually named as the catalyst for

such strong growth, but all cities have the same

interest rates, yet Sydney and Melbourne have

substantially outperformed all other capital cities.

As we further dissect the housing market it is clear

that demographics, investment concentrations and

labour markets are a big driver of Sydney and

Melbourne’s strength.

Housing Market

Growth in Sydney and Melbourne over recent years has eclipsed all other capital cities

► In 2008, during the financial crisis, capital city

dwelling values fell by -7.9% between March 2008

and January 2009 but with lower interest rates and

first home buyer stimulus dwelling values began to

rise thereafter.

► As has been the case with the most recent growth

phase, since the global financial shock it has been

the two largest capital cities that have seen

substantial value growth while other capital cities

have recorded relatively moderate increases in

values.

► The relative strength of the Sydney and Melbourne

economies, strong migration into those cities and a

relatively low supply of stock available for sale has

supported this growth in dwelling values while

these conditions have generally not been apparent

in other capital cities.

► Note that although Sydney and Melbourne have

recorded the strongest growth over this period,

values are now falling in both of these cities with

declines more rapid in Sydney.

► Outside of Sydney and Melbourne growth has

generally been minimal over the period.

Since value falls in 2008 housing market growth conditions have been significantly skewed towards Sydney and

Melbourne




0

10,000

20,000

30,000

40,000

50,000

60,000

70,000Monthly number of settled dwelling sales

Monthly sales 6 month average

$1,033,892

$828,720

$534,676

$460,946

$488,003

$444,613

$482,996

$675,582

$695,328

$369,548

$570,249

$756,557

$574,388

$382,887

$330,572

$403,331

$349,904

$337,708

$431,026

$575,798

$340,692

$515,180

$0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000

Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Darwin

Canberra

Combined capitals

Combined regions

National

Median house and unit values as at March 2018

Units Houses


Market and Economy

► At the end of March 2018, the national median

value of a house was recorded at $570,249 and the

median unit value was $515,180, a gap of 10.7%

► When you split the results individually to the

combined capital cities and combined regional

markets the gap between house and unit values is

wider in the capital cities (20.8%) and narrower in

the regional markets (8.5%).

► Across the individual capital cities, the premium for

houses over units is recorded at: 36.7% in Sydney,

44.3% in Melbourne, 39.6% in Brisbane, 39.4% in

Adelaide, 21.0% in Perth, 27.1% in Hobart, 43.0%

in Darwin and 56.7% in Canberra.

► In dollar terms the gaps between house and unit

prices are recorded at: $277,335 in Sydney,

$254,332 in Melbourne, $151,790 in Brisbane,

$130,374 in Adelaide, $84,672 in Perth, $94,708 in

Hobart, $145,288 in Darwin and $244,556 in

Canberra.

Housing Market Overview

Houses continue to show a premium over units across the country

► It is estimated that over the 12 months to March

2018 there were 472,123 settled dwelling sales

nationwide.

► Compared to sales over the 12 months to March

2017, the number of transactions was -6.8% lower.

Annual sales are tracking -13.7% lower than the

recent peak recorded over the twelve months

ending July 2015.

► The combined capital cities recorded an estimated

297,062 settled sales over the year which

accounted for 63% of total sales nationally.

► Capital city transactions were -8.1% lower over the

past year than the previous year while regional

market transactions were down -4.6%.

► Across the individual capital cities, the annual

change in transactions was recorded at: -9.8% in

Sydney, -11.1% in Melbourne, -9.7% in Brisbane,

+1.3% in Adelaide, +1.9% in Perth, -6.1% in

Hobart, -1.5% in Darwin and -10.0% in Canberra.

► Note that these figures only count settled sales; off-

the-plan sales will typically settle upon completion

of the project, at that time these sales will be

counted at their contract date.

► Given this, it is expected that recent years of sales

activity will be revised higher once these

settlements occur.

Settled sales transactions have continued to trend lower




0

10

20

30

40

50

60

70

80

90

Combined capital cities days on market

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Combined capital cities vendor discounting levels

► Vendor discounting measures the difference

between the initial list price and the ultimate selling

price of properties which sell by private treaty for

less than their original list price.

► Vendors that sold their homes below the initial list

price are currently discounting them by 5.7%.

► The current level of discounting across the

individual capital cities is recorded at: 5.3% in

Sydney, 4.5% in Melbourne, 5.1% in Brisbane,

6.0% in Adelaide, 8.2% in Perth, 5.2% in Hobart,

11.0% in Darwin and 4.0% in Canberra.

► Melbourne, Brisbane and Adelaide were the only

capital cities in which discounting levels are

currently lower than they were a year ago.


Market and Economy


Discounting levels have continued to reduce over recent months

► The days on market figure measures the average

time from the first listing date to the contract date

for properties sold by private treaty.

► Combined capital city homes are currently taking

an average of 50 days to sell compared to 46 days

at the same time a year ago.

► Note a seasonal spike is observed at this time of

year each year.

► At an individual capital city level, the typical days on

market is recorded at 43 days in Sydney, 30 days

in Melbourne, 73 days in Brisbane, 62 days in

Adelaide, 74 days in Perth, 28 days in Hobart, 82

days in Darwin and 56 days in Canberra.

► The typical days on market has reduced over the

past year in Adelaide (-1 day), Perth (-6 days),

Hobart (-27 days), Darwin (-15 days) and is

unchanged in Melbourne.

► In Sydney, Brisbane and Canberra homes are

taking longer to sell than they were a year ago, up

14 days, 11 days and 18 days respectively.

The length of time it takes to sell a home is slightly higher over the past year




3.5%

3.7%

3.9%

4.1%

4.3%

4.5%

4.7%

4.9%

Gross rental yields, National

0%

2%

4%

6%

8%

10%

12%Annual change in national dwelling rents


Market and Economy


► Rental rates increased by 1.1% over the March

2018 quarter and were 2.2% higher over the past

year.

► Combined capital city rents were 1.0% higher over

the quarter and 1.9% higher over the year, while

combined regional market rents were 1.2% higher

over the quarter and 3.1% higher over the year.

► The March 2018 quarter recorded slower growth

than the same quarter in 2017 (1.5%).

► Annual rental growth is now the slowest it has been

since May of last year.

► Over the quarter, rents fell in Darwin (-0.3%) and

increased in Sydney (+0.5%), Melbourne (+1.2%),

Brisbane (+1.1%), Adelaide (+1.0%), Perth

(+1.7%), Hobart (+5.0%) and Canberra (+2.3%).

► Over the past 12 months, rental rates fell in Perth

► (-1.3%) and Darwin (-1.6%) and increased in

Sydney (+1.7%), Melbourne (+3.5%), Brisbane

(+0.6%), Adelaide (+2.2%), Hobart (+11.7%) and

Canberra (+4.2%).

Rental growth has started to slow over recent months, particularly within Sydney and Melbourne

► At the end of March 2018, the gross rental yield

nationally was recorded at 3.7%, 3.4% across the

combined capital cities and 4.9% across the

combined regional markets.

► Houses (3.5%) have lower gross yields than units

(4.2%) nationally as well as across the combined

capital cities (3.2% vs. 3.9%) and combined capital

regional markets (4.8% vs. 5.2%).

► Across Australia, gross rental yields have softened

over recent years however, they have started to lift

marginally over recent months.

► Throughout the individual capital cities, gross rental

yields are currently recorded at: 3.2% in Sydney,

2.9% in Melbourne, 4.4% in Brisbane, 4.3% in

Adelaide, 3.9% in Perth, 5.0% in Hobart, 5.8% in

Darwin and 4.6% in Canberra.

► Gross rental yields are currently higher than they

were a year ago in Sydney, Darwin and Canberra

however, yields have firmed in most cities over

recent months.

► With rental growth remaining firm in most areas and

value growth slowing we expect to see some

further increases in yields over the coming year.

With dwelling values falling and rents continuing to rise, rental yields have started to lift




Quarterly Review | September 2017




$0

$2

$4

$6

$8

$10

$12

$14

Bill

ion

s

Monthly value of owner occupier housing finance commitments by type

Construction of dwellingsPurchase of new dwellingsRefinance of established dwellingsPurchase of established dwellings

Source: CoreLogic, ABS

$0

$5

$10

$15

$20

$25

Bill

ion

s

Monthly value of housing finance commitments, National

Owner occupier Investor



Market and Economy

Mortgage Lending

► There was $33.5 billion in housing finance

commitments in February 2018 to Australian

lenders.

► The total value of housing finance commitments

increased by 1.0% in February 2018 and was 2.1%

higher year-on-year.

► The $33.5 billion in commitments was split between

$21.5 billion to owner occupiers and $12.0 billion to

investors.

► The value of owner occupier housing finance

commitments (including refinanced loans)

increased by 1.3% over the month and was 7.2%

higher year-on-year.

► Finance commitments to investors increased by

0.5% in February however, they were -5.9% lower

year-on-year.

► The ongoing changes to lending policies for

investors has led to less mortgage activity across

this segment however, stamp duty concessions in

NSW and Vic for first home buyers and low interest

rates continues to support demand from the owner

occupier segment.

Housing finance commitments to owner occupiers are trending higher as commitments to investors trend

lower

► In February 2018, the $21.5 billion in owner

occupier housing finance commitments was split

between: $2.0 billion for construction of dwellings,

$1.2 billion for purchase of new dwellings, $6.5

billion for refinancing of established dwellings and

$11.8 billion for purchase of established dwellings.

► Owner occupier lending has been rising on the

back of increases in lending for all sectors over the

past year except for refinances.

► Year-on-year, finance commitments were higher for

construction of dwellings (+6.4%), purchase of new

dwellings (+28.1%), refinancing of established

dwellings (+6.5%) and purchase of established

dwellings (+6.0%).

The value of lending to owner occupiers is trending higher




0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000Monthly number of owner occupier first home buyer finance

commitments


$0

$2

$4

$6

$8

$10

$12

$14

$16

Bill

ion

s

Monthly value of investor housing finance commitments by type

Construction of dwellings Purchase of established dwellings



Market and Economy

Mortgage Market

► In February 2018 there was $12.0 billion in housing

finance commitments to investors, consisting of

$1.2 billion for construction of dwellings and $10.8

billion for established housing.

► Lending for construction of dwellings rose over the

month (+9.1%) and year (+18.0%) while lending for

established dwellings fell over the month (-0.4%)

and year (-8.0%).

► The value of investor housing finance commitments

had been easing on the back of higher mortgage

rates to investors and other policy constraints

restricting lending to this segment.

► As at February 2018, the value of investor housing

finance commitments was -17.8% below its historic

peak.

► Although the value of lending to investors has

fallen, investors accounted for 44.5% of the total

value of new finance commitments (excluding

refinances) in February which was well above the

long-run average share of 34.3%.

► New South Wales and Victoria have seen

heightened levels of investor borrowing over recent

years with New South Wales’ much higher than

Victoria’s level, and the recent increases in

mortgage rates to investors, as well as tighter

lender credit policies, are most likely to impact on

demand within those markets where investors have

been most active.

Lending to investors is well below its peak but significantly higher than long-term levels

► Data on owner occupier housing finance

commitments to first home buyers shows that there

were 8,782 commitments in February 2018.

► Although February is a seasonally slower period of

the year, the volume of commitments were 4.8%

higher over the month and 33.1% higher than at the

same time last year.

► A big driver of the rebounding first home buyer

numbers has been the removal of stamp duty for

first home buyers under certain price thresholds in

NSW and Vic from July 1, 2017.

► Comparing the number of first home buyer

commitments to last year across the states shows

volumes are higher in NSW (+103.3%), Vic

(+38.6%), Qld (+3.8%), SA (+17.8%), Tas (+2.2%),

NT (+26.8%) and ACT (+177.7%) and are lower in

WA (-0.1%).

Owner occupier first home buyer finance commitments have surged higher over recent months




$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

Bill

ion

s

Quarterly value of new interest-only mortgages

Source: CoreLogic, APRA

0%

5%

10%

15%

20%

25%

30%

Monthly proportion of new mortgages on a fixed rate home loan


$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000Average owner occupier loan size, monthly



Market and Economy

Owner occupier average loan sizes have eased over

recent months but are higher over the year

The average new mortgage size to owner occupiers

was recorded at $382,200 in February 2018.

Average mortgage sizes have fallen over the each of

the past two months however, they are 8.1% higher

year-on-year.

First home buyer average loans sizes are $327,700 and

have increased by 6.1% over the year

Non-first home buyer average loan sizes sit at $394,100

and have increased by 9.3% year-on-year.

The majority of owner occupiers take out a variable rate

mortgage

Housing finance data reveals that in February 2018,

14.4% of owner occupier mortgage commitments were

for fixed-rate loans.

At its absolute peak, in March 2008, approximately one

quarter of mortgages were on a fixed rate.

Variable rate mortgages are clearly preferred by

Australian owner occupiers, again this data is not

published for investors.

The falling proportion of new mortgages on a fixed rate

is likely reflective of the fact discounted variable

mortgage rates are cheaper than fixed rates and

mortgage rates are expected to remain low for some

time.

The majority of mortgages being on a variable rate

means that when the RBA change the cash rate setting

or lenders adjust mortgage rates, it has an almost

immediate impact on household finances.

Interest-only lending is comprising a much smaller

proportion of new mortgages

The Australian Prudential Regulation Authority (APRA)

reported that over the December 2017 quarter there

was $15.272 billion in new interest-only mortgage

lending.

The $15.272 billion in new interest only lending was an

historic low (data is available from March 2008).

The $15.272 billion of new lending for interest-only

purposes represented an historic low of 15.2% of total

new lending and is much lower than its peak of 45.6%

of lending in June 2015.

APRA has regulated that lenders can’t lend more than

30% of total new lending to interest-only purposes.

Although there was no real rebound in interest-only

lending over the quarter some lenders have started

reducing mortgage rates for interest-only products

which could lead to a bit of a rebound over the coming

quarters.

Mortgage Market




0%

10%

20%

30%

40%

50%

60%

Proportion of total new mortgage lending by loan to valuation ratio band

Less than 60% 60% to 80% 80% to 90% Greater than 90%


$170,000

$190,000

$210,000

$230,000

$250,000

$270,000

$290,000

Average outstanding mortgage balance



Market and Economy

Average outstanding mortgage balances rose by 4.1%

over the year to December 2017

► The average outstanding mortgage balance was

recorded at $266,500 as at the end of 2017 which was

4.1% higher over the year.

► Interest-only mortgages had the highest average

outstanding amount at $348,500, up 3.0% over the

year.

► Mortgages with an offset facility also had an above

average outstanding amount ($316,000) having risen

by 1.9% over the past year.

► The average outstanding balance on a reverse

mortgage has increased by 5.9% over the past year to

$104,900.

► Low-documentation mortgages had an average

outstanding balance of $196,700 which has increased

by 2.3% over the past year.

► Other non-standard mortgages have seen their

average outstanding balances fall by -1.2% over the

year to $185,300 at the end of December 2017.

► While outstanding mortgages amounts are edging

slightly higher, they remain substantially lower than

current prices indicating that, on average, mortgagees

have significant equity in their properties.

Mortgage Market

The share of lending with a loan to value ratio (LVR) above 90% increased slightly over the December 2017

quarter

► According to APRA there was $100.329 billion in new

mortgage lending over the December 2017 quarter.

► $27.646 billion worth of new mortgage lending over the

quarter was for loans with an LVR of 60% or less which

accounted for 27.6% of all new mortgage lending for the

quarter, its highest share since June 2013.

► Loans with an LVR of between 60% and 80%

accounted for 51.6% of all new lending over the quarter

at $51.780 billion.

► An historic high 79.2% of new mortgages over the

quarter had an LVR of less than 80%.

► 13.6% of lending over the quarter was for loans with an

LVR of between 80% and 90%, at a total of $13.694

billion.

► Just $7.209 billion was lent for mortgages with an LVR

of more than 90% over the December 2017 quarter.

► With fewer new mortgages being written with high LVR’s

it reflects a more conservative approach to mortgage

lending being taken by lenders.

► Mortgages with LVR’s above 80% also typically incur

lenders mortgage insurance (LMI) and a reduction in

higher LVR lending likely indicates reduced demand for

this product.




0%

5%

10%

15%

20%

25%

30%

35%

Annual change in total housing credit, National

Owner occupier Investor

Source: CoreLogic, RBA

Residential Real Estate Underpins Australia’s Wealth

Number of

dwellings

10.0 million

Outstanding

mortgage debt

$1.74 trillion

Household wealth

held in housing

52.1%

Total

sales p.a.

472,123

Gross value of

sales p.a.

$302.7 billionSource: CoreLogic, ABS, RBA, ASX


Market and Economy

Mortgage Market

► The total value of outstanding mortgage credit,

according to the RBA, was $1.74 trillion in February

2018, with the value outstanding having almost

doubled over the past decade.

► Housing credit advanced by 0.5% in February with

investor credit (0.2%) advancing at a slower pace

than credit to owner occupiers (0.7%).

► Over the month, both owner occupier and investor

credit recorded an acceleration in their expansion.

► Over the 12 months to February 2018, housing

credit has advanced by 6.2% which was its slowest

growth since May 2014.

► Owner occupier housing credit increased by 8.1%

over the year to February 2018, its fastest rate of

expansion since November 2016.

► Investor credit expanded by 2.8% over the year, its

slowest rate of annual growth since October 2016.

The annual change in investor housing credit has slowed substantially over the past year




Quarterly Review | September 2017




0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000Quarterly dwelling commencements, National

Houses Units


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000Monthly dwelling approvals, National

Houses Units



Market and Economy

Housing Supply

► In February 2018, 18,671 dwellings were approved

for construction nationally.

► Approvals fell by -6.2% over the month and they

were -3.1% lower year-on-year. After peaking in

August 2016, the number of approvals in February

2018 was -13.7% lower.

► 10,251 of the total approvals in February 2018

were for houses with approvals tracking 2.3%

higher over the month and 6.1% higher year-on-

year.

► Despite being higher over the month and year,

approvals in February 2018 were -5.7% lower than

their recent peak.

► Unit approvals were -6.2% lower over the month,

► -3.1% lower over the year and -29.5% off their

peak.

► Looking at annual data, approvals are lower over

the year in Sydney (-11.2%), Brisbane (-3.0%),

Perth (-10.4%), Darwin (-47.0%) and Canberra

► (-26.0%) and are higher in Melbourne (4.3%),

Adelaide (5.8%) and Hobart (35.8%).

► It remains to be seen how many of these approved

new properties will be built given slowing housing

market conditions and generally tighter financing

arrangements for both investors and developers.

Approvals for houses and units have eased from their recent highs but remain at elevated levels

Dwelling commencements for units are now in a clear downwards trend

► 52,641 dwellings commenced construction over the

December 2017 quarter which was -5.0% lower than

over the previous quarter and -8.3% lower than the

December 2016 quarter.

► In terms of commencements for new construction, there

were 289,038 new houses and 23,150 new units which

commenced construction.

► New house commencements were 0.7% higher over the

quarter and 0.7% higher year-on-year while new unit

commencements fell by -11.7% over the quarter and

were -17.7% lower year-on-year.

► Throughout the states and territories commencements

were lower relative to the same quarter last year in

NSW, Vic, Qld, SA, NT and ACT and were higher

elsewhere.

► With approvals now lower than they have been over

recent times and an increasing number of projects being

delayed or withdrawn, particularly in the high-rise unit

space, it is expected that there will continue to be fewer

commencements over the coming quarters.




0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Dec-87 Dec-92 Dec-97 Dec-02 Dec-07 Dec-12 Dec-17

Quarterly number of dwellings under construction, National

Houses Units


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000Quarterly dwelling completions, National

Houses Units



Market and Economy

Housing Supply

► There were 218,842 dwellings under construction

at the end of December 2017 consisting of: 66,331

new houses, 150,237 new units and 2,274 existing

dwellings (renovations).

► The number of new houses under construction fell

by -0.1% over the quarter and are 36.8% higher

than their long-term average.

► The number of new units under construction was

-1.3% lower over the quarter and 276.2% higher

than its long-term average.

► Dwelling approvals and commencements have

eased over recent months but remain elevated

which should result in heightened volumes of

dwellings under construction over the coming

quarters

► Across the individual states the data shows that

while the number of dwellings under construction

has started to fall, noticeably so in Vic and Qld, in

NSW the number of units under construction has

continued to climb.

► The heightened level of unit construction in

particular, will take a number of years to work its

way through to completion.

Dwelling completions continue to fall as fewer new projects come through the pipeline

► 51,484 dwellings were completed over the

December 2017 quarter which was -1.2% fewer

completions than the previous quarter and -12.2%

fewer than the December 2016 quarter.

► The data consisted of 27,470 new house

completions and 23,405 new unit completions.

► New house completions were -2.5% lower over the

quarter and -2.9% lower over the year with

completions at their lowest level since the March

2016 quarter.

► New unit completions were also at their lowest level

since March 2016 and they were -0.2% lower over

the quarter and -20.4% lower over the year.

► Completions were lower over the year in each state

and territory except for South Australia.

► There remains a substantial number of dwellings

under construction which should ensure that

completions continue to remain elevated for some

time however, they are likely to drift lower over

time.

The volume of stock under construction remains at near record-high levels




0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Quarterly number of dwellings approved for construction but not commenced, National

Houses Units



Market and Economy

Housing Supply

A record high number of dwellings are approved for construction but are yet to commence

► There was 46,359 dwellings approved for

construction that had not yet commenced as at the

end of the December 2017 quarter which was a

record-high and 22.0% higher than over the

previous quarter.

► This figure consisted of 11,807 new houses

awaiting commencement and 33,776 new units not

yet commenced.

► The number of houses not yet commenced has

trended higher over the past two quarters and is

now at its highest level since September 2011 while

the number of yet to be commenced units spiked

higher over the quarter to reach a record high.

► The number of dwellings awaiting commencement

across the states and territories are: 21,340 in

NSW, 11,446 in Vic, 5,701 in Qld, 4,266 in SA,

2,299 in WA, 416 in Tas, 216 in NT and 675 in

ACT.

► The number of dwellings awaiting commencement

is at an historic high in Vic and SA and close to

historic highs in NSW and Qld.

► With the housing market now slowing and tighter

lending conditions it is expected that at the very

least, an elevated, if not increasing number of

projects which have been approved for construction

will be delayed or withdrawn.




0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Components of annual population change, National

Natural increase Net overseas migration


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%Annual change in national population



Market and Economy

Demographic Overview

The annual rate of national population growth has steadied recently

► It was estimated that at the end of the September

2017 quarter, the national population was

24,702,851 persons.

► Australia’s population increased by 1.6% or

395,613 persons over the 12 months to September

2017.

► While net overseas migration has accelerated,

natural increase has slowed

Net overseas migration is the main driver of the strong rate of population growth

► Population growth nationally is comprised of net

overseas migration as well as the natural increase

in the population (births minus deaths). State-

based migration also includes net interstate

migration which cancels out at a national level.

► Net overseas migration was recorded at 250,127

persons over the 12 months to September 2017

which was 15.4% higher than at the same time in

2016 and at its highest level since September

2009.

► Natural increase fell by -4.0% over the year and

was recorded at 145,486 persons.

► The national rate of annual population growth

peaked at 2.2% in December 2008 when the

population increased by 459,504 persons over the

quarter, of which net overseas migration was

recorded at 315,687 persons.

► Although the rate of population growth and

overseas migration has slowed relative to the 2008

peak, it remains elevated and is much higher than

in most other developed countries throughout the

world.

Victoria remains the population growth powerhouse of the nation

► The population of New South Wales increased by

1.6% or 123,105 persons over the 12 months to

September 2017. The annual population increase

was 5.5% higher over the year and slightly lower

than its record high.

► Victoria’s population increased by a nation-leading

2.4% over the 12 months to September 2017 with

the population increasing by 147,424 residents

over the year. The total change in population over

the year was 1.2% higher than over the previous

year.

► With an increase of 81,271 persons over the year

to September 2017, Queensland’s population

increased by 1.7% over the year. The 81,271

person increase in population was the greatest

annual population increase for the state since June

2013 and 18.8% higher than the population

increase a year earlier.

► South Australia’s population increased by 10,799

persons over the 12 months to September 2017

resulting in a population growth rate of 0.6%. The

10,799 person increase in population was slightly

higher than the previous quarter but -3.4% lower

than over the previous year.

► The population of Western Australia increased by

22,032 persons or 0.9% over the past year.

Although Western Australia is seeing a historically

slow rate of population growth, the state’s annual

change in population lifted (from a low base) by

33.0% over the past year.




-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

Annual number of net overseas migrants by states and territories

NSW Vic Qld SA WA Tas NT ACT


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

NSW VIC QLD SA WA TAS NT ACT

Change in population over the 12 months to September 2017



Market and Economy

► The Tasmanian population increased by 3,289

persons or 0.6% over the 12 months to September

2017. The 3,745 increase was the greatest annual

population increase since December 2010.

► Northern Territory’s population increased by just 73

persons over the 12 months to June 2017, a

-92.7% decline on the increase a year earlier.

► In the Australian Capital Territory, the rate of

population growth was recorded at 1.8% over the

past year resulting in an increase in population of

7,165 persons.


More than three quarters of net overseas migration has been into NSW or Vic

► Most of those people immigrating to Australia

continue to choose to settle in either NSW or Vic

with net overseas migration over the past year

recorded at record highs of 98,762 persons in NSW

and 88,521 persons in Vic.

► NSW accounted for 39.5% of net overseas

migration nationally and Vic accounted for 35.4%.

If you add in the 12.5% in Qld, the three most

populous states accounted for 87.4% of national

net overseas migration.

► With net overseas migration of 98,782 persons over

the past year, New South Wales recorded its

greatest volume of net overseas migrants on record

and the number was 17.3% higher compared to the

previous year.

► The net overseas migration of 88,521 persons into

Victoria over the past year was the greatest number

on record and 15.3% higher than the previous year.

► Queensland’s net overseas migration was recorded

at 31,374 persons over the past year which was

14.1% higher than the number of overseas

migrants at the same time a year earlier and the

highest number since March 2014.

► Over the past year there were 11,263 net overseas

migrants to South Australia which was 4.6% higher

than the number a year earlier.

► Net overseas migration to Western Australia is well

below historic peaks however, the 13,800 net

migrants to the state over the past year was 7.7%

higher than over the previous year and the greatest

number since December 2014.

► Net overseas migration for Tasmania was recorded

at 1,948 persons which was 45.8% higher than a

year earlier and its highest annual number since

September 2009.

► The 940 net overseas migrants to the Northern

Territory over the past year was 8.7% higher than

the number over the previous year but still well

down on recent levels.

► The Australian Capital Territory had net overseas

migration of 3,492 persons over the past year

which was 45.0% higher than the number over the

previous year and the highest number since

December 2009.




-60,000

-40,000

-20,000

0

20,000

40,000

60,000

Annual number of net interstate migrants by states and territories

NSW Vic Qld SA WA Tas NT ACT



Market and Economy


Queensland continues to lead the pack for net interstate migration

► The net outflow of New South Wales residents to

other states and territories was recorded at 16,433

persons over the past year, its greatest decline

since December 2012.

► Victoria recorded a net gain from interstate

migration of 16,926 persons, that figure has now

fallen for two consecutive quarters.

► Net interstate migration to Queensland was

recorded at 19,324 persons over the past year, its

greatest increase since June 2008. Annual net

interstate migration to Queensland now leads the

nation and has increased over each of the past 11

quarters.

► South Australia recorded a loss of 5,847 persons

over the past year due to net interstate migration

which was the lowest annual outflow of residents

from the state since December 2015.

► After annual net interstate migration peaked at

11,425 persons in September 2012, Western

Australia has recorded a loss of 11,581 residents

over the past year, which is a slightly lower net loss

than the record-high annual loss two quarters

earlier.

► Net interstate migration to Tasmania saw a net gain

of 1,000 residents over the past year, which was its

strongest net inflow since June 2009.

► The net loss of 3,710 residents from the Northern

Territory over the past year was its greatest outflow

on record.

► The Australian Capital Territory has recorded a net

inflow of residents from other parts of the country of

321 persons over the past year, which was its

lowest inflow since September 2016.




0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Ratio of household and housing debt to disposable income, National

Household Housing


3%

5%

7%

9%

11%

13%

15%Mortgage rates for owner occupiers over time

Standard variable Discounted variable 3 year fixed



Market and Economy

Household Finances

Mortgage rates have been lifted despite the cash rate holding at record lows

► At their March 2018 meeting, the RBA kept the

official cash rate on hold at 1.5%.

► The cash rate has now had its longest period of

stability, remaining unchanged since August 2016.

► For an owner occupier, average mortgage rates are

currently recorded at: 5.20% for a standard variable

mortgage, 4.50% for a discounted variable

mortgage and 4.15% for a three year fixed rate.

► For investors, current average mortgage rates are:

5.80% for a standard variable mortgage, 5.10% for

a discounted variable mortgage and 4.40% for a

three year fixed mortgage.

► Mortgage premiums for investors have only been in

place for two and a half years and were introduced

in response to the heightened level of purchasing

by this market segment.

► Investors on variable mortgage rates are now

typically paying 60 basis points more than owner

occupiers (and premiums are even greater for

interest-only mortgages) which is a significant

contributor to the slowing mortgage demand.

Gross household and housing debt continues to rise to new record highs

► The national ratio of household debt to disposable

income was recorded at 188.6% in December

2017, up from 187.3% the previous quarter and

180.7% a year earlier.

► The 188.6% ratio of household debt to disposable

income is largely made up of housing debt which

has a record-high ratio of 138.9% up from 137.5%

the previous quarter and 133.2% a year earlier.

► Of the 138.9% ratio of housing debt to disposable

income, 105.4% is owner occupier debt (also a

record-high) leaving 33.5% to investors.

► Although household and housing debt is at historic

high levels, the ratio of total interest payments to

disposable income sits at 8.9% for total debt and

7.2% for housing debt, both of which have edged

slightly higher of late, yet also indicating that lower

interest rates have improved serviceability which is

at levels last seen in early 2003.

► The high level of housing and household debt

makes households much more sensitive to any

changes in mortgage rates.

► Also remember that this is a national view; home

owners that have either had their mortgage for

many years or have no mortgage are likely to be in

a stronger position while recent buyers may be in

much higher levels of debt.




0%

1%

2%

3%

4%

5%

6%

Annual change in wage price index, public and private sector, National

Private sector Public sector


0%

200%

400%

600%

800%

1000%

1200%Ratio of household and housing assets to disposable income

Household Housing



Market and Economy

Household Finances

While housing and household debt are at record highs, the ratio of household and housing assets to

disposable incomes is also at near record highs

► As at the end of the December 2017 quarter, the

ratio of household assets to disposable income was

recorded at 961.5% and the ratio of housing assets

to disposable income was recorded at 525.3%

► A year earlier these ratios were recorded at 923.2%

for household assets and 504.6% for housing

assets, indicating that asset values have risen at a

faster pace than debt.

► It is undeniable that households are heavily

indebted, largely due to housing however, the

macro view is that these assets have a significantly

higher value than the debt held against them.

► Of course the macro view does not show what is

occurring in individual properties or locations,

households that have recently taken out large debt

(such as a mortgage) and those who own homes

where values have fallen over recent years are

likely to be in a much weaker position than these

figures indicate.

► Furthermore, were asset values to start falling, it is

unlikely that the debt would decline at an equivalent

rate.

Annual wage growth has increased slightly but wage rises remain sluggish

► The ABS wage price index showed that over the 12

months to December 2017, the Index increased by

2.1%, slightly higher than their historic low of 1.9%

in June 2017.

► Separating the data into private and public sector

wages shows that private sector wages increased

by 1.9% over the year and public sector wages

were 2.4% higher.

► The ABS has been producing this dataset since

late 1997 and the growth in wages for both the

private and public sector is only slightly above

historically low levels.

► Lower wages growth impacts on a household’s

ability and willingness to spend more, particularly

on items such as rent and other non-essential

spending.

► The low rate of growth in wages appears to have

not had any impact on the growth in dwelling

values, but is likely a key driver of weak retail

spending and a softening in household saving and

increasing indebtedness.




-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Dec-82 Dec-87 Dec-92 Dec-97 Dec-02 Dec-07 Dec-12 Dec-17

Household saving ratio, National


0.3%

0.6%

0.1%

-0.3%

0.0%

-0.4%

-0.1%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

Publicconsumption

Privateconsumption

Private capitalformation

Public capitalformation

Investories Exports Imports

Contributions to quarterly change in GDP, December 2017 quarter


-4%

-2%

0%

2%

4%

6%

8%

10%

Quarterly and annual change in GDP

Quarterly Annual



Market and Economy

National Accounts

The Australian economy grew by 0.4% over the final quarter of 2017

► The national economy expanded by 0.4% over the

December 2017 quarter to be up 2.4% over the

year.

► The 2.4% annual increase is down from 2.9% the

previous quarter and remains below long-term

average levels.

► Per capita GDP was unchanged over the quarter

and just 0.8% higher over the year highlighting that

headline GDP is expanding more rapidly than it is

for individuals.

► Nominal (or inflation adjusted) GDP rose by 0.8%

over the December 2017 quarter to be 3.5% higher

over the year.

► The total output of the national economy over the

12 months to June 2017 was $1.717 trillion.

► Although Australia’s economy continues to expand,

the rate of growth remains well below the long term

average, particularly on a per capita basis.

Consumption from both the public and private sectors drove economic growth over the December 2017

quarter

► Over the December 2017 quarter, the percentage

point contributions to GDP growth were: +0.3%

from government expenditure. +0.6% from

household expenditure, +0.1% from private capital

formation, -0.3% from public capital formation,

0.0% from inventories, -0.4% from exports and

-0.4% from imports.

► Looking at the annual change in the value of these

components: government expenditure rose 4.9%,

household expenditure rose 2.9%, private capital

formation rose 2.8%, public capital formation rose

1.5%, exports increased by 0.8% while imports

increased by 6.6%.

Household saving ratio increased over the quarter but remains well below recent levels

► According to data in the National Accounts, the

household saving ratio was recorded at 2.7% over

the December 2017 quarter.

► The household saving ratio has now been below

10% for 22 consecutive quarters.

► Given that interest rates, are so low, as are risk-

free returns, it is little surprise to see that

households are saving less and are increasing

borrowings however, sluggish wage growth is

probably also contributing to households saving

less.




-3.5%

-3.4%

-0.1%

0.5%

0.6%

1.0%

1.9%

2.6%

2.9%

3.3%

4.2%

7.0%

-6% -4% -2% 0% 2% 4% 6% 8%

Clothing and Footwear

Communication

Furnishings, Household Equipment and Services

Food and Non-alcoholic Beverages

Recreation and Culture

Insurance and Financial Services

All Groups

Education

Transport

Housing

Health

Alcohol and Tobacco

Annual change in the components of CPI, March 2018


-2%

0%

2%

4%

6%

8%

10% Annual inflation, National

All groups Avg of trimmed mean and weighted median

RBA's target range



Market and Economy

Inflation

Both headline and underlying inflation remains below the RBA’s target range

► Although official interest rates remain at their lowest

levels since the 1960s, inflation remains stubbornly

low.

► Headline inflation increased by 0.4% over the

March 2018 quarter taking it 1.9% higher over the

12 months to March 2018.

► Headline inflation was within the RBA target range

a year ago but has slipped lower over the past four

quarters, it has been below 2% annually for 13 of

the past 14 quarters.

► The RBA’s preferred measures of underlying

inflation; the trimmed mean and weighted median

both increased by 0.5% over the March 2018

quarter.

► The trimmed mean was 1.9% higher over the year

and the weighted median rose 2.0% resulting in

underlying inflation increasing 2.0%.

► The 2.0% increase in underlying inflation was the

first time it had reached 2% since December 2015.

Costs associated with alcohol and tobacco, health and housing are escalating at the fastest rate

► Inflation is being dragged lower by substantial

annual declines in the cost of clothing and footwear

(-3.5%), communication (-3.4%) along with more

moderate falls in furnishings, household equipment

and services (-0.1%).

► The components of CPI that have recorded the

greatest increases over the 12 months to March

2018 were: alcohol and tobacco (7.0%), health

(4.2%) and housing (3.3%).

► Across the remaining sub-groups the annual

increases have been recorded at: 2.9% for

transport, 2.6% for education, 1.0% for insurance

and financial services and 0.6% for recreation and

culture and 0.5% for food and non-alcoholic

beverages.




0.8%

1.8%

2.2%

2.6%

2.7%

3.2%

3.3%

9.3%

10.0%

11.7%

0% 2% 4% 6% 8% 10% 12% 14%

Rents

Maintenance and Repair of the Dwelling

Other Housing

Property Rates and Charges

New Dwelling Purchase by Owner Occupiers

Water and Sewerage

Housing

Utilities

Gas and Other Household Fuels

Electricity

Annual change in components of housing CPI, March 2018


60

70

80

90

100

110

120

130 Monthly consumer sentiment, National

Source: CoreLogic, Westpac-Melbourne Institute


Market and Economy

Inflation

Electricity, utilities and gas costs power housing costs higher

► The housing component of CPI has the greatest

weighting, reflecting the fact that housing costs

tend to comprise the greatest proportion of

household budgets.

► No housing expenditure classes recorded a fall

over the past year.

► Costs associated with: rents (0.8%), maintenance

and repair of the dwelling (1.8%), other housing

(2.2%), property rates and charges (2.6%), new

dwelling purchase by owner occupiers (2.7%) and

water and sewerage (3.2%) increased at a lower

annual rate than the housing expenditure class.

► Electricity (11.7%), gas and other household fuels

(10.0%) and utilities (9.3%) costs increased well in

excess of the other housing costs.

Consumer Sentiment remains at a slightly more optimistic than pessimistic setting

► The Westpac-Melbourne Institute Consumer

Sentiment Index was recorded at 102.4 points in

April 2018.

► When consumer sentiment is above 100 points it

indicates that consumers are more optimistic than

pessimistic.

► Consumer sentiment has now been more positive

than negative for five consecutive months, the last

time sentiment was positive for such a sustained

period was in February 2014.

► Despite the recent increase, sentiment has

remained at a fairly neutral setting over recent

years indicating that consumers are neither overly

optimistic nor pessimistic at this time.

► The components of the Index indicate respondents

are still more pessimistic about family finances over

the past year and economic conditions over the

next five years however, respondents now have

greater confidence about their finances and the

economy over the coming year.





Market and Economy

After a number of years in which dwelling values have

been increasing at a rapid rate, value growth has now

slowed with values falling over recent months. The

rapid growth in values over recent years has very much

been focused on the Sydney and Melbourne housing

markets.

The strength in value growth across Sydney and

Melbourne has been supported by a number of factors.

Low mortgage rates have encouraged borrowing. In-

turn, investors have had a very strong appetite for

purchasing properties in our two largest capital cities.

Population growth and migration in particular has been

very strong into both New South Wales and Victoria

which has created additional housing demand.

Furthermore, job creation has been much stronger in

these two states than it has been elsewhere over

recent years.

Over the past few years, the banking regulator has

tightened lending policies and this, along with

deteriorating housing affordability, has been a major

contributor to the recent falls in dwelling values. Unlike

in 2016 when the rate of value growth in the housing

market had slowed, the Reserve Bank has not cut

official interest rates which previously supported a

rebound in growth despite the tighter lending policies.

Over recent years, dwelling values had risen at a rate

well above household income growth which made it

more difficult for those that don’t already own a home

to save a big enough deposit to purchase.

Subsequently, first home buyer participation has been

hovering around historic low levels. Since the

beginning of July, the NSW and Vic governments have

removed stamp duty for first home buyers under certain

price thresholds. This has resulted in a substantial

increase in first home buyer demand in each of these

states at the same time as we are seeing a cooling of

demand from the investor segment.

Since late 2017, dwelling values have been falling in a

number of cities, most notably Sydney and Melbourne,

which have also been the two cities in which values

have increased at the fastest pace over recent years.

The slowdown in housing market conditions is being

driven by higher-valued dwellings while lower valued

stock is holding its value much better. This is most

likely linked to first home buyer incentives and stamp

duty concessions which are supporting demand across

the lower valued housing stock.

Sydney and Melbourne have both recorded declines in

dwelling values over recent months with larger declines

recorded in Sydney. After many years of strong growth

in values, affordability has deteriorated and a

substantial source of housing demand, investors, have

slowed. Both cities are also seeing a higher number of

properties being advertised for sale than they have

over recent years with the increase much greater in

Sydney. As a result, potential purchasers have more

choice which means that the urgency to buy has

reduced. Recent monthly data indicates the rate of

value decline has slowed however, we would anticipate

further moderate value declines over the coming

months.

Brisbane is experiencing value growth which is slower

than it was a year ago. While values continue to rise

they are doing so at a slow pace. Population growth

and job creation in Queensland is accelerating and this

may lead to greater housing demand and slight

acceleration in value growth over the coming months.

Adelaide values have declined over recent months and

the city has recorded only moderate increases in

values over recent months. With slow population

growth and, until recently, sluggish jobs growth,

Adelaide may continue to be a fairly flat to slightly

falling housing market over the coming months.

Perth’s housing market has endured a fall in values in

excess of 10% over recent years. The market has

been heavily impacted by the end of the mining boom

with many residents migrating out of the state and job

losses over recent years. Although values are still

declining there has now been a rebound in job

creation, fewer properties listed for sale and an

increasing number of sales. While this is unlikely to

result in any substantial value growth over the short to

medium term, we do expect relatively stable housing

market conditions over the coming months.

Hobart has recorded the strongest growth in dwelling

values for more than a year now and is the only capital

city in which values have increased at a double-digit

rate over the past year. Hobart is experiencing a lack

of housing stock to both buy or rent and increasing

demand which is creating significant pressure on both

values and rents. There seems little risk of these

pressures abating in the short term however, value

growth may slow a little over the coming months.

Housing values in Darwin are more than 20% lower

than their peak and have been falling for a number of

years now. The local economy remains weak with job

numbers falling over the past year and many residents

leaving for other parts of the country. Sales volumes

remain quite low and have fallen over the year.

Although conditions remain soft across many reference

points, the quarterly rate of decline has been improving

since August last year.

Canberra dwelling values have fallen marginally over

the past couple of months. On an annual basis, value

growth has slowed from where it was a year ago.

Transaction volumes have fallen sharply over the year

while at the same time job creation and migration to the

ACT has accelerated. Although values have fallen

recently, fairly flat conditions are anticipated over the

coming months.

Conclusion





Market and Economy

In CoreLogic’s view the value falls in the housing

market, which became much more prevalent over the

first quarter of 2018, are likely to persist, albeit the rate

of decline may slow.

The drivers of the expected weaker housing market

conditions include.

The near record-high pipeline of housing stock

currently under construction, the majority of which are

units, will be completed over the coming years. There

is already evidence suggesting that in certain areas

and markets settlements are taking longer and

valuations are coming in below or at the purchase

price. Recent data also shows that approvals and

commencements are no longer at peak levels however,

approvals in particular, have rebounded over recent

months and the number of dwellings approved but not

yet commenced is at an historic high level. There will

still be many new properties built because so many are

currently under construction however, it is clear that

settlement of these projects is likely to become

increasingly challenging. Furthermore, it will be

interesting to see just how many of those new projects

in the pipeline get built.

With a relatively high proportion of off-the-plan unit

valuations coming in below the original contract price in

certain cities, if the decline is less than or similar to the

deposit amount it is unlikely buyers would walk away.

If the differential between contract price and completion

valuation grows we may see an increasing number of

buyers unable or unwilling to settle their contract.

Overall we expect dwelling value growth to continue to

slow in 2018. As we have seen over previous cycles,

housing market conditions will continue to vary

significantly from region to region and across housing

types.

While the headline figures are set to weaken due to

weaker housing conditions in the two largest cities,

regional markets in particular, are seeing much

stronger housing demand and subsequent value

growth. This is a trend which is expected to continue

over the coming quarters as buyers seek lifestyle

properties at a lower cost than the major capital cities.

Should the strong jobs growth and migration continue,

Brisbane is potentially the most likely candidate for a

further improvement in housing market conditions over

the coming quarters.

The ongoing Royal Commission into the banking sector

is likely to be an overall negative for the housing

market. As issues continue to come to hand it is likely

to make getting a mortgage more difficult and

potentially impact on the confidence of borrowers.

Conclusion




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Call us on 1300 734 318 or email us at [email protected] or visit us at www.corelogic.com.au


Market and Economy

CoreLogic Australia is a wholly owned subsidiary of

CoreLogic (NYSE: CLGX), which is the largest property

data and analytics company in the world. CoreLogic

provides property information, analytics and services

across Australia, New Zealand and Asia, and recently

expanded its service offering through the purchase of

project activity and building cost information provider

Cordell. With Australia’s most comprehensive property

databases, the company’s combined data offering is

derived from public, contributory and proprietary

sources and includes over 500 million decision points

spanning over three decades of collection, providing

detailed coverage of property and other encumbrances

such as tenancy, location, hazard risk and related

performance information.

With over 20,000 customers and 150,000 end users,

CoreLogic is the leading provider of property data,

analytics and related services to consumers, investors,

real estate, mortgage, finance, banking, building

services, insurance, developers, wealth management

and government. CoreLogic delivers value to clients

through unique data, analytics, workflow technology,

advisory and geo spatial services. Clients rely on

CoreLogic to help identify and manage growth

opportunities, improve performance and mitigate risk.

CoreLogic employs over 650 people across Australia

and in New Zealand. For more information call 1300

734 318 or visit www.corelogic.com.au

About CoreLogic

Market Scorecard: Monitor and measure performance

of an individual office or a Franchise brand month on

month through a detailed view of the Real Estate

Listing and Sales market share across Australia. With

the ability to gather market share statistics within your

active market this product is designed to identify the

competing brands and independents at a suburb,

postcode, user defined territory and State level. Easily

locate growth opportunities and market hotspots

allowing you to view the performance of the established

offices in these new areas of interest.

Market Trends: Detailed housing market indicators

down to the suburb level, with data in time series or

snapshot delivered monthly. CoreLogic’s Market

Trends data is segmented across houses and units.

The Market Trends data includes key housing market

metrics such as median prices, median values,

transaction volumes, rental statistics, vendor metrics

such as average selling time and vendor discounting

rates.

CoreLogic Indices: The suite of CoreLogic Indices

range from simple market measurements such as

median prices through to repeat sales indices and our

flagship hedonic home value indices. The CoreLogic

Hedonic index has been specifically designed to track

the value of a portfolio of properties over time and is

relied upon by Australian regulators and industry as the

most up to date and accurate measurement of housing

market performance.

Economist Pack: A suite of indices and indicators

designed specifically for Australian economic

commentators who require the most up to date and

detailed view of housing market conditions. The

economist pack includes the CoreLogic Hedonic

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stratified hedonic index, hedonic total return index,

auction clearance rates and median prices.

Investor Concentration Report: Understanding

ownership concentrations is an important part of

assessing risk. Areas with high investor concentrations

are typically allocated higher risk ratings due to the

over-representation of a particular segment of the

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residential property nationally as either owner

occupied, investor owned or government owned.

Mortgage Market Trend Report: CoreLogic is in a

unique position to monitor mortgage related housing

market activity. Transaction volumes, dwelling values

and mortgage related valuation events all comprise our

Mortgage market trend report which provides an

invaluable tool for mortgage industry benchmarking

and strategy.

http://www.corelogic.com.au/





Market and Economy

In compiling this publication, RP Data Pty Ltd trading

as CoreLogic has relied upon information supplied by a

number of external sources. CoreLogic does not

warrant its accuracy or completeness and to the full

extent allowed by law excludes liability in contract, tort

or otherwise, for any loss or damage sustained by

subscribers, or by any other person or body corporate

arising from or in connection with the supply or use of

the whole or any part of the information in this

publication through any cause whatsoever and limits

any liability it may have to the amount paid to

CoreLogic for the supply of such information.

Queensland Data

Based on or contains data provided by the State of

Queensland (Department of Natural Resources and

Mines) 2015. In consideration of the State permitting

use of this data you acknowledge and agree that the

State gives no warranty in relation to the data

(including accuracy, reliability, completeness, currency

or suitability) and accepts no liability (including without

limitation, liability in negligence) for any loss, damage

or costs (including consequential damage) relating to

any use of the data. Data must not be used for direct

marketing or be used in breach of the privacy laws

South Australian Data

This information is based on data supplied by the

South Australian Government and is published by

permission. The South Australian Government does

not accept any responsibility for the accuracy or

completeness of the published information or suitability

for any purpose of the published information or the

underlying data.

New South Wales Data

Contains property sales information provided under

licence from the Land and Property Information (“LPI”).

CoreLogic is authorised as a Property Sales

Information provider by the LPI.

Victorian Data

The State of Victoria owns the copyright in the Property

Sales Data which constitutes the basis of this report

and reproduction of that data in any way without the

consent of the State of Victoria will constitute a breach

of the Copyright Act 1968 (Cth). The State of Victoria

does not warrant the accuracy or completeness of the

information contained in this report and any person

using or relying upon such information does so on the

basis that the State of Victoria accepts no responsibility

or liability whatsoever for any errors, faults, defects or

omissions in the information supplied.

Western Australian Data

Based on information provided by and with the

permission of the Western Australian Land Information

Authority (2015) trading as Landgate.

Australian Capital Territory Data

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means (electronic, mechanical, microcopying,

photocopying, recording or otherwise) be reproduced,

stored in a retrieval system or transmitted without prior

written permission. Enquiries should be directed to:

Director, Customer Services ACT Planning and Land

Authority GPO Box 1908 Canberra ACT 2601.

Tasmanian Data

This product incorporates data that is copyright owned

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used in the product with the permission of the Crown in

Right of Tasmania. The Crown in Right of Tasmania

and its employees and agents:

a) give no warranty regarding the data's accuracy,

completeness, currency or suitability for any particular

purpose; and

b) do not accept liability howsoever arising, including

but not limited to negligence for any loss resulting from

the use of or reliance upon the data.

Base data from the LIST © State of Tasmania

http://www.thelist.tas.gov.au

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