State of Play: The Property Market
Published 5:06 am 29 Jan 2021
Hi there and welcome to our State Of Play. Today, I’m going to talk about the property market. We talk about the property market a lot and that’s because it’s integral to Australia’s wealth. Basically, it’s our biggest sector of wealth; we still have most of our wealth in property, so anything that affects the property market affects the economy. We talked about that last week, but this week, property data has been released looking backwards for the month of May. So I just wanted to take you high level through that. So this is CoreLogic; they’re the go-to data people when it comes to keeping their finger on the pulse. So they’ve just brought out their figures for the last month, and as you can see, most of our wealth, $7.2 trillion of our economy is tied up in our residential real estate. So they’re all the green colored, darker green honeycombs there. So much bigger than superannuation, much bigger than the whole share market, and much bigger than all our commercial property in Australia. So huge, huge sector, and it’s watched very keenly by the Reserve Bank, by the government, treasury, economists, you name it, a lot of wealth tied up in property.
So what’s happening in property? Well, in the last quarter, we’ve seen that property prices have slipped into the negative and property prices, property values, mirror consumer sentiment. So when consumer sentiment’s good, good economy, people go out and buy property, and there’s a direct correlation; when people are lacking in confidence, the property market calls. So we’re seeing a delayed effect, remember Josh Frydenberg, our treasurer came out last week and said, “Hey, we’re probably looking at a second consecutive month of negative growth in the economy. So yes, we’re looking down the barrel of a formal recession, first one in 29 years. And similarly, we’re starting to see property prices come off the boil.” So only just falling a little bit, not much to see here yet, but let’s watch this space. So quarterly growth in national dwelling prices was down 0.6%, so the first real month of negative growth there. And we’ve also seen that whilst property prices have gone up, they’re growing at a slower rate. So they were improving a lot into February and March, and then obviously April’s dragged everything down, but still in positive territory. And I mean, when you look at it, prices have gone up from May 19 to May 20 across Australia, on an average of 8%. And when you look at Sydney, Sydney is up 14%. Melbourne’s up 11% from time last year. We’ll, deep dive into the more granular levels and areas, including the regional in a moment.
The other thing that we’re seeing is declines in the top end of the Sydney and Melbourne market. So if you’ve been wanting to buy that $5 million mansion now might be the time. So the high-end when they say, the upper quarter mile, so the top 25% of the market, the highest price, 25% of properties have had the biggest drops, or been hit the hardest. The other thing that’s happened is that especially in Sydney, Melbourne, as well as Canberra and Hobart, prices have gone up. So let’s have a look at those figures. The other thing that we’ve seen too, is that up until the fall June, there’s a been a decline in capital city values. So they’ve been falling in the last 28 days. So what’s happened in Sydney is that in the month of May, dwelling values fell by 0.4%. So we’re only looking at a little bit of movement, and in the quarter, so the three months before that, dwelling values increased by 1.1%. we’re still up 14% over the year in Sydney and weird 2.7% of our record high, which was July, 2017, before the market turned a little bit.
The other suburb to watch, or capital city to watch is Melbourne. So Melbourne values fell by 0.9% in the month of May. So we’ve peaked and we’re kind of just coming off and over the edge now. Values fell by 0.8% in the quarter, so the three months before that. Melbourne values are still up over 11% from this time last year, and they’re 1.2% slower than their high. So Melbourne values really peaked high, and reached a record level in March of this year, and they’ve fallen by 1.2% since then. In Brisbane, they’ve fallen by 0.1% in May. They’re still up by 0.8% over the quarter. They’re up by 4.3% over the last year, and values are 0.1% below the record high, which was April, 2020; right in coronavirus, Brisbane values reached a record high.
Adelaide is up 0.4% for the month of May; 1.1% for that quarter, 1.8% increase from this time last year, and they’re currently at their record high, so peak of the market in Adelaide right now. And for Perth, bad news in Perth, but going from bad to less bad; down 0.6% for May, but up 0.1 for the quarter, down 2.1% from this time last year, but above 20%, nearly 21% lower than the peak of the Perth market, which was in June, 2014. Hobart has seen increased values in May 0.8% higher in May, 0.5% higher for the whole quarter, and values are up 6.2% in Hobart from this time last year, and top of the market in Hobart record at the moment, record high right now. In Darwin, Darwin values have been plummeting for a while; 1.6% fall in the month of May, 2.1% fall over the quarter, and dwelling values are down by 2.6% from this time last year, but a whopping 31% lower than the peak of the Darwin market, which was in May, 2014.
The ACT is up half a percent up, 1.2% for the quarter, and dwelling values are up over 5% from this time last year. And remember, this was the back of the federal election, so things were coming good across Australia, and it’s currently at a record high in the ACT. More transactions settled post-COVID, so coming out of lockdown towards the end of May. So what that means is that we were down for April, 32.6% down, when you looked at volume of settled sales. Settled sales means it’s finalized, the property has changed hands, there’s a new owner, the whole deal’s complete. So not many properties changing hands in April, in fact, 32%, less than April, 2019. For May, we’ve bounced back, so we’re 18.5% higher, but what you’ll see in a moment is that even though there’s more stock coming on the market, there’s still less stock than there are buyers. So people are pretty bullish; they’re still out there buying.
So the other thing that we’re seeing here is what I talked about before; housing values and transaction of stock aligns with consumer sentiment. So consumer sentiment came back in May. People started feeling a little bit better when they did the Roy Morgan polls and looked at consumer spending, how are they feeling. When people feel good, when they feel wealthy, they will buy property. So that’s the wealth effect. So the yellow line, which is the volume of sales, mirrors the blue line. People will buy houses if they’re feeling wealthy and consumer sentiment is good, in other words. Annual growth in rents is back as well, which is a good thing; rents were down. And even though rent values are still down from the peak in March, 2020, they’re at least stabilized. Now that data could be faulty data; there are a lot of people on pause at the moment, so they’re not really paying their rents at all because of COVID, and because of government relief, that’s being offered, and landlords have been working with tenants as well. And we’ll see that there are fewer investors in the market, perhaps because of COVID and lack of yield.
So there’s a mild recovery in rents, and dwelling values have fallen a tiny bit, so that means that rental yields have gone up, at least in the maths of it, three points over May. So three basis point increase in rental yields. So, good for the Sydney market that has had a falling rental yield, at least for the first time, that’s on the mend.
Our days on market have lengthened, in other words, properties are taking longer to sell when we look at the last quarter, the three months to May. So leading up to May of this year, it meant that stock wasn’t moving as quickly. So these are the things that they measure to see the strength of the property market. And one of the things they look at is how long does a property sit there? In a really hot market? Sometimes you can’t even list a property; it just gets listed, and two days later sold, or under contract. In a slower market or where people are a little bit more fearful and buyers aren’t there, what happens is, properties sit there for 30 days or 60 days, average time on market, sometimes in a downturn can be six months. So depends on the area, and it can be a lot more granular, but they’ve just looked here at regional markets and CoreLogic’s looked at capital cities. So days on market May, 2020 was 28 in Sydney, compared to 51 this time, last year.
But in the three months to May, days on market have got a bit longer, as well as vendor discounting, so sellers dropping their price to meet the market. And that also happens when a market is changing or cooling off. So in other words, I may list my property. I may see that Bob next door sold his for a million, so I may say, “Look, mine’s worth a million every day of the week.” I list for a million. It doesn’t sell for a million. In fact, the agent tells me, “Look, everybody who came through says that this house is only worth 900,000.” So I dropped my $1 million price tag by 10%, and I take $900,000. That’s vendor discounting. So the amount of difference as a percentage between the initial listing price and the ultimate settlement price that they sold for will determine the level of discounting, and in a slower market, sellers have to meet the buyers, because it’s a buyer’s market, so prices tend to drop.
So discounting isn’t so bad in some areas, for example in the ACT, there are only dropping 1.8% from the initial asking point. In Sydney, they’re dropping 6.8% from the initial asking point. Sorry, that was last year in May ’19. But at the moment, Sydney, the sellers are only having to drop nearly 3.5% To find a buyer. So market’s still pretty buoyant. The new listings, so people coming and bringing their houses, the market has also increased. So in other words, people have said, “Okay, now that we’re out of lockdown, I’m going to try and sell my house because people can come to open for inspection, there are buyers out there. I think it’s going to get worse, now’s the time to cash out, to liquidate, take all my winnings and leave the property casino,” or whatever you want to call it. So sellers are coming to market now, whereas they may have had a stalemate and held out during COVID. There was not much volume of stock, and we’ll look at that in a moment.
And what it has meant is there was pent up demand; there were buyers in the market desperate to get in, but not much stock, slim pickings for them to fight over. So what has happened is, even though we’ve had more stock come onto market, it’s been snapped up, and there’s still fortunately, or unfortunately, whatever way you look at it, there’s no right and wrong, there’s just objective facts, there are still more buyers than sellers, and not enough stock on the market to meet that demand. So some people are quite bullish about property.
The other thing that’s happened is combined capital cities have seen a decline in listing. So if we look at this time last year, there’s just less stock on the market. So 26% less stock. So people still sitting on the sidelines, even though some of them have started to loosen and list their properties for sale, a lot of sellers just waiting. So, over a quarter of the market that would have sold, according to trends, they’re not doing it. In other words, we’ve got 25% or 26% less stock on market than this time last year. And in regional areas, 22% fall in the amount of stock on market. So another thing they look at is they’ll measure auction clearance rates. So if properties are moving at auction, it means there’s a fairly even mix in the market.
So clearance rates are at the 60% level when you take in the month of May and the last weekend and Tim Lawless, so head of analysis and data for the Asia Pacific region for CoreLogic has said that anything in the 60%, as a clearance rate, shows a stable market. So equal sellers and buyers. Not a market that’s lost a lot of confidence. Of course, this time, last year, post federal election, we were up in the 80%. So yes, it has cooled somewhat, but there are still people out there buying properties and their properties are moving at auction. People are actually following through to auctions now in a nervous market, like a few weeks ago, sellers listed for auction would just say, “Okay, take an offer before auction, I can’t risk no-one showing up at the auction.” Now they’re taking it through to the keeper, they’re trusting in the system, and they’re selling on the day under the hammer to bidders, and people are showing up actually buying. So over May, there were few auctions because people withdrew, and there were more vendors selling, testing the market under auction conditions, rather than selling prior to the actual auction.
The other thing that what’s happened is that dwelling approvals have declined. In other words, people aren’t putting through development applications to build a new house, or buying house or land packages and that sort of thing. Developers, in other words, are not building a pipeline. And we talked about this last week because there was real concern around the building and construction industry and all the jobs there, and that’s why the government introduced the Home Builder Package, where you can get $25,000 towards a build or a substantial renovation. And a substantial renovation is one that costs over $150,000. So we may see this figure change as home buyers come in and buy house and land packages and people build new homes, and indeed just in the last week, there’s been a rush for the Home Builder Package, so thousands of people have registered to get that grant, probably people who were wanting to build homes or do a big renovation or an extension onto an existing property have seen this as their time. So that pipeline of DA’s or approvals for build is probably going to extend and grow somewhat.
When we look at the proportions, so one thing that they do in a market is look at owner-occupiers versus investors. Owner-occupiers signal more stability in a market. So speculative people who are just buying apartments as an investment, it’s not the roof over their head. If the market goes bad, they’ll tend to cop a loss and sell, whereas those who are owner-occupiers tend to be in it for the longer term. It’ll affect my confidence if my house, but I wasn’t really in the market to sell. So on paper, yes, I’ve lost money, but not going to flee like rats from a sinking ship. It’s not like shares that you just go, “Whoops, the prices fall on our cash out now.” When you’re an owner-occupier and it’s your home, you tend to stick it out. So if there’s more owner-occupiers in the market, it acts to stabilize a market, so the thinking goes.
So when we look at owner occupiers at versus investors, they look at lending as something that they measure. So home lending to investors actually fell two and a half percent over March and home lending to owner-occupiers rose 1.2%. So whilst investors may not be coming in, owner-occupiers now have a stand in the market. And they’re also looking at first time buyers. So first time buyers now are seeing a window for affordability, with lots of government grants and stamp duty exemptions in different States, they’re starting to see their opportunity and are able to get into the market right now.
And the investor participation across the board in every state has fallen. So investors are tending to stay on the sidelines, and it’s more of an owner-occupier, first home buyer market underpinning our property at the moment. And obviously interest rates playing a big part in people coming into the market. So historically low rates, and banks actually passing on a lot of those rate cuts. So when you look at what banks have done, you’ve got interest rates falling, investor rates with a three in front of them, pretty much, and owner occupier and variable rates with a two in front of them at the moment. So if you will wanting to look at refinancing, now would probably be a good time; banks are very competitive.
That may not last; so one of the things to look at right now in the property market is the fact that banks have given people a holiday, and they don’t have to make loan repayments, and I’m talking a lot of people now don’t have to make loan repayments on business loans and their home loans, until depending what date it’s measured from the end of September. So the six month mandate, is it six months from when you actually get the exemption, you get a six month holiday, or is it six months from March to September? Either way that will pose a problem. So whilst the market hasn’t really fallen now, it’s just coming off its peak and cooling maybe a little bit, but fundamentally sound, what is going to happen come September when people who’ve lost their jobs in a shrinking economy with a formal recession looming for the first time in 29 years, and we’ll know that once June data comes in, but Josh Frydenberg, the treasurer said last week, it’s pretty much a certainty.
The figures for May showed an economic contraction. If you have that two months in a row, it’s a formal recession. So the contraction in May wasn’t that bad, they said the contraction in June is going to be huge, and they talked about greatest ever contraction in the economy since the 1930s. So treasury is predicting a recession. What’s going to happen when people have lost their jobs, they’re in a recession, recession means everything shrinks; businesses go under, there’s fewer jobs around, people are on pauses for their home loans now, but come September, there will be a day of reckoning. So they’ll either have to start making payments again, and it’s kind of closer, if you look at it as an all or nothing proposition, we’ve got to understand that. Not everybody who’s on pause, and we’re talking billions and billions of dollars. We’re actually talking 90% of the capitalization of banks, so the money that the banks have in reserve, 90% of that is accounted for in loans that are on pause or in hibernation. So if all those people were not able to pay come September and resume their payments, then the banks are basically out of runway. They haven’t got cashflow. They’re illiquid. They’re insolvent.
Now that won’t happen. Obviously some people who are on pause, we’ll get back into it and resume their repayments, but a lot of people, and it’s a realistic proposition that some people just won’t be able to resume. They’re kind of just in a Twilight Zone at the moment, treading water; they haven’t felt the pain, but some of those lines will be as banks called them, “Impaired.” So come the end of September, what’s going to happen to the impaired loans? Because technically there are a lot of loans now that in a normal system would fall into repossession of the property.
So after 90 days of delinquency on non-payment of mortgages, they don’t want to do that; that’ll make property prices fall. They’ve got a lot of security, a lot of their loans, 60% of their lending is to residential mortgages. So banks have a big interest in propping it up, in allowing these loan holidays. They don’t have to formally report on their books that a loan is delinquent, or there’s not been in payment for it that it’s impaired, but come September, something we’ll have to give. Either the government comes in and bails them out or super funds, or someone will have to prop them up because not all loans will continue to be repaid. And yes, they can have a further holiday on their loan and they may figure something out, some hardship arrangement with those borrowers, but that still has to be funded by something, and the banks may not have enough money in their coffers to do that.
One thing I’m sure of is that we won’t all go under; they’ll come to some economic arrangement. Our government has been very swift to bring in bailout packages and all sorts of stimulus to get the economy going, and to change laws where necessary. So if the economy contracts further, they’ll do the same thing. One thing’s for sure, where in really uncertain times. There’s just no playbook for this, they’re getting the figures with hindsight like these figures that we’ve got, from either studying them really, really keenly. They know there’s a September deadline, and then making changes as required. For example, the free childcare arrangement is going to end in July. Jobkeeper for those in the childcare industry is going to end, because they’ve said people are back at work, childcare is booming, there’s big demand now, so that’s an industry that doesn’t need propping up. So they’re going to borrow and cut and paste as required, as different sectors of the economy need triage.
But they definitely will watch housing, and there’s definitely going to be a lot of distress because a lot of people have mortgages, a lot of people have lost jobs, a lot of people will now be affected further during a recession, more jobs will be lost, less money will be in circulation, and it’s going to impact on property prices. Because of this uncertain time, I’m watching this space really keenly as well. And one thing that has happened with coronavirus, and lockdowns, and the disruptive change that’s ensued is the world has changed. There’s a hunger for knowledge, we’re far more global than ever before, we’re watching what’s happening in other countries, we’re seeing things happen in America, and it’s having a global groundswell and there’s protests all over the world. So we’re a lot more connected now and technology has made this, so. So as an events business, we found that we couldn’t run live events, but we’re able to run livestreams, which has been a blessing in disguise because we’ve been able to share messages far more effectively, more consistently without having to travel around the country. And we’ve built a broader community of like-minded people.
So aligned with that and aligned with all of the disruptive change, I’ve reached out to some really big industry names of a global nature to share knowledge with us, uniquely Australian, for our marketplace. And we’re not going to say too much now, but watch this space. I’m going to bring you a livestream. And I’m able to do that now because of the internet for a global thought leader, when it comes to property, and building, and managing your wealth, and I want to bring that visionary to you, and just share knowledge that we wouldn’t normally be able to tap into and get access to, of what’s happening right now, what we should be doing in Australia, and unique opportunities to build our wealth because of what’s happening, because we’ve had disruptive change. Think of it like a blank canvas now; we all get a do over, but the rules have changed. So we need to know what those rules are and what actions that we need to take.
So I’m really excited. It’s not a formal announcement yet, but just a little wink and a nod and a heads up. I’m going to be bringing you an Ignite series; so getting top global speakers to come to us live and to be able to share a message. So the first one of those is coming up on the 20th, and I’ll share more of that with you, but what’s your inbox because I’m going to email you and announce that special speaker to kick off our Ignite series for us.
In the meantime, don’t forget to follow us on Facebook so you can get regular updates and share all this with your friends. My mission is to build a broad community that shares knowledge and a message, like-minded people all working together. So tag people into the comment section, and if you’re watching on YouTube, don’t forget to like, and subscribe hit the bell if you want to be notified every time we release new content. And the other thing is, just watch this space for the big names that we’re going to be bringing to you, thought leaders in their area, about growing, building, and protecting your wealth in Australia right now, with the current environment. So watch this space. In the meantime, take care, be kind to one another, and let’s catch up on Thursday at our State of Play.