In this weeks real estate summary we cover:
- Auction rates up slightly in both Sydney and Melbourne
- Rental growth outstrips capital growth
- The RBA leaving interest rates on hold
- Home sales up, but values are down
- Experts warn on 1st home buyer defaults
- The story of the incredible shrinking units
Auction results
The REIV reported a 60% clearance rate from 546 auctions, up from last weeks 57% on 480 auctions. Last year the clearance rate was 76% on 887 auctions. The REIV is expecting around 600 auctions next weekend and 800 on the following weekend.
In Sydney APM reported 55% on 278 auctions, slightly up from 54% last week.
Rental growth outpaces capital growth in recent times
Over the last 5 years capital city rental rates have increased at a greater average annual rate than capital city property values. House/unit values have grown 6.2% and 6.7% p.a. - while house/unit rents have grown 6.8% and 7.5% per annum. During the same period the average inflation rate has been 2.9%. Sydney houses/units have grown 4.1%/5% per annum since Feb 2006, Melbourne was 9.4%/9.3% and Brisbane 5.6%/6.6%. Rent increases were 6.9%/7.4% for Sydney, 7.5%/7.6% for Melbourne and 5.4%/6.3% for Brisbane. RP Data expects rental growth to accelerate in 2011.
Australia is becoming caught up in a property trap
The widespread fall in house prices during the March quarter is seen as healthy, with the downturn a clear response to two forces. The 1st being banks tightening their lending criteria – as the previously available free and easy credit available allowed buyers to bid up at auctions. The great risk to the market is that when the banks see March quarter declines they will tighten their lending further. The 2nd force driving prices down is the fear factor – as people with big mortgages and low equity are scared that they are not going to cope with looming higher interest rates and utility price increases.
SQM Research property update
Stock for sale levels are now approaching the 2008 highs, housing finance commitments are at 10 year lows and house prices are recording falls for most capital cities. The downturn is happening nationally, and SQM is predicting a 5-10% decline in prices across the capital cities.
RBA leaves interest rates on hold
The RBA has left rates on hold, sparing borrowers from a jump in repayments for another month at least. Some economists think another rate rise won't be too far off, as headline consumer inflation hit 1.6 per cent in the March quarter - its highest level in almost five years.
Weak housing market records a 1.1% slump
RP Data-Rismark figures show Sydney home values were down 1.1% over the three months to March, but up 2.1% for the year - the strongest annual gain of any capital city. Melbourne is the only other capital city to record a capital gain over the past 12 months (up 1.0%). Brisbane values are down 6.9% from their 2010 peak. The number of homes advertised for sale is continuing to mount - over the past 4 weeks 33,460 homes were advertised for sale across Sydney, 29% up over the last year and 12% higher than the 3 year average.
Home construction on urban fringe 'excessive'
Melbourne is building thousands more houses on its sprawling fringe than there is demand for - while at the same time the supply of houses in established suburbs is dramatically inadequate. According to The Melbourne Residential Market: Demand & Supply Overview, there is an overwhelming demand for ''family housing'' and family-friendly townhouses in existing suburbs. Overseas migration to Melbourne was the main factor driving housing under-supply; with Melbourne's migrant intake up from 40k in 2006 to 83k in 2009, and down to 63k in 2011. The Victorian Government says it will meet demand through faster land release, regional growth and urban renewal.
Clearance rate good for a buyer's market
With a record 2600 auctions (50% higher than the 10-year April average); April's 53% clearance rate in Sydney is encouraging. The previous busiest April was 1700 in 2000.
New home sales rise 4.3% in March
HIA figures show that the number of new home sales in NSW increased by 4.3% in March. Detached house sales increased by 5.8%, while sales of multi-units fell by 10%.
Slowing population growth rates, from 2.2% in 2008 to 1.6% in 2010, largely due to a drop in net overseas migration. If immigration keeps slowing this will negatively impact property markets, which have in part been buoyed by our strong population growth and the need to accommodate it.
Property experts warn rise in mortgage defaults points to first home buyer stress
The property industry is becoming worried over a rise in the number of delinquent mortgages, warning home buyers are desperate for long-predicted income growth that will help them manage repayments. The HIA says there are serious affordability constraints we have in the Australian marketplace, and APM has warned that the huge surge in prices in both Melbourne and Sydney has meant first home buyers are struggling with repayments. A number of first home buyers who purchased properties when prices were already inflated are now finding it hard to make repayments, as tighter employment conditions have not yet translated into higher wages.
Rental update
Population growth is expected to fall to 1.3% in 2011-12, with housing shortages still expected to remain in Sydney and a vacancy rate of 1%. Melbourne’s vacancy rate is expected to rise gradually to 2.5% by June 2012.
Land sales show a modest rise
Buyers have continued to support the Gold Coast vacant land market, with 292 sales in the March quarter, up from 240 in the December quarter. The HIA said finance is still difficult to obtain and Gold Coast land prices are only 2nd to Sydney.
Gold Coast lures Southern buyers
Good weather, southern buyers and favourable market conditions have helped stimulate demand on the Gold Coast, with many agents suggesting it is the best buying opportunity in a generation. While some vendors have suffered pain in adjusting their prices, the decision to price to the market reality has improved both sales and enquiry.
Action on affordability urged
The Property Industry has called on the Government to retain negative gearing and to act on housing affordability in the budget. The Urban Taskforce says investors are critical to housing supply; and the REIA has called for the removal of stamp duty and to allow 1st home buyers to access their super in order to buy a home.
The story of the incredible shrinking units
The size of the typical off the- plan apartment has shrunk again according to Oliver Hume. Around 30 new off-the-plan projects, comprising 3,420 units - were put on the market around Melbourne in the first three months of the year – 1 bedroom units had a median size of 48 sqm; 4% smaller than in the December quarter. The size of 2 bedroom units fell by almost 6% to 66 sqm over the same period. The median entry price for a l bedder rose $17,000 to $387,000; while for a 2 bedder prices fell by $46,000 to $499,000. Smaller apartments are typically favoured by investors rather than owner-occupiers, and many of the projects released since last year have been targeted mainly at investors.
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