33.3 per cent of homes sold across Brisbane this week according to Corelogic

House prices continued to fall in October, taking the annual decline to 3.5%, the weakest macro- housing market conditions since February 2012.

The data from CoreLogic shows dwelling values are trending lower across both combined capital city regions (-1.6%) as well as combined regional areas (-0.7%).

Analyst Tim Lawless said the “broad-based weakness” made it clear that tighter credit availability was acting “as a drag” on demand.

Sydney and Melbourne continued to be the weakest two areas, with a concentration of investment buyers, high supply conditions and the most stretched housing affordability.

Sydney values are now down 7.4% over the last 12 months and Melbourne follows behind with a drop of 4.7%.

Darwin and Perth are the only two other areas where prices have dropped in the 12 months, which Lawless said had been ongoing since 2014.

While other capital cities have seen increases over the last 12 months, the pace of growth has slowed down.

Both Hobart and regional Tasmania recorded strong growth, by 9.7% for the city and 11.4% for regional areas. This was driven by strong demand and shortage of supply.

While Melbourne has faced falling prices, regional Victoria has benefited from the lack of demand in the city. The ‘rest of Victoria’ saw a 7.1% increase in 12 months.

Western Australia excluding Perth has not had the same experience, with a drop of 6.5% in the average house price over the last 12 months.

According to CoreLogic’s report, the highest valued quarter of the market has led the downturn nationally. Prices for the more expensive houses fell by 6.6% over the past year, while the least expensive rose by 0.5%.

The report said the downturn in the housing market had been “relatively mild to date”, as the 3.5% fall in values comes off the back of a 34% rise.

It said, “With credit availability remaining tight and rising inventory levels, we are expecting there will be further downward pressure on housing values as we move through spring and into summer and the New Year.

“A key driver of lower housing market participation is related to credit availability. Annual growth in housing credit slipped to 5.2% in September; the lowest reading in almost five years.

“While investment credit growth has been trending lower for several years, credit for owner occupiers has more recently contracted as lenders seek out borrowers with more substantial deposits and lift their serviceability criteria.

“Although housing credit originations remain well below the formal APRA targets for investment lending and interest only lending, it’s clear that lenders are also focusing more on loan serviceability and reducing their exposure to borrowers with high debt levels relative to their incomes.

The Reserve Bank Board meets on November 6. The Bank will also release the November Statement on Monetary Policy on November 9. Of course the Governor will announce that there has been no change in the cash rate.

Readers will be aware that Westpac adopted a “no change” call for both 2018 and 2019 back in September 2017. At that time markets were pricing in three hikes by end 2019.

Today, markets are pricing only the probability of around 50% of one hike by end 2019 and a full 25bps is not priced-in until end 2020.

Back in August this year, Westpac forecast that the cash rate would remain on hold in 2020.

So, while a year ago we were offering readers some forecasts that were significantly at odds with market pricing, our views today are now largely factored in by the market.

That does not mean that our views are universally supported. In the latest Bloomberg survey of economists’ forecasts, only 10 of the 24 forecasters expect the cash rate to be on hold (one is calling cuts) by end 2019. In addition, 9 of those 13 forecasters expecting rates to be rising expect multiple hikes. Note that the other three major Australian banks expect rate hikes next year.

So the case for rates on hold is certainly not a universally accepted one.

As usual we will scour the Governor’s statement next Tuesday for any hints towards a firmer tightening bias, but there is unlikely to be much to encourage these efforts.

The Statement’s themes will be the same: continuing global expansion; China slowing a little; international trade uncertainty; Australian growth to average a bit above 3% in 2018 and 2019; positive business conditions; household consumption a source of uncertainty; labour market outlook positive; wages growth low; but a gradual lift in wages growth expected; further gradual decline in the unemployment rate expected; inflation higher in 2019 and 2020; housing conditions in Sydney and Melbourne continue to ease; progress toward full employment and target inflation will be gradual.

The Statement on Monetary Policy will include an update of the Bank’s forecasts out to December 2020.

Forecasts for GDP growth are likely to be unchanged from the August Statement on Monetary Policy: 3.25% in 2018 and 2019; and 3% in 2020. These forecasts indicate above potential growth, which is generally accepted to be 2.75%.

Headline Inflation forecasts in August were 1.75% in 2018; 2.25% in 2019; and 2.25% in 2020.

With higher petrol prices than were expected in August, the RBA may raise its forecast for headline inflation in 2018 from 1.75% to 2%.

The first week of November saw fewer homes taken to auction across the combined capital cities after last week recorded the fifth busiest week for auctions this year (2,928). There were a total of 1,529 auctions held this week returning a preliminary auction clearance rate of 47.4 per cent, increasing only slightly on last week’s final clearance rate of 47 per cent. As the remaining results are collected, the final clearance rate will see its usual downward revision and likely come in lower than last week. Over the corresponding week last year, a much higher 61.5 per cent of auctions were successful (2,046).

Melbourne saw the most notable dip in volumes this week; the lower volumes is what we traditionally see the week just prior to the Melbourne cup festivities, while also coming off the back of the second busiest week for auctions this year last week (1,709). There were only 264 Melbourne homes taken to auction this week, returning a preliminary clearance rate of 50.5 per cent. Last week, a final clearance rate of 48.6 per cent was recorded across the higher volumes.

A preliminary auction clearance rate of 47.7 per cent was recorded across Sydney this week, improving on last week’s final clearance rate of 45.3 per cent. There were 801 auctions held across the city this week, which was only 3 extra auctions compared to last week.

Across the smaller auction markets, Adelaide was the best performing in terms of clearance rates with 57.6 per cent of auctions successful, while only 33.3 per cent of homes sold across Brisbane this week.

Auction results by property type

The above results are preliminary, with ‘final’ auction clearance rates published each Thursday. CoreLogic, on average, collects 90% of auction results each week. Clearance rates are calculated across properties that have been taken to auction over the past week.

Sub-region auction stats

 

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