Quarterly Review - CoreLogic...(and first) quarterly fall in dwelling values since the three months to April 2016. Throughout 2017, national dwelling values increased by 4.2% which

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Quarterly ReviewThe Australian Residential Property Market and EconomyReleased January 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



While dwelling values increased in 2017, there was a notable slowing of the market late in the year, culminating in national values falling by -0.3% over the final quarter of the year. This represented the largest (and first) quarterly fall in dwelling values since the three months to April 2016. Throughout 2017, national dwelling values increased by 4.2% which was down from 5.8% at the end of 2016 and the slowest rate of annual growth since October 2016. Importantly there was a noticeable slowing through the year once annual growth peaked at 10.4% in May 2017.

Sydney, which accounts for almost one third of the total value of housing nationally, is leading the slowdown with values falling by -2.1% over the final quarter of 2017. Most other capital cities have also experienced a slowing of the rate of value change over recent quarters. In fact, only Perth and Darwin, where home values have been in decline since 2014, have recorded an improvement in housing performance over the final quarter of the year compared to the third quarter.

Outside of Sydney, dwelling values have increased over the quarter in Melbourne (0.9%), Brisbane (0.3%), Adelaide (0.3%), Perth (0.1%), Hobart (3.1%) and Canberra (1.0%) and have fallen in Darwin (-2.9%).Over the 2017 calendar year, values have fallen in Perth (-2.3%) and Darwin (-6.5%) and have increased in Sydney (3.1%), Melbourne (8.9%), Brisbane (2.4%), Adelaide (3.0%), Hobart (12.3%) and Canberra (4.9%).The recent slowing of value growth nationally comes after a strong phase of growth which has been led by Sydney and Melbourne. The surge in dwelling values has occurred against a back-drop of low inflation, low mortgage rates and historically weak income growth. As a result, housing affordability has deteriorated substantially in Sydney and, to a lesser extent, in Melbourne.

The past few years have also 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 a slight pull-back in new housing construction however, approvals are now climbing again. 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 and a year ago rental growth was slowing across most regions of the country. Over the past year though, there has been an acceleration in rental growth with the rents increasing by 2.7% over the year. A similar trend has been evident across all capital cities however, the rate of growth now appears to be slowing. Exactly what has driven this acceleration is unclear however, it is probably due to a number of factors including: rapid population growth and the sheer lack of affordability of owning a home.

Furthermore, the rising popularity of AirBnB is potentially resulting in some level of stock removal from the long-term rental market and increasing supply in the short-term market. Additionally, as mortgage rates edge higher, particularly for investment mortgages, it is likely that landlords will be doing their best to recoup their higher cost of debt by pushing rents higher if possible.

Capital city dwelling values have now been rising for more than five and a half years and the rate of growth in Sydney and Melbourne has been significantly greater than that outside of these two cities. While lower mortgage rates have improved mortgage serviceability, for those that don’t own a home it is increasingly difficult for them to firstly save a large enough deposit and secondly to compete with the equity that current home owners have built over recent years. More recently the housing market has slowed due to a range of factors including tighter credit policies, stretched affordability, supply additions and higher mortgage rates for investors. As a result the market is expected to continue to transition in 2018 with falls potentially set to continue in Sydney while conditions across Melbourne’s housing market are also expected to slow further.

Introduction

$7.5 trillion $2.5 trillion $1.8 trillion $0.948 trillionValue of Residential

PropertyValue of Australian

SuperannuationValue of Listed Equities Value of Commercial

Real Estate


3.1%

8.9%

2.4% 3.0%

-2.3%

12.3%

-6.5%

4.9% 4.3% 3.8% 4.2%

-10%

-5%

0%

5%

10%

15%

Change in dwelling values,12 months to December 2017

-10%-5%0%5%

10%15%20%25%30%35%

Quarterly and annual change in national dwelling valuesQuarterly change Annual change


► National dwelling values fell by -0.3% over the final quarter of 2017 which was the first quarterly decline since the three months to April 2016.

► Over the quarter, combined capital city dwelling values fell -0.5% while combined regional areas saw values increase 0.5%.

► The quarterly decline in capital city dwelling values was driven by a -2.1% fall in Sydney with Darwin (-2.9%) the only other capital city in which values fell over the quarter.

► Over the past 12 months, national dwelling values increased by 4.2% with combined capital city values 4.3% higher and combined regional market values up 3.8%.

► Looking at the annual change in house and unit values; houses increased by 4.0% nationally, 4.0% across the combined capital cities and 3.9% across the combined regional markets compared to 4.9%, 5.1% and 3.6% respectively for units.

Housing Market

► National dwelling values recorded a slowdown in growth throughout 2017 with the 4.2% annual change the slowest over a calendar year since they rose 1.1% in the 2012 calendar year.

► Although nationally value growth in 2017 was lower than the 5.8% in 2016, amongst the capital cities only Sydney, Adelaide and Canberra recorded a weaker annual change in 2017 than in 2016.

► Throughout 2017, the annual change in dwelling values peaked in May 2017 at 10.4% and decelerated each month thereafter to be less than half that rate by the end of the year.

► Annual value growth was strongest over the year in Hobart (+12.3%) with Melbourne (+8.9%) the only other capital city to record an annual change in excess of 5%.

► Most capital cities other than Hobart and Melbourne recorded annual growth of less than 5% while Perth (-2.3%) and Darwin (-6.5%) have continued to see values fall on an annual basis.

► Sydney house values have increased by 2.1% over the past year compared to a 5.4% increase in unit values however, over the December quarter house values were -2.9% lower while unit values fell by -0.4%.

► Over the past year, Melbourne house values have increased by 9.1% compared to a 8.4% increase in unit values and over the quarter house value growth (+0.6%) was lower than unit growth (+1.8%).

Over the three months to December 2017, national dwelling values fell by 0.3%; the first rolling quarterly fall since April 2016

Hobart was the only capital city to record double-digit value growth in 2017


6.3%

12.1%

6.5% 7.4%

1.6%

17.8%

-1.3%

9.6%7.8% 9.2% 8.1%

-5%

0%

5%

10%

15%

20%Total returns over the 12 months to December 2017


► House values in Brisbane increased by 3.1% over the 12 months to December 2017 while unit values fell by -1.2%, over the quarter the value of houses increased 0.5% while unit values fell by -0.6%.

► Over the 12 months to December 2017, Adelaide house values increased by 3.3% compared to a 0.5% increase in unit values while over the quarter house values rose 0.5% and unit values increased by 0.3%.

► Perth house values fell by -2.6% and unit values were -0.9% lower over the 12 months to December 2017 while over the quarter house values increased by 0.1% while unit values increased 0.4%.

► Values of houses in Hobart have increased by 12.9% and units by 9.1% over the past year while over the past quarter, house values were 3.0% higher and unit values rose by 3.4%.

► Throughout the 12 months to December 2017, Darwin house values fell by -5.3% compared to a -8.4% fall in unit values while over the past quarter, house values were -2.4% lower and unit values were -4.0% lower.

► Over the past 12 months, Canberra house values have increased by 5.8% while unit values have increased by 2.1% and over the past quarter, houses increased by 1.5% and units fell by -0.6%.

The housing asset class generated total returns of 8.1% over the past year

► Over the 12 months to December 2017, total property returns which factor in both capital growth and rental returns have been recorded at 8.1% split between 7.8% across the combined capital cities and 9.2% across the combined regional markets.

► Nationally, total returns over 2017 were lower than the 10.1% a year ago and well down from the peak throughout 2017 of 14.7% in May.

► Investors enjoyed double-digit returns from residential property over the past year in Melbourne and Hobart.

► All other capital cities except for Darwin recorded positive total returns over the year however, they were relatively moderate.

► Over the past five years, total returns nationally have been recorded at 11.2% p.a. while Sydney (14.7% p.a.) and Melbourne (13.1% p.a.) have generated much higher returns, returns in Perth (3.5% p.a.) and Darwin (1.5% p.a.) have been much lower.

Housing Market


94.5% 90.2%

19.4% 21.4%4.8%

35.0%

-1.5%

31.4%

64.5%

21.7%

54.1%

-20%0%

20%40%60%80%

100%

Change in dwelling values,January 2009 to December 2017

70.8%58.5%

20.7% 16.6%0.9%

30.8%

-10.2%

15.8%

47.9%

17.9%

40.7%

-20%

0%

20%

40%

60%

80%

Change in dwelling values over the current growth phase to December 2017


► Following a decline of -6.5% between June 2010 and February 2012, national dwelling values have increased by 40.7% since that time to December 2017.

► 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 30.8%, 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, 16.6% in Adelaide and 15.8% in Canberra.

► Over the period, Perth has recorded a value increase of just 0.9% while Darwin values are -10.2% 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.

► Since December 2008, Sydney and Melbourne dwelling values have almost doubled.

► All other capital cities except for Adelaide (21.4%), Hobart (35.0%) and Canberra (31.4%) have recorded cumulative value growth of less than 20% since the end of 2008 with Darwin values lower now than they were then.

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


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000 Monthly number of settled dwelling salesMonthly sales 6 month average

$1,058,306

$832,735

$531,248

$458,806

$484,562

$424,251

$469,083

$669,642

$693,736

$361,236

$562,294

$774,124

$574,052

$383,752

$331,325

$408,488

$335,289

$356,992

$431,048

$580,485

$337,049

$516,551

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

SydneyMelbourne

BrisbaneAdelaide

PerthHobartDarwin

CanberraCombined capitalsCombined regions

NationalMedian house and unit values as at December 2017

Units Houses


► At the end of December 2017, the national median value of a house was recorded at $562,294 and the median unit value was $516,551, a gap of 8.9%

► 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 (19.5%) and narrower in the regional markets (7.2%).

► Across the individual capital cities, the premium for houses over units is recorded at: 37% in Sydney, 45% in Melbourne, 38% in Brisbane, 38% in

Adelaide, 19% in Perth, 27% in Hobart, 31% in Darwin and 55% in Canberra.

► In dollar terms the gaps between house and unit prices are recorded at: $284,182 in Sydney, $258,683 in Melbourne, $147,496 in Brisbane, $127,481 in Adelaide, $76,075 in Perth, $88,962 in Hobart, $112,091 in Darwin and $238,593 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 December 2017 there were 471,917 settled dwelling sales nationwide.

► Compared to sales over the 12 months to December 2016, the number of transactions was -4.8% lower. Annual sales are tracking 13.2% lower than the recent peak recorded over the twelve months ending August 2015.

► The combined capital cities recorded an estimated 296,916 settled sales over the year which accounted for 63% of total sales nationally.

► Capital city transactions were -6.4% lower over the past year than the previous year while regional market transactions were down -2.0%.

► Across the individual capital cities, the annual change in transactions was recorded at: -5.6% in Sydney, -11.2% in Melbourne, -8.2% in Brisbane, -0.1% in Adelaide, +1.5% in Perth, +3.2% in Hobart, +2.5% in Darwin and -6.3% 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 5.6%.

► The current level of discounting across the individual capital cities is recorded at: 5.2% in Sydney, 4.3% in Melbourne, 5.64% in Brisbane, 5.7% in Adelaide, 7.9% in Perth, 5.6% in Hobart, 11.4% in Darwin and 3.3% in Canberra.

► Sydney and Darwin are the only capital cities in which discounting levels are higher over the year, up 0.1% and 2.9% respectively.

► With advertised stock levels rising in Sydney, its likely discounting rates will see some upwards pressure though 2018.

Housing Market Overview

Discounting levels have been trending lower over recent years

► 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 39 days to sell compared to 36 days at the same time a year ago.

► At an individual capital city level, the average days on market is recorded at 36 days in Sydney, 31 days in Melbourne, 55 days in Brisbane, 47 days in Adelaide, 58 days in Perth, 29 days in Hobart, 90

days in Darwin and 35 days in Canberra.► The typical days on market has reduced over the

past year in Adelaide (-3 days), Perth (-1 day), Hobart (-3 days), Darwin (-9 days) and Canberra (-1 day).

► In Sydney, Melbourne and Brisbane homes are taking longer to sell than they were a year ago, up 6 days, 2 days and 10 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

The Australian Residential Property Market and EconomyHousing Market Overview

► Rental rates increased by 2.7% nationally over the 12 months to December 2017 with combined capital city rents 2.6% higher and combined regional market rents up 3.0%.

► Nationally, unit rents (+2.9%) have increased at a faster pace than house rents (2.6%) and this is reflected across the combined capital cities (2.9% vs. 2.4%) however, in the combined regional markets house rents (3.1%) have outperformed unit rents (2.5%).

► Although annual rental growth is higher now than it

was a year ago, over recent months the rate of rental increase has slowed.

► It will be interesting to see whether supply additions over the coming months and years result in a further softening of rental growth.

► At an individual capital city level, the annual change in dwelling rents have been recorded at: +3.0% in Sydney, +4.3% in Melbourne, +0.2% in Brisbane, +3.1% in Adelaide, -2.5% in Perth, +9.4% in Hobart. -1.5% in Darwin and +4.9% in Canberra.

Rental growth has accelerated over the past year despite high levels of housing stock additions

► At the end of December 2017, the gross rental yield nationally was recorded at 3.6%, 3.3% across the combined capital cities and 4.9% across the combined regional markets.

► Houses (3.5%) have lower gross yields than units (4.1%) nationally as well as across the combined capital cities (3.1% vs. 3.9%) and combined capital cities (4.9% vs. 5.2%).

► Across Australia, gross rental yields have softened, with this easing trend evident across both the combined capital city and combined regional markets over the past year for houses and units.

► Throughout the individual capital cities, gross rental yields are currently recorded at: 3.1% in Sydney, 2.9% in Melbourne, 4.3% in Brisbane, 4.2% in Adelaide, 3.9% in Perth, 5.0% in Hobart, 5.9% in Darwin and 4.4% in Canberra.

► Gross rental yields are currently lower than they were a year ago across most capital cities, the exceptions are Sydney and Darwin.

► 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.

Gross rental yields have begun to firm due to rents increasing faster than dwelling values


Quarterly Review | September 2017


$0

$2

$4

$6

$8

$10

$12

$14

Billio

ns

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

Billio

ns

Monthly value of housing finance commitments, National

Owner occupier Investor


The Australian Residential Property Market and EconomyMortgage Lending

► There was $33.5 billion in housing finance commitments in November 2017 to Australian lenders.

► The total value of housing finance commitments increased by 2.3% in November 2017 and was 0.8% higher year-on-year.

► The $33.5 billion in commitments was split between $21.3 billion to owner occupiers and $12.2 billion to investors.

► The value of owner occupier housing finance commitments increased by 2.7% over the month

and was 6.9% higher year-on-year.► Finance commitments to investors increased by

1.5% in September however, they were -8.3% lower year-on-year.

► The ongoing changes to lending policies for investors has led to waning demand in this segment however, stamp duty concessions in NSW and Vic for first home buyers and low interest rates has supported demand from the owner occupier segment.

New finance commitments to investors are well down on their recent highs, but remain at historically elevatedlevels

► In November 2017, the $21.3 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, $6.2 billion for refinancing of established dwellings and $11.9 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 (+9.3%), purchase of new dwellings (+15.3%) and purchase of established dwellings (+11.4%) while they were lower for refinancing of established dwellings (-2.8%).

The value of lending to owner occupiers has increased for four consecutive months


$0

$2

$4

$6

$8

$10

$12

$14

$16

Billio

ns

Monthly value of investor housing finance commitments by type

Construction of dwellings Purchase of established dwellings


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


The Australian Residential Property Market and EconomyMortgage Market

► In November 2017 there was $12.2 billion in housing finance commitments to investors, consisting of $1.4 billion for construction of dwellings and $10.7 billion for established housing.

► Both lending for construction of dwellings and established housing rose over the month (+13.4% and +0.1%) however, commitments for construction were higher over the year (+18.9%) while established housing was lower (-11.0%)

► 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 November 2017, the value of investor housing finance commitments was -16.7% below its

historic peak.

► Although the value of lending to investors has fallen, investors accounted for 44.6% of the total value of new finance commitments (excluding refinances) in November which was well above the long-run average share of 34.2%.

► 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 11,091 commitments in November 2017.

► Not only was the number of first home buyer housing finance commitments the greatest since December 2009, they accounted for 18.0% of all owner occupier commitments, the highest proportion since October 2009.

► 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, 2016.

► Comparing the number of first home buyer commitments between June and November 2017 shows November 2017 volumes were 77% higher in New South Wales and 49% higher in Victoria.

Owner occupier first home buyer finance commitments hit their highest volume since December 2009


0%

5%

10%

15%

20%

25%

30%

Monthly proportion of new mortgages on a fixed rate home loan


$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

Billio

ns

Quarterly value of new interest-only mortgages

Source: CoreLogic, APRA

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000Average owner occupier loan size, monthly



Owner occupier average loan sizes have only slightly increased over the year The average new mortgage size to owner occupiers

was recorded at $388,900 in November 2017. Average mortgage sizes have increased over each of

the past three months and they are 3.3% higher year-on-year.

First home buyer average loans sizes are $327,100 and have increased by 1.0% over the year

Non-first home buyer average loan sizes sit at $402,500 and have increased by 4.5% year-on-year.

The majority of owner occupiers take out a variable rate mortgage, but fixed rates have risen in popularity Housing finance data reveals that in November 2017,

15.8% 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 rising proportion of new mortgages on a fixed rate is likely reflective of the uncertainty which has been created by ongoing mortgage repricing over recent months and likely a growing acceptance that the interest rate cycle has bottomed out.

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 September 2017 quarter there was $16.603 billion in new interest-only mortgage lending.

The $16.603 billion in new interest only lending was the lowest quarterly value of new originations since the March 2009 quarter.

The $16.603 billion of new lending for interest-only purposes represented an historic low of 16.9% 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. Given this the December data will be interesting to see whether the proportion of interest-only lending rebounds closer to this threshold or remains at the current much lower level.

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

$180,000

$190,000

$200,000

$210,000

$220,000

$230,000

$240,000

$250,000

$260,000

$270,000Average outstanding mortgage balance



Average outstanding mortgage balances rose by 4.3% over the year to September 2017

► At the end of the September 2017 the average outstanding mortgage balance sat at $264,300 which was 4.3% higher over the year.

► Interest-only mortgages had the highest average outstanding amount at $347,000, up 3.1% over the year but slightly lower over the quarter.

► Mortgages with an offset facility also had an above average outstanding amount ($314,100) having risen by 1.6% over the past year but also slightly lower over the quarter.

► The average outstanding balance on a reverse mortgage has increased by 5.3% over the past year to $103,000.

► Low-documentation mortgages had an average outstanding balance of $195,200 which has increased by 2.3% over the past year.

► Other non-standard mortgages have seen their average outstanding balances fall by -1.3% over the year to $186,800 at the end of September 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 value of lending with a loan to value ratio (LVR) above 90% is the lowest since March 2011

► According to APRA there was $98.211 billion in new mortgage lending over the September 2017 quarter.

► $27,595 billion worth of new mortgage lending over the quarter was for loans with an LVR of 60% or less which accounted for 28.1% of all new mortgage lending for the quarter, its highest share since December 2010.

► Loans with an LVR of between 60% and 80% accounted for 51.3% of all new lending over the quarter at $50.393 billion.

► An historic high 79.4% of new mortgages over the quarter had an LVR of less than 80%.

► 13.8% of lending over the quarter was for loans with an LVR of between 80% and 90%, at a total of $13.547 billion.

► Just $6.676 billion was lent for mortgages with an LVR of more than 90% over the September 2017 quarter which was its lowest value since March 2011, and these mortgages accounted for an historic low 6.8% of new lending over the quarter.

► With fewer new mortgages being written with high LVRs it reflects the more conservative approach to mortgage lending being taken by lenders.

► Mortgages with LVRs 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

9.9 million

Outstanding mortgage debt$1.72 trillion

Household wealth held in housing

52.2%

Total sales p.a.471,917

Gross value of sales p.a.

$298.3 billionSource: CoreLogic, ABS, RBA, ASX

The Australian Residential Property Market and EconomyMortgage Market

► The total value of outstanding mortgage credit, according to the RBA, was $1.715 trillion in November 2017 with the value outstanding having almost doubled over the past decade.

► Housing credit advanced by 0.4% in November 2017 with investor credit (0.4%) advancing at a slower pace than credit to owner occupiers (0.5%).

► Monthly housing credit data shows that credit growth has been slowing recently for investors and has been relatively steady for owner occupiers.

► Over the 12 months to November 2017, housing credit has advanced by 6.4% with owner occupier credit increasing by 6.3% and investor credit up by 6.5%.

► The slowdown in credit growth is commensurate with higher mortgage rates for investors and an overall slowing of the rate of growth in dwelling values over recent months.

Housing credit growth has slowed largely due to a slowing of investor credit


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


The Australian Residential Property Market and EconomyHousing Supply

► There were 21,055 dwellings approved for construction nationally in November 2017.

► The number of approvals increased by 11.7% over the month to be 17.1% higher year-on-year however, they were -5.4% lower than in August 2016 which was the peak in approval numbers.

► The 21,055 approvals in November were split between 9,849 houses and 11,206 units.

► House approvals were -2.8% lower over the month but 1.2% higher year-on-year while unit approvals increased by 28.7% over the month and are 35.8%

higher than they were a year ago.► The chart below highlights that unit approvals tend

to be much more volatile than houses.► Looking at annual data, approvals are much lower

over the year in Sydney (-9.3%), Brisbane (-19.9%), Perth (-11.7%), Darwin (-51.9%) and Canberra (-21.8%) and are higher in Melbourne (5.7%), Adelaide (1.8%) and Hobart (37.0%).

► It remains to be seen how many of these approved new properties will be built given slowing housing market conditions.

Approvals for units have come roaring back with November 2017 one of the largest months on record for unit approvals

Dwelling commencements have eased from their peak but rose over the September 2017 quarter

► 54,927 dwellings commenced construction over the September 2017 quarter which was 0.7% greater than over the previous quarter but -3.3% lower compared to the September 2016 quarter.

► In terms of commencements for new construction, there were 28,101 new houses and 26,528 new units which commenced construction.

► New house commencements were -3.4% higher over the quarter and -5.3% lower year on year while new unit

commencements increased by 5.9% over the quarter but were -1.0% lower year-on-year.

► Throughout the states and territories commencements were lower relative to the same quarter last year in NSW, Qld and WA and were higher elsewhere

► Despite a quarterly increase in commencements given that dwelling approvals remain below recent peak levels it seems unlikely that commencements will rebound to their previous highs.


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Sep-87 Sep-92 Sep-97 Sep-02 Sep-07 Sep-12 Sep-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



► There were 219,741 dwellings under construction at the end of September 2017 consisting of: 65,542 new houses, 151,950 new units and 2,294 existing dwellings.

► The number of new houses under construction rose by 2.9% over the quarter and are 35.4% higher than their long-term average.

► The number of new units under construction was 0.4% higher over the quarter and 285.0% higher than its long-term average.

► Dwelling approvals have increased over recent months while commencements remain fairly steady

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 trend slightly lower

► Over the September 2017 quarter there were 52,901 dwelling completions which was -0.9% lower than the previous quarter but 3.9% higher than the September 2016 quarter.

► The data consisted of 28,417 new house completions which were 0.9% higher over the quarter and 1.9% higher year-on-year.

► There were 24,011 new units completed over the September 2017 quarter which was -3.5% lower than the previous quarter and 7.0% higher than the

previous year.► Across the states and territories completions were

higher over the year in NSW, Vic and ACT but lower elsewhere with WA and NT recording the most substantial falls.

► There remains a substantial number of dwellings under construction which should ensure that completions continue to remain elevated for some time.

The volume of stock under construction returns to 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



A high number of dwellings approved for construction are not progressing to commencement

► There was 37,792 dwellings approved for construction which had not yet commenced nationally at the end of the September 2017 quarter which was -2.6% lower than the number over the previous quarter.

► This figure consisted of 10,801 new houses awaiting commencement and 26,324 new units not commenced.

► The number of houses not yet commenced has trended higher over the past four quarters and is now at its highest level since September 2012 while the number of yet to be commenced units has fallen over the past two quarters and is at its lowest level since March 2016.

► Despite a recent fall, the number of new units which

have not yet commenced remains elevated compared to historic averages and with approvals surging between September and November it will be interesting to see next quarter just how many of the units which have been approved actually progress through to the commencement phase.

► NSW currently has its fewest dwellings awaiting commencement since September 2015 and dwellings awaiting commencement in Vic are the lowest since June 2016. In Qld, where concerns around a unit oversupply are most prominent, dwellings awaiting commencement are at their highest volume since June 2016.


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000Components 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


The Australian Residential Property Market and EconomyDemographic Overview

The annual rate of national population growth has steadied recently

► It was estimated that at the end of the June 2017 quarter, the national population was 24,598,933 persons.

► Australia’s population increased by 1.6% or 388,124 persons over the 12 months to June 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 245,408 persons over the 12 months to June 2017 which was 27.1% higher than at the same time in 2016 and at its highest level since December 2009.

► Natural increase fell by -7.5% over the year and

was recorded at 142,716 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 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 121,794 persons over the 12 months to June 2017. The annual population increase was 8.9% higher over the year and slightly lower than its record high.

► Victoria’s population increased by a nation-leading 2.3% over the 12 months to June 2017 with the population increasing by 144,357 residents over the year. The total change in population over the year was -1.3% lower than over the previous year.

► With an increase of 79,580 persons over the year to June 2017, Queensland’s population increased by 1.6% over the year. The 79,580 person increase in population was the greatest annual population increase for the state since September

2013 and 23.4% higher than the population increase a year earlier.

► South Australia’s population increased by 10,494 persons over the 12 months to June 2017 resulting in a population growth rate of 0.6%. The 10,494 person increase in population was slightly higher than the previous quarter but -6.4% lower than over the previous year.

► The population of Western Australia increased by 21,403 persons or 0.8% over the past year. Although Western Australia is seeing an historically slow rate of population growth, the state’s annual change in population lifted (from a low base) by 45.8% 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 June 2017



► The Tasmanian population increased by 3,289 persons or 0.6% over the 12 months to June 2017. The 3,289 increase was the greatest annual population increase since December 2010.

► Northern Territory’s population increased by 0.1% or 365 persons over the 12 months to June 2017, a -53.0% decline on the increase a year earlier.

► In the Australian Capital Territory, the rate of population growth was recorded at 1.7% over the past year resulting in an increase in population of 6,833 persons.

Demographic Overview

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 98,570 persons in NSW and 86,901 persons in Vic.

► NSW accounted for 40.2% of net overseas migration nationally and Vic accounted for 35.4%, if you add in the 12.7% in Qld, the three most populous states accounted for 88.3% of national net overseas migration.

► With net overseas migration of 98,570 persons over the past year, New South Wales recorded its greatest volume of net overseas migrants on record and the number was 31.4% higher compared to the previous year.

► The net overseas migration of 86,901 persons into Victoria over the past year was the greatest number on record and 23.1% higher than the previous year.

► Queensland’s net overseas migration was recorded at 31,148 persons over the past year which was 44.3% 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 10,497 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 13,101 net migrants to the state over the past year was 7.9% higher than over the previous year.

► Net overseas migration for Tasmania was recorded at 1,461 persons which was 30.0% higher than a year earlier and its highest annual number since June 2010.

► The 923 net overseas migrants to the Northern Territory over the past year was 58.0% higher than the number over the previous year but still well down on recent levels.

► The Australian Capital Territory had net overseas migration of 2,801 persons over the past year which was 42.9% higher than the number over the previous year.


-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


The Australian Residential Property Market and EconomyDemographic Overview

Queensland now leads the pack in terms on net interstate migration over the past year

► The net outflow of New South Wales residents to other states and territories was recorded at 14,859 persons over the past year, its greatest decline since March 2013.

► Victoria recorded a net gain from interstate migration of 17,182 persons which is slightly down on its historic high level of gain the previous quarter however, it is 2.9% greater than over the previous year.

► Net interstate migration to Queensland was recorded at 17,426 persons over the past year, its greatest increase since December 2008, 50.5% higher than over the previous year and now the nation’s leading state for net interstate migration.

► South Australia recorded a loss of 5,941 persons over the past year due to net interstate migration which was lower than over the previous quarter as well as being lower than the net loss of 6,398

residents a year earlier.► After annual net interstate migration peaked at

11,425 persons in September 2012, Western Australia has recorded a loss of 11,722 residents over the past year, which is a slightly lower net loss than the record-high annual loss over the previous quarter.

► Net interstate migration to Tasmania saw a net gain of 741 residents over the past year, which was its strongest net inflow since September 2009.

► The net loss of 3,490 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 663 persons, which is slightly lower over the quarter.


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 timeStandard variable Discounted variable 3 year fixed


The Australian Residential Property Market and EconomyHousehold Finances

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

► At their December 2017 meeting, the RBA kept the official cash rate on hold at 1.5%.

► For an owner occupier, average mortgage rates are currently recorded at: 5.20% for a standard variable mortgage, 4.5% for a discounted variable mortgage and 4.10% 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 4.45% for a three year fixed mortgage.

► Mortgage premiums for investors have only been in place for slightly more than two 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 199.7% in September 2017, up from 199.3% the previous quarter and 191.3% a year earlier.

► The 199.7% ratio of household debt to disposable income is largely made up of housing debt which has a record-high ratio of 137.5% up from 136.8% the previous quarter and 131.7% a year earlier.

► Of the 137.5% ratio of household debt to disposable income, 104.7% of the 136.4% is owner occupier debt (also a record-high) leaving 33.8% to investors.

► Although household and housing debt is at historic high levels, the ratio of total interest payments to

disposable income sits at 8.8% 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 had their mortgage for many years 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%100%200%300%400%500%600%700%800%900%

1000%Ratio of household and housing assets to disposable income

Household Housing


The Australian Residential Property Market and EconomyHousehold 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 September 2017 quarter, the ratio of household assets to disposable income was recorded at 952.1% and the ratio of housing assets to disposable income was recorded at 521.8%

► A year earlier these ratios were recorded at 900.6% for household assets and 486.0% 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 September 2017, wages increased by 2.0%, slightly higher than their historic low of 1.9%.

► 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%

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

Household saving ratio, National


0.0%0.1%

0.9%

-0.4%

0.2%

0.4%

-0.4%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

Publicconsumption

Privateconsumption

Private capitalformation

Public capitalformation

Inventories Exports Imports

Contributions to quarterly change in GDP, September 2017 quarter


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

10%Quarterly and annual change in GDP

Quarterly Annual


The Australian Residential Property Market and EconomyNational Accounts

The Australian economy grew by 0.8% over the second quarter of the year

► The national economy expanded by 0.6% over the September 2017 quarter to be up 2.8% over the year.

► The 2.8% annual increase is up from 1.9% the previous quarter but remains below long-term average levels.

► Per capita GDP rose by 0.2% over the quarter to be just 1.3% higher over the year highlighting that headline GDP is expanding more rapidly than it is for individuals.

► Nominal (or inflation adjusted) GDP rose by 0.6% over the September 2017 quarter to be 4.5% higher over the year.

► The total output of the national economy over the 12 months to June 2017 was $1.706 trillion.

► Australia has now seen the longest period without a recession on record (defined as consecutive quarters of GDP decline) for a developed country.

Private capital formation and exports drive the GDP expansion over the September 2017 quarter

► Over the September 2017 quarter, the percentage point contributions to GDP growth were: +0.0% from government expenditure. +0.1% from household expenditure, +0.9% from private capital formation, -0.4% from public capital formation, +0.2% 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 2.4%, household expenditure rose 2.2%, private capital formation rose 4.6%, public capital formation rose 12.2%, exports increased by 6.4% while imports increased by 7.7%.

Private capital formation and exports drive the GDP expansion over the September 2017 quarter

► According to data in the National Accounts, the household saving ratio was recorded at 3.2% over the September 2017 quarter.

► The household saving ratio has now been below 10% for 21 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.


-3.4%-3.0%

-0.8%-0.2%

0.6%1.3%

1.9%3.2%3.3%3.4%

4.0%7.3%

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

CommunicationClothing and Footwear

Furnishings, Household Equipment and ServicesFood and Non-alcoholic Beverages

Recreation and CultureInsurance and Financial Services

All GroupsEducationTransport

HousingHealth

Alcohol and Tobacco

Annual change in the components of CPI, December 2017


-2%

0%

2%

4%

6%

8%

10% Annual inflation, NationalAll groups Avg of trimmed mean and weighted median

RBA's target range


The Australian Residential Property Market and EconomyInflation

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 0.6% over the December 2017 quarter taking it 1.9% higher over the 12 months to December 2017.

► Headline inflation was within the RBA target range over the March quarter but has slipped lower over the past two quarters, it has been below 2% for 12 of the past 13 quarters.

► The RBA’s preferred measures of underlying inflation; the trimmed mean and weighted median both increased by 0.4% over the December 2017 quarter.

► The trimmed mean was 1.8% higher over the year and the weighted median rose 2.0% resulting in underlying inflation increasing 1.9%.

► Underlying inflation has now been below the RBA’s target range of 2% to 3% for two years.

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 communication (-3.4%) and clothing and footwear (-3.0%) along with more moderate falls in furnishings, household equipment and services (-0.8%) and food and non-alcoholic beverages (-0.2%).

► The components of CPI that have recorded the greatest increases over the 12 months to

December 2017 were: alcohol and tobacco (7.3%), health (4.0%) and housing (3.4%).

► Across the remaining sub-groups the annual increases have been recorded at: 3.3% for transport, 3.2% for education, 1.3% for insurance and financial services and 0.6% for recreation and culture.


0.7%

1.6%

2.1%

2.6%

3.2%

3.2%

3.4%

7.8%

9.2%

12.4%

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

Gas and Other Household Fuels

Utilities

Electricity

Annual change in components of housing CPI, December 2017


60

70

80

90

100

110

120

130 Monthly consumer sentiment, National

Source: CoreLogic, Westpac-Melbourne Institute

The Australian Residential Property Market and EconomyInflation

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 (0.7%), maintenance and repair of the dwelling (1.6%), other housing (2.1%), property rates and charges (2.6%), new dwelling purchase by owner occupiers (3.2%) and

water and sewerage (3.2%) increased at a lower annual rate than the housing expenditure class.

► Electricity (12.4%), utilities (9.2%) and gas and other household fuels (7.8%) costs increased well in excess of the other housing costs.

► The annual increase in electricity and utilities were each the largest rises recorded since June 2013.

Consumer Sentiment

► The Westpac-Melbourne Institute Consumer Sentiment Index was recorded at 105.1 points in January 2018.

► When consumer sentiment is above 100 points it indicates that consumers are more optimistic than pessimistic.

► The January 2018 result marked successive readings above 100 points and the highest index values since November 2013.

► Despite the recent increase, sentiment has remained at a fairly neutral settings 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 however, respondents now have greater confidence about their finances and the economy over the coming year and five years..



Throughout 2015 and early 2016 the rate of valuegrowth across the housing market was slowing as theavailability of credit to investors was being rationed.Around the middle of 2016, investors became muchmore able to access credit and the Reserve Bank cutinterest rates two times by a total of 50 basis pointswhich contributed to a rebound in demand andsubsequently, value growth. Throughout 2017, furthermacroprudential policy changes were made whichresulted in a widening gap between mortgage rates forinvestors and owner occupiers. In fact, investors on avariable rate mortgage are now, on average, paying anadditional 60 basis points on their interest rate. This,together with more focus on loan servicing and areluctance to lend on interest only or high loan tovaluation ratio terms, has led to slowing demand frominvestors and subsequently, the rate of value growthhas slowed quite markedly over the second half of theyear.

Over recent years, dwelling values had risen at a ratewell above household income growth which made itmore difficult for those that don’t already own a hometo save a big enough deposit to purchase.Subsequently, first home buyer participation has beenhovering around historic low levels. Since thebeginning of July, the NSW and Vic governments haveremoved stamp duty for first home buyers under certainprice thresholds. This has resulted in a substantialincrease in first home buyer demand in each of thesestates at the same time as we are seeing a cooling ofdemand from the investor segment.

For Sydney and Melbourne in particular, favourableeconomic and demographic trends have been a majordriving force behind the ongoing strong increases indwelling values. These cities have also seen under-building of new housing in recent years as well asinsufficient infrastructure investment. These factorsalong with the ongoing decline in the number ofproperties available for sale over recent years hasresulted in high levels of housing demand and relativelylow levels of available supply. More recently, Sydneyhas seen a lift in stock available for sale, NSW hasseen the outflow of residents to other states andterritories accelerate and is seeing its rate of valuegrowth slow. Melbourne has also seen growth slow butthe slowdown has been more moderate than inSydney.

The Hobart and Canberra markets have each seen anacceleration in the rate of value growth over the pastyear. Canberra is seeing an improving economy alongwith a relatively low volume of stock available for salewhich is creating upwards pressure on values.Hobart’s tourism sector is booming however, populationgrowth and migration to Tasmania is not particularlystrong (although trending higher). Housing in Hobartare substantially more affordable than in all othercapital cities and this is likely to be one of the keydrivers of the recent growth in values along with verylittle new housing supply and very little stock beinglisted for sale.

Dwelling values in Brisbane and Adelaide haverecorded only moderate increases in values over thepast year. The weaker economic performances ofthese two cities and the lower levels of migration havecertainly curtailed growth. For Brisbane, interstatemigration to Queensland has lifted over recent quartersand is now the strongest of any state or territory, thisadditional housing demand could potentially lead to amoderate lift in value growth. In Adelaide it looks as ifthe moderate rises in values are set to continue in2017.

Perth and Darwin have continued to experiencedeclines in dwelling values over the past year. Each ofthese cities continue to be hampered by a high volumeof stock available for sale and relatively few buyers.Population growth has slowed dramatically acrossWestern Australia and Northern Territory; during themining boom these regions were attracting people fromother parts of the country they are now just as quicklyleaving. Perth is seeing some early signs that housingmarket conditions may be past their weakest levels withlistings falling, sales volumes rising and a moderateincrease in values over the final quarter of 2017. Todate, there is no such evidence of an improvement inthe Darwin housing market.

In CoreLogic’s view the slowing of growth in thehousing market which became much more prevalentover the final quarter of 2017 are likely to persist in2018. Particularly within Sydney and Melbourne wherethe run-up in housing costs have been substantiallygreater than elsewhere.

Conclusion



The drivers of the expected weaker housing marketconditions include.

The near record-high pipeline of housing stockcurrently under construction, the majority of which areunits, will be completed over the coming years. Thereis already evidence suggesting that in certain areasand markets settlements are taking longer andvaluations are coming in below or at the purchaseprice. Recent data also shows that approvals andcommencements are no longer at peak levels however,approvals in particular, have rebounded over recentmonths and the number of dwellings approved but notyet commenced remains at a high level. There will stillbe many new properties built because so many arecurrently under construction however, it is clear thatsettlement of these projects is likely to becomeincreasingly challenging. Furthermore, it will beinteresting to see just how many of those new projectsin the pipeline get built.

In fact, CoreLogic’s hedonic home value indices arealready showing that in many cities the value of houses

over the past year has increased at a much faster pacethan that of units. With a relatively high proportion ofoff-the-plan unit valuations coming in below the originalcontract price in certain cities, if the decline is less thanor similar to the deposit amount it is unlikely buyerswould walk away. If the differential between contractprice and completion valuation grows we may see anincreasing number of buyers unable or unwilling tosettle their contract.

Overall we expect dwelling value growth to slow furtherin 2018. As we have seen over previous cycles,housing market conditions will continue to varysignificantly from region to region and across housingtypes.

We are expecting the unit market to underperformrelative to detached houses and over the coming yearthe underperformance of units may potentially increasefurther. Keep in mind that the volume of unit stockremains significantly lower than detached houses soany weakness in the unit market won’t necessarilyimpact on the detached housing market.

Conclusion


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CoreLogic produces an advanced suite of housing market analytics that provides key insights for understanding housing market conditions at a granular geographic level. Granular data is often used for portfolio analysis and benchmarking, risk assessments and understanding development feasibility and market sizing. It gives industry professionals valuable modules which provide essential analytics and insights for decision making and strategy formation within the residential property asset class. We can tailor reports to suit your business requirements.

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


CoreLogic Australia is a wholly owned subsidiary of CoreLogic (NYSE: CLGX), which is the largest property data and analytics company in the world. CoreLogicprovides 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 CoreLogicHedonic 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 indices for capital cities and ‘rest of state’ indices, the 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 market. Through a series of rules and logic, CoreLogichas flagged the likely ownership type of every 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.

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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 DataBased 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 DataThis 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 DataContains 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 DataThe 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 DataBased on information provided by and with the permission of the Western Australian Land Information Authority (2015) trading as Landgate.

Australian Capital Territory DataThe Territory Data is the property of the Australian Capital Territory. No part of it may in any form or by any 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 DataThis product incorporates data that is copyright owned by the Crown in Right of Tasmania. The data has been 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

Disclaimers

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1300 734 318

www.corelogic.com.au

Documents

Quarterly Review - CoreLogic...(and first) quarterly fall in dwelling values since the three months to April 2016. Throughout 2017, national dwelling values increased by 4.2% which