Core logic has suggested that the Australian residential housing market is worth an estimated $6.6 trillion dollars with Australian Authorised Deposit-taking Institutions having approximately $1.57 trillion of outstanding mortgages. This means that 24% of the value of the Australian residential housing market is debt financed. When comparing the Australian market with that of the United Kingdom and according to Savills the total value of the United Kingdom housing market is approximately £6.17 trillion with a debt figure of approximately £4.84. This potentially leaves the United Kingdom at a slightly lower debt percentage of 22%. Core logic reports that Australia’s pace of economic growth was strong in late 2015. Gross Domestic Product (GDP) data from the ABS to March 2016 shows that the Australian economy grew by 3.0% over the 12 month period, its fastest annual rate of growth since September 2012. Households however remain heavily indebted, largely due to housing debt.
Things to consider:
• The value of owner occupier housing finance commitments has increased 9.4% over the past year.
• The value of investor housing finance commitment has fallen by -13.1% over the past year.
• Most housing finance commitments for new stock are to owner occupiers not investors.
• First home buyers accounted for just 14.3% of all owner occupier housing finance commitments over the month.
• More than 10% of new mortgages have been for fixed interest rates over each of the past eight months.
Over the past year, Australian lenders have made significant changes to their lending policies. These changes include: a premium applied to mortgage interest rates for investors, higher interest rate serviceability calculations, lower loan to value ratios for certain types of lending along with other changes. Core Logic suggests that as off the past two months new lending to investors has picked-up and it will be interesting to see how much growth this segment sees over the coming months. It also suggests that official interest rates were lowered to 1.5% in August and, with inflation tracking at 1%, there is an expectation that the cash rate could move even lower during 2016 or early 2017.
Within our capital cities as of August 2016 Sydney and Melbourne continue to record the strongest rates of value growth: As of August 2016 Home values in Sydney have increased 9.1%, Melbourne increased by 7.5%, Hobart values increased by 6.2%. Some remaining cities have experienced less growth or have fallen over the past year. Brisbane has recorded 3.9% growth, Adelaide a 4.8% increase and Canberra a 2.9% increase. Cities that where the housing market has fallen are Perth which was down by -5.6% and Darwin which was down by -7.6%.
Core Logic suggests that Sydney home values have increased the most out of all capital cities. They are still increasing at a strong pace however are increasing at half their recent peak rate of growth in July 2015. Homes are also taking longer to sell meaning that selling conditions are not quite as strong as they were a year ago. Rental markets are weak with rental rates are increasing at the slowest rates on record. As of July 2016 the median Sydney house price was $880,000 and the median unit price was $670,000. When comparing to Melbourne for example we can see that Sydney’s median unit price is greater than Melbourne’s median house price which is $645,000 with Melbourne median unit prices being $482,500.
An interesting segment of core logics Quarterly review is their Where to From Here section of their report which provides their views on potential future trends. For a full version of their report visit this link.