Australian Property Information (1 - 312 of about 312)

Melbourne transaction numbers slowly rising

While it’s often not obvious, a sign of a poorly performing property market can be a low level of residential sales. It reflects a low level of confidence, owners may be relucent to sell for fear of achieving a low price and buyers may also be reluctant to make the significant commitment that is required when entering into a home loan. Low transactions levels have a range of negative consequences; professions related to property suffer, state government incomes drop and buyers can find it more difficult to find the right home due to a lack of choice which is the reason why the number of transactions is an important metric to follow if you are interested in the state of the market – sometimes it can be even more important than prices. For the Melbourne market, the current level of transactions suggests a healthy market below its peak. The first indication of this is that home values are at a peak in nominal terms but are still around 3 years worth of inflation below their value in real terms. The second indication is that the overall number of settled sales at the end of April was only 1.3 per cent higher than a year ago. This is better than 2012 by a reasonable 4.4 per cent but well below the all-time record in 2007 when there was 105,194 sales in Melbourne and four months into this year we are still 22.2 per cent lower. This data may be surprising to anyone who has seen the record number of auctions this year but as that only accounts for around 31 per cent of sales it can’t provide an accurate picture of the entire market. Robert Larocca RP Data Victoria Housing Market Specialist

National auction market continues to strengthen

RP Data National Auction Comment, week ending 20 July, 2014 A preliminary weighted average clearance rate of 70.7 per cent was recorded this week across capital cities compared to 67.2 per cent last week and 64.1 per cent this time last year. Demand in the Sydney market has pushed the national preliminary clearance rate over the 70 per cent mark for the first time since the middle of March this year. Low winter volumes are a factor as the clearance rate recorded its sixth consecutive increase. A preliminary clearance rate of 76.9 per cent was recorded in Sydney compared to 75.6 per cent last week. A clear improvement was seen in Melbourne compared to last week, with a preliminary clearance rate of 69.6 per cent recorded compared to 66.4 per cent last week. In Brisbane a preliminary clearance rate of 54.1 per cent was recorded compared to 43.3 per cent last week. Adelaide recorded a clearance rate of 72.7 per cent compared to 60.9 per cent last week. In Canberra a clearance rate of 71 per cent was recorded and in Perth there was a clearance rate of 30 per cent. Robert Larocca RP Data Housing Market Specialist

RP Data National Auction Preview, week ending 20 July, 2014

Sydney clearance rate records 5 consecutive weeks of improvement RP Data auction spokesperson Robert Larocca reports: There are 1,611 auctions scheduled across Australia this week. In capital cities there are 1,267 auctions expected compared to only 1,180 for the same period last year. The improving trend recorded on a national level in June and early July was halted last week, largely due to an almost 4 point drop in the clearance rate in Melbourne. In contrast demand in Sydney continues to strengthen and this should encourage more vendors into the market between August and December. In Melbourne there are 590 auctions scheduled compared to 567 last week and 519 this time last year. Auction volumes remain very low in the traditionally strong auction suburbs in the inner east, for instance Hawthorn, Balwyn and Camberwell. The market will change and be tested as they rise over the coming weeks. Sydney continues to record improving results with the clearance rate rising in each of the past 5 weeks. In Sydney there are 452 auctions expected compared to 580 last week and 422 for this week last year. Brisbane is expecting 98 auctions after 118 last week. Adelaide is expecting 59 auctions compared to 85 last week and 59 a year ago. Canberra has 45 auctions scheduled compared to 41 last week. Perth has 15 auctions compared to 24 last week There are 3 auctions scheduled in Tasmania. Across Australia, the highest number of auctions is expected in the northern suburbs of Melbourne where 16 are expected in Reservoir. Robert Larocca RP Data Auction Market Specialist

RP Data Auction Market preview, Melbourne; Week ending 20 July, 2014

There are 590 auctions scheduled this week in Melbourne compared to 519 for the same time last year. The highest number of auctions is expected in the northern suburbs where 16 are expected in Reservoir. Seasonally low volumes are not only a factor in the auction market with the overall level of new listings also being lower than a year ago. In Melbourne there were 4.9 per cent fewer homes listed for sale over the last month and 8.8 per cent fewer homes overall on the market. Fewer homes on the market than a year ago is a positive sign, especially from a sellers’point of view, however the lower number of new listings may put pressure on prices if it persists and buyer numbers remain at current levels. The average time on market for houses sold last month rose slightly from 40 to 41 days. Similarly, vendor discounting increased from -5.3 per cent the previous week to -5.4 per cent last week. Key data Clearance rate week ending 13 July: 66.4 per cent Melbourne auctions expected week ending 20 July: 590 Melbourne private sales time on market week ending 13 July: 41 days houses Melbourne vendor discounting market week ending 13 July: -5.4 per cent houses Listings being prepared for market are 1 per cent lower over the month ending 13 July seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

What can be done about the fading hopes of lower income earnerâ

Lower income earner’s hopes of owning a home have faded over the past two years due to the high rate of capital gain, so what can be done? In last week’s RP Data Research Blog I highlighted sales by price point across the capital cities. The data showed a shortening supply of homes selling at lower price points, in particular within some of our largest capital cities. In this week’s Blog I want to investigate what this means for those who don’t already own a home and in particular those that are on lower incomes. The latest quarterly average weekly earnings data from the Australian Bureau of Statistics ABS to November 2013 shows that the average Australian earned $1,114.20 a week. Remember this is the average so plenty of people earn less than this figure which is the equivalent of almost $58,000 a year. Compared to many other countries, Australia’s average wage is quite high however, so too is the cost of living in Australia and in particular the cost of housing as highlighted last week. With a combined capital city median house price of $580,000 and median unit price of $482,000 an average income is not going to go a long way. But why is the capital city median price more relevant than the nationwide median which is $490,000 and $440,000 for houses and units respectively? Well it comes down to the fact that you generally need to be employed to secure a mortgage and work towards owning a home. The latest labour force data from the ABS shows that Australia had 11.578 million employed persons as at June 2014. With a 6.0% unemployment rate the total size of the workforce, or to put it another way the number of people with employment or actively looking for employment, is 12.320 million. For myriad reasons a proportion of the population is not actively working or looking for work at any given time. As at June 2014 the employment participation rate was 64.7% meaning that for whatever reason there are an estimated 4.349 million people over 15 years of age that are not actively working or looking for work. The 2011 Census reported that at that time there were 21.504 million Australian’s living across the six states and NT and ACT. At that time, 65.6% of Australian’s or 14.1 million lived in a capital city. A slightly higher 67.4% of persons reported as being in the workforce working or actively looking for work lived in a capital city. In fact, 58.2% of people in the workforce lived in Sydney, Melbourne, Brisbane or Perth. If we think how this impacts lower income earners and their prospects of entering into home ownership it’s not simply a case that they can move to another city where housing is more affordable. Unfortunately in Australia, jobs, particularly well-paying jobs, are largely located in a handful of major capital cities or on mining sites in the middle of nowhere. The reality of moving to another capital city or to a regional area where housing is cheaper is not a realistic prospect for many low income earners. As I showed in last week’s blog there are still opportunities to purchase lower priced homes across the capital cities however, these opportunities are becoming fewer. If you look at where these lower priced sales are occurring, for houses they are typically located on the outskirts of the city. Houses on the outskirts of cities, particularly the major capital cities, are inherently cheaper because they are often less desirable than those in well-established suburbs closer to the city centre although not always . Although housing is cheaper in these areas the cost of doing day-to-day tasks is more expensive. If you work in the city, the cost of public transport is higher and if you choose to drive you lose hours in traffic, not to mention the additional cost of fuel and road tolls. Local amenities such as shops, schools and health care tend to not be as abundant in outer suburbs as they are closer to the city centre so it will take residents of these areas longer to access these amenities too. Although housing may be more affordable within the outer suburbs, it won’t necessarily make it easier for some lower income earners to afford a mortgage when they factor in all the additional costs of living in that location. Lower priced housing stock is also available within the unit market however, this too has its shortcomings. There are becoming fewer lower priced units available in areas closer to city centres. Unit prices are still generally much lower than that of houses although, most of the newer stock comes with a relatively high price tag these days. Of course units are also much smaller than a house and you tend to get less in terms of area for your money. While a unit may be practical when your single, a couple or have young children, they become less practical if/when the situation changes and the size of the family grows. Units also don’t offer the same level of freedom as a house with limitations generally in place with regard to what you can and can’t do both within and to your unit. Although when you own a home you have to pay for upkeep, in a unit complex you have to contribute strata levies each quarter the cost of which can at times be exorbitant. So what realistic option does the person on a lower income have? Of course housing should be cheaper on the outskirts of the city and it is but even still a lot of lower income earners are not in a position to purchase. This is partly because although housing is cheaper a mortgage is still going to swallow up a sizeable chunk of their income not to mention the other costs associated with living on the outskirts of the city. The commonly recommended solution is to remove urban growth boundaries and cut fees and charges on new developments which would theoretically increase supply and therefore bring down the cost of housing. But I wonder by how much would it really reduce the cost and would it be significant enough to allow lower income earners to purchase. I think possibly not and here’s why. It’s not simply a case that we can fix housing affordability by building more and more homes, if that was the case, lower income earners could just move to a more affordable city. The issue is more to do with employment and specifically where the jobs are located. Even on the outskirts of the capital cities the cost of public transport and fuel will still eat up a sizeable chunk of lower income earners salaries. If residents on the outskirts still have to travel to get to their jobs which often they will they will often encounter a number of hurdles. Firstly public transport is often woefully insufficient in these areas. Anyone who has travelled overseas will know that public transport in our larger capital cities is not of a particularly high standard. The other thing with public transport is that it caters much better to those people living closer to the city centre and transport upgrades often benefit inner city dwellers much more than it benefits those on the outskirts of the city, the ones that need it the most. Secondly, the road network also tends to be insufficient on the outskirts of the cities unable to cope with the growing population. This is due to the fact that Governments tend to put the onus of building the roads on the developers and will often not provide the major roads to a new housing area until such time as it is absolutely critical. Developing the roads before the housing would make these areas much more attractive and accessible. If we can’t provide sufficient public transport and roads to the housing areas on the outskirts of the city, the greatest assistance we can provide when developing these areas is to accompany this residential development with local jobs for these workers. Travelling to work does not become such an issue for low income earners on the outskirts of a capital city if they can find employment locally. Not to mention it is imperative to bring amenities such as shops, schools and health care closer by. If this were to occur, public transport and investment in new major roads becomes not as vital as it is currently when there are so few employment opportunities locally. If lower income earners aren’t lumped with the additional burdens of significant public transport, fuel and road toll costs to get to their employment then the burden of a mortgage whilst still difficult does not become a virtual impossibility. So yes, affordable housing is becoming harder to find in our capital cities and yes, increasing supply of housing will help to improve the opportunities to purchase homes at a lower price. However, local employment drivers and amenities I believe are just as important especially seeing as time and time again we have seen insufficient investment in public transport and road infrastructure on the outskirts of the cities. Not to mention that the cost of utilising public transport is extremely restrictive. Alternatively we should forget pie in the sky proposals such as fast trains between Brisbane and Melbourne and improve the rail network locally. Each of Sydney, Melbourne and Brisbane could use a more expansive rail networks which includes more stations, better linkages to suburbs on the outskirts and faster connections between nearby cities. Investing in improving links and train speeds to the Central Coast, Newcastle, Wollongong, the Blue Mountains and Bathurst from Sydney, to Geelong, Ballarat and Bendigo from Melbourne and to the Gold and Sunshine Coasts and Toowoomba from Brisbane would no doubt be a much more worthwhile investment.

Best suburbs in Melbourne for capital growth within 20k of CBD

Analysis of changes in the median value of houses in suburbs within 20k of the CBD over the medium term shows some interesting trends. In order to smooth out some of the volatility present in the short term this analysis focuses on median value growth over a five year period. The data shows that owners at a range of price points and locations have recorded very healthy increases in value. There are three suburbs with median values in excess of $1 million in the top ten list based on median value growth over the past five years. These three suburbs, Hawthorn East, Middle Park and Ashburton have all recorded a rise in median values of more than 45 per cent over the five years to May 2014. Hawthorn East tops the list with an increase of 78 per cent over the past 5 years, but is followed by a much more affordable location in second place. Watsonia recorded a 63 per cent rise and with a median house value less than a third of Hawthorn East, this shows good capital growth can be found at a range of price points. Third on the list is Derrimut, however as a growth suburb underlying values are driven by new home development across the suburb. Fourth on the list is Pascoe Vale South with a 54 per cent rise. It is a suburb which is undergoing significant change and is seeing values boosted by the good transport options and well-sized blocks. Other suburbs on the list can be seen below but it is worth highlighting Northcote, as it is representative of the gentrification underway in the inner north of Melbourne. Robert Larocca RP Data Victoria Housing Market Specialist

More auctions and more sales in capital cities than a year ago

RP Data National Auction Comment, week ending 13 July, 2014 A preliminary weighted average clearance rate of 68.7 per cent was recorded this week across capital cities compared to 68.9 per cent last week and 67.7 per cent this time last year. Sydney provided the highest clearance rate and when combined with the higher volumes in Melbourne resulted in another solid week. This week a preliminary clearance rate of 76.4 per cent was recorded in Sydney compared to 72.4 per cent last week. Sellers with auctions scheduled in spring will welcome the strong result this week. In Melbourne there was a preliminary clearance rate of 67 per cent recorded compared to 71.4 per cent last week. The market has built a solid basis for spring and continues to offer buyers good opportunity. In Brisbane a preliminary clearance rate of 47 per cent was recorded compared to 59.5 per cent last week. Adelaide recorded a clearance rate of 62.3 per cent compared to 64.6 per cent last week. In Canberra a clearance rate of 64.3 per cent was recorded and in Perth there was a clearance rate of 75 per cent. In Tasmania 1 auction resulted in sales from the 4 held. Robert Larocca RP Data Housing Market Specialist

May 2014 Housing Finance Data

The Australian Bureau of Statistics ABS released housing finance data for May 2014 late last week with the data showing owner occupier housing finance commitments flat over the month. The data also showed that the total value of housing finance commitments was -0.8% lower over the month. Although this may be concerning, the number of housing finance commitments remain high and even if we have reached the summit, the RBA would probably be happy were commitments to remain at these current levels. Over the month of May there were 52,092 owner occupier housing finance commitments, 17,463 of which were refinances and 34,630 which were non-refinances or new loans. Refinance commitments were 2.1% higher over the month and are 10.1% higher year-on-year. New loan commitments were -1.0% lower in May and are only 2.0% higher over the month. Refinance commitments are at their highest level since April 2008 while new loan commitments are -2.5% lower than their recent peak in November 2013. Although owner occupier housing finance commitments are higher over the year they do seem to be at or very close to a peak. In May there was $27.5 billion worth of housing finance commitments which was slightly lower than the all-time peak of $27.7 billion the previous month. Over the month, owner occupier refinance commitments were up 0.8%, owner occupier new loans were -1.4% lower and investment finance commitments were -0.9% lower. Despite weaker results over the month, year-on-year there have been some significant increases with owner occupier refinances 17.7% higher, owner occupier new loans 8.3% higher and investment loans up 23.8%. Again the rate of increase has definitely slowed of late potentially pointing to a peak. Looking at how much housing lending each component is attracting, the data shows that in May 2014, 42.9% of lending was to owner occupiers for new loans, 18.0% was for refinances by owner occupiers and 39.1% is for investment purposes. As a proportion of total lending in May, owner occupier non-refinance commitments are at their lowest level on record while refinances are at their highest level since July 2013 and investment lending remains at around its highest level since late 2003. The pick-up in investment and refinance lending has caused the proportional fall in owner occupier non-refinance lending. If we exclude lending for refinances, 52.4% of lending over the month was for owner occupiers while 47.6% was for investors. This was equal to the second highest level of lending for investment purposes, behind the 49.0% of all loans to investors in October 2003. Lending finance data released by the ABS on Monday for May 2014 revealed that investor activity is significantly higher in New South Wales than in all other states. Nevertheless, New South Wales 29.9% , Victoria 22.5% , Queensland 7.8% and South Australia 2.1% have each recorded a year-on-year rise in investment lending. Investment housing finance commitments account for an historic high 46.9% of all housing finance commitments in New South Wales and elsewhere the proportions are recorded at: Victoria 39.1% , Queensland 34.4% , South Australia 31.5% , Western Australia 31.0% , Tasmania 13.8% , Northern Territory 40.2% and the Australia Capital Territory 33.9% . The data shows that although investment levels are generally rising it is much more exacerbated in New South Wales and Victoria which are of course proxies for rising investment in Sydney and Melbourne. Interestingly when we track the annual change in the value of housing finance commitments, excluding refinances to reflect home sales we can see that it correlates closely with the annual change in combined capital city home values. The recent slower rate of growth in capital city home values is happening in concert with a slowdown in the growth in housing finance commitments. The housing finance data also shows that first home buyers continue to play only a minor role in the housing market. In May, the number of owner occupier first home buyer commitments was up 17.1% over the month however, as a proportion of total owner occupier lending activity it remains quite low at just 12.6%. Across the individual states, the level of activity by first home buyers remains very low in the three largest states New South Wales, Victoria and Queensland . Elsewhere the percentage of owner occupier housing finance commitments for first home buyers is lower now than at the same time last year except in Tasmania and the Northern Territory. Looking ahead, the RP Data Mortgage Index RMI indicates a slowing of demand for mortgages in June. With value growth seemingly having peaked and transaction volumes lower than they were late in 2013 we anticipate that demand for housing finance is likely to remain at fairly similar levels to those current over the coming months. The real test from here will be throughout the spring selling season when housing demand typically escalates. With affordability factors anticipated to slow the rate of value growth we may also see slightly lower levels of mortgage demand. As we have noted plenty of times previously, rental yields are generally low which suggests that most investors are seeking capital growth. This is further highlighted by the high levels of investment activity in New South Wales and Victoria with Sydney and Melbourne having recorded the greatest increases in home values across the capital cities over the past year. The test will be once the value growth in the market abates what then happens with all these investor owned properties? Do they wait it out for the next growth phase or do they exit the market and move to a more liquid asset class? Only time will tell but it is certainly something which lenders and regulators should be considering with such a high level of investment lending currently taking place.

National clearance rate rising in winter

RP Data National Auction Preview, week ending 13 July, 2014 RP Data auction spokesperson Robert Larocca reports: There are 1,613 auctions scheduled across Australia this week. In capital cities there are 1,268 auctions expected compared to only 984 for the same period last year. Over the past three weeks the national clearance rate has shown a rising trend with a 3.5 point rise recorded. If this trend continues it will result in a return to the 70 per cent clearance rates last recorded in February and early March on the eve of spring. In Melbourne there are 527 auctions scheduled compared to 549 last week and 426 this time last year. The clearance rate exceeded 70 per cent last week however with the consumer confidence index trending down and still below 100, the market will be tested as volumes rise over the next two months. In Sydney there are 497 auctions expected compared to 597 last week and only 378 for this week last year. The rising trend apparent in the market nationally is also the case in Sydney, which has seen a consistent 5-point rise over the past 5 weeks and reflects improving confidence levels. Brisbane is expecting 103 auctions following 126 last week. Consistent with Sydney and Melbourne there is a rise in volumes on a year ago when there were 78 auctions. Adelaide is expecting 79 auctions compared to 83 last week and only 47 a year ago. Canberra has 38 auctions scheduled compared to 43 last week. Perth has 22 auctions compared to 34 last week There are 6 auctions scheduled in Tasmania. Across Australia, the highest number of auctions is expected in the Sunshine Coast where 12 auctions are scheduled in Buderim. Robert Larocca RP Data Auction Market Specialist

RP Data Auction Market preview, Melbourne; Week ending 13 July, 2014

There are 527 auctions scheduled this week in Melbourne compared to 426 for the same time last year. The Melbourne market has been delivering consistent results for sellers in the past 4 weeks with very little change in the weekly clearance rate. A review of the change in house values on a suburban basis shows that the largest increase over the last year was found mainly in inner city suburbs. Middle Park, Hawthorn East, Braybrook, Balwyn North and Praharan comprised the top 5 with changes in median value of between 43.2 per cent and 24 per cent. For apartments the top 5 included Caulfield East, Middle Park, Canterbury, Flemington and Spotswood. The average time on market for houses sold last month rose sharply from 35 to 40 days despite average discounting being stable at -5.3 per cent over the previous week. Key data Clearance rate week ending 6 July: 71.4 per cent Melbourne auctions expected week ending 13 July: 527 Melbourne private sales time on market week ending 6 July: 40 days houses Melbourne vendor discounting market week ending 6 July: -5.3 per cent houses Listings being prepared for market are 0.5 per cent lower in month ending 6 July seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

Fewer homes selling at lower price points as value growth surges

There’s no doubt about it, housing is becoming more expensive as home values rise. The escalation in the cost of housing is forcing households to spend more to purchase a home; subsequently the deposit is also higher forcing many first home buyers to wait until later in life to purchase a home or consider a more affordable location/housing type than what they would have previously accepted. Looking at the combined capital cities, over the 12 months to April 2014, home sales between $400,000 and $600,000 accounted for the greatest proportion of sales of houses and units at 34.5%. Home sales of properties priced between $200,000 and $400,000 accounted for the second largest proportion 26.8% followed by: $600,000 to $800,000 17.2% , $1 million to $2 million 9.2% , $800,000 to $1 million 8.2% , Less than $200,000 2.2% and $2 million or greater 2.0% . Over the past 12 months there has been almost as many capital city home sales over $2 million than there have been below $200,000. Clearly low income earners are finding it increasingly difficult to purchase homes in capital cities. The above chart shows the proportion of capital city home sales by price point over time. The emerging trend is the sharp decline in sales under $200,000 over time and the recent decline in sales of homes priced between $200,000 and $400,000. As you’d expect, sales which previously occurred within these two price points are pushing higher with an increasing prominence of sales between $400,000 and $600,000 and $600,000 and $800,000. Obviously across capital cities the performances are much more varied across individual price points and it is important to analyse the emerging trends. Across the combined capital cities, sales of homes for less than $200,000 accounted for just 2.2% of all sales. Across the individual capital cities the proportions were: Sydney 1.7% , Melbourne 1.5% , Brisbane 2.4% , Adelaide 6.0% , Perth 1.4% , Hobart 13.5% , Darwin 4.8% and Canberra 0.9% . It is extremely noticeable that there has been a deterioration in the availability of homes for less than $200,000. Even in relatively more affordable capital cities like Adelaide and Hobart, the proportion of sales below $200,000 is low. In fact, in Sydney and Melbourne there have been more sales over $2 million throughout the year than sales below $200,000. 26.8% of all home sales across the combined capital cities were between $200,000 and $400,000 over the 12 months to April 2014. At the individual capital city region, the proportions were recorded at: Sydney 17.3% , Melbourne 29.1% , Brisbane 37.7% , Adelaide 48.4% , Perth 19.8% , Hobart 54.3% , Darwin 19.8% and Canberra 20.0% . In Adelaide and Hobart, the greatest proportion of sales over the year occurred at this price point. In each city, the proportion of sales occurring between $200,000 and $400,000 is falling, highlighting the shortening supply of capital city homes available at more affordable price points. In Sydney for example, more properties transacted for more than $1 million 18.9% than sold for between $200,000 and $400,000. Capital city homes sold between $400,000 and $600,000 accounted for the greatest proportion of total sales, making up 34.5% of sales over the 12 months to April 2014. In Sydney, home sales priced between $400,000 and $600,000 accounted for 29.6% of sales over the year. Elsewhere the proportion of sales between $400,000 and $600,000 were recorded at: Melbourne 33.9% , Brisbane 38.3% , Adelaide 30.1% , Perth 43.2% , Hobart 23.3% , Darwin 41.5% and Canberra 51.7% . In each city other than Adelaide and Hobart the $400,000 to $600,000 price point has recorded the greatest number of sales over the year. Interestingly, in Sydney, Melbourne and Darwin the proportion of sales within this price point is trending lower, further indicating affordability constraints in these cities. Over the 12 months to April 2014, 17.2% of capital city homes sold transacted at a price point between $600,000 and $800,000. Across the capital cities, the proportion of total sales within this price point was recorded at: Sydney 20.5% , Melbourne 17.0% , Brisbane 13.1% , Adelaide 9.2% , Perth 19.0% , Hobart 5.8% , Darwin 23.3% and Canberra 18.1% . Across all capital cities, the proportion of sales occurring between $600,000 and $800,000 has increased over the past year. 8.2% of capital city home sales were at a price between $800,000 and $1 million over the past year, increasing from 6.7% a year earlier. At an individual capital city level, the proportion of sales was recorded at: Sydney 15.3% , Melbourne 8.0% , Brisbane 4.6% , Adelaide 3.2% , Perth 7.8% , Hobart 1.7% , Darwin 5.8% and Canberra 5.7% . Like the $600,000 to $800,000 price point, the proportion of sales sitting within this price point has risen over the year across each capital city. Across the combined capital cities, there were more home sales between $1 million and $2 million 9.2% than there were sales below $200,000 2.2% over the 12 months to April 2014. The proportion of homes sold for between $1 million and $2 million rose across each city except Hobart over the past year. At an individual city level, the proportion of sales between $1 million and $2 million was recorded at: Sydney 15.3% , Melbourne 8.8% , Brisbane 3.4% , Adelaide 2.5% , Perth 7.6% , Hobart 1.2% , Darwin 3.5% and Canberra 3.1% . The data shows that Sydney, Melbourne and Perth are the key drivers between the rising proportion of sales between $1 million and $2 million. Ten years ago just 2.5% of capital city home sales were at a price between $1 million and $2 million. 2.0% of capital city home sales over the 12 months to April 2014 were at or more than $2 million which was the greatest proportion on record. Across individual capital cities, the proportions were recorded at: Sydney 3.5% , Melbourne 1.9% , Brisbane 0.6% , Adelaide 0.5% , Perth 1.3% , Hobart 0.3% , Darwin 1.4% and Canberra 0.5% . Ten years ago just 0.7% of capital city home sales were at or more than $2 million. The data presented highlights the impact of home value growth with fewer lower priced properties selling in the capital cities particularly in markets like Sydney and Melbourne . Although the analysis is interesting at a capital city level, individual areas and suburbs and regions can be very different across broad areas like capital cities. Given this, it is important when selling or buying to understand where the property sits in the context of the local and broader market. Often times purchasers won’t be looking exclusively in one suburb so an understanding of what areas offer a similar price point may help when selling especially if the subject property is in a suburb which offers advantages over other areas. Keep in mind that this analysis has been undertaken across the dwelling market i.e. it is looking at a combination of houses and units . Units are becoming an increasingly popular alternative to houses in many cities because they are generally more affordable and offer the opportunity to live in a more desirable location than a house would at the same price point. Now more than ever buyers are likely to be comparing the cost of a unit or townhouse to the cost of a detached house. This is a point that should be clear to buyers and sellers of any property, particularly as affordability constraints and a subsequent shortening supply of more affordable capital city housing stock grows.

Does land size matter?

The impact of land size on the value of and demand for a property is an interesting question. Analysis of RP Data information comparing the sale price with the land area shows that location is still more important than size when comparing suburbs. After all, a block of land that is twice the size and twice the distance from the amenities you desire is not likely to be as appealing as a well-located smaller one. The value per square metre of houses in Melbourne’s million dollar suburbs demonstrates this. Toorak is the city’s most expensive suburb for houses with a median sale price over the last year of $2.622m. The average block size is however quite large at 8232m which translates to a cost of $3,187 per sqm. Interestingly, this is lower than the $6,274 in Albert Park and $6,074 in Middle Park and the median sale price is less than half that of Toorak These two neighbouring suburbs have, compared to Toorak, very expensive land but this is more a factor of the small block sizes, at 2092m and 2592m respectively. At the other end of the spectrum is Ivanhoe East, a highly sought after suburb with a median sale price of $1.15m; it has slightly larger blocks than Toorak at an average of 9692m, again highlighting that location is the most critical factor. Robert Larocca RP Data Victoria Housing Market Specialist

Buyers drive up national clearance rate in week of low volumes

RP Data National Auction Comment, week ending 6 July, 2014 A preliminary weighted average clearance rate of 69.4 per cent was recorded this week across capital cities compared to 66.6 per cent last week and 65.1 per cent this time last year. Prior to this weekend the national year to date clearance rate was 67.3 per cent. This is very healthy compared to the 63.2 per cent recorded last year and in 2012 when less than half of all auctions resulted in sales when the clearance rates was 49.1 per cent. This week a preliminary clearance rate of 74.6 per cent was recorded in Sydney, a significant rise on the 71.1 per cent last week. In Melbourne there was a preliminary clearance rate of 68.4 per cent recorded compared to 68.3 per cent last week. The Melbourne market has been delivering very consistent results for sellers in the past 4 weeks. In Brisbane a preliminary clearance rate of 59.3 per cent was recorded compared to 42.2 per cent last week. Adelaide recorded a clearance rate of 75.6 per cent compared to 62.7 per cent last week. In Canberra a clearance rate of 48.4 per cent was recorded and in Perth there was a clearance rate of 52.6 per cent. In Tasmania 2 auctions resulted in sales from the 6 held. Robert Larocca RP Data Housing Market Specialist 0409 198 350

Winter and school holidays affect auction volumes

RP Data National Auction Preview, week ending 6 July, 2014 RP Data auction spokesperson Robert Larocca reports: There are 1,651 auctions scheduled across Australia this week. Across the capital cities there are 1,322 auctions expected compared to 1,029 to the same period last year. Generally, the first two weekends in July is the midyear low point of the national auction market, all brought about by cooler weather and school holidays which combine to create a lull in the market. Buyers experiencing difficulty in finding an appropriate home for sale right now will find that by the end of August volumes should be around double what they currently are. In Sydney there are 558 auctions expected compared to 861 last week. The clearance rate for the first six months of this year was 74.4 per cent indicating the market has been slightly below trend for the last month. In Melbourne there are 497 auctions scheduled compared to 811 last week. The clearance rate for the first six months of the year has been 67 per cent with the past three weeks showing an improvement to trend. Brisbane is expecting 115 auctions following 153 last week. Adelaide is expecting 75 auctions compared to 79 last week. Canberra has 38 auctions scheduled compared to 35 last week. Perth has 30 auctions compared to 39 last week There are 9 auctions scheduled in Tasmania. Across Australia, the highest number of auctions is expected in St Kilda VIC and Surry Hills NSW , each of which has 10 scheduled. Robert Larocca RP Data Auction Market Specialist

May 2014 dwelling approvals

Not long before the Australian Bureau of Statistics ABS released building approvals data for May 2014, the Reserve Bank Governor RBA Glenn Stevens completed a presentation in Hobart. Within that presentation Glenn Stevens stated “It would in my opinion be good, for a range of reasons, if it did persist for a while. If the next couple of years saw an unremarkable performance on prices, and construction staying at the higher levels that will clearly be reached over the coming year, it would be an outcome that would contribute to a balanced growth path for the economy and to housing more people at manageable cost.” This was made in the knowledge that home values rose by 10.1% over the 20-13/14 financial year and following three consecutive monthly falls in dwelling approvals between February and April 2014. Luckily the May data which was released earlier today showed a 9.9% rise over the month. Dwelling approvals are now 14.3% higher year-on-year. After three consecutive monthly falls in dwelling approvals it was looking as if the much vaunted rebound in housing construction was running out of puff approval is the initial step before construction can commence . Of course, we don’t want to get too carried away with a one month bounce but it was encouraging to see that the fall in dwelling approvals has, at least for the moment, not continued. Total dwelling approvals in May were 14.3% higher than a year ago with house approvals 14.0% higher and unit approvals 14.5% higher. The data is inherently volatile on a month-to-month basis so I like to also note the annual number of dwelling approvals. Over the 12 months to May 2014, there were 191,088 total dwelling approvals, 107,291 of which were for houses and 83,799 which were for units. The annual number of dwelling approvals is at their highest level since there were 192,614 dwelling approvals over the 12 months to December 1994. Let’s not understate this; the rebound in dwelling approvals is strong and much needed after years of ongoing insufficient supply additions. The challenge from here will be what proportion of these approvals actually end up moving to construction and then ultimately completion. Focussing on the capital cities, it is encouraging that there has been a significant rise in dwelling approvals across these areas where supply issues are generally most dire. On a rolling annual basis, there were 141,845 capital city dwelling approvals over the 12 months to May 2014. Of these approvals, 68,455 were for houses while 73,390 were for units. Note that at a national level dwelling approvals for houses still outnumber units however units outnumber houses in the capital cities highlighting the direction that new development is heading in most of our capital cities. The annual number of capital city house approvals as at May 2014 was 19.6% higher than over the corresponding 12 month period in 2013. Capital city house approvals are at their highest level since the 12 months to February 2011 when 69,524 houses were approved. Capital city unit approvals are 23.4% higher than they were a year earlier and are only slightly lower than their record high level of 73,835 unit approvals over the 12 months to March 2014. Across individual capital cities the annual number of dwelling approvals is higher across each city except for Darwin. The greatest annual lift in dwelling approvals has been recorded in Brisbane and Sydney. Anyone that has visited either of these cities recently would have seen plenty of residential construction taking place and it seems that there is a significant additional pipeline of residential construction to come. As you can see from the above chart, across each of the major capital cities there has been an upswing in dwelling approvals. The most significant upswing has occurred in Sydney and Brisbane however, the number of approvals remains much higher in Sydney and Melbourne than in all other cities. The number of dwellings approved for construction is at an all-time high currently in Perth, is very close to its record high in Sydney and at its highest level since the 12 months to June 2004 in Brisbane. We mentioned earlier about the shift towards unit approvals as opposed to house approvals which is much more prominent in capital cities than nationwide. The above chart highlights the proportion of dwelling approvals which are for units as opposed to houses over time. As already noted over the 12 months to May 2014, 51.7% of all capital city dwelling approvals were for units. In Sydney 69.4% , Melbourne 52.4% , Brisbane 57.2% , Darwin 58.6% and Canberra 62.9% a majority of approvals are for units rather than houses. In the remaining three cities 31.1% of approvals are for units in Adelaide, 23.9% in Perth and 13.6% in Hobart. I have little doubt that particularly in Perth we will see a growing proportion of approvals for units rather than houses over the coming years. The May dwelling approvals data showed an encouraging rebound following three consecutive monthly falls. Keep in mind that Glenn Stevens wants to see higher construction levels over the next few years and that will be the real challenge. If consumer sentiment continues to languish and if and when home value growth slows there will be much less certainty around the viability of new residential developments. Maintaining high levels of new residential approvals and construction over the next few years will be no easy feat.

RP Data Auction Market preview, Melbourne; Week ending 6 July 2014

There are 497 auctions scheduled this week in Melbourne compared to 453 for the same time last year. Across the city, the number of homes listed for auction is temporarily impacted by the school holidays, especially in the eastern suburbs. Interestingly, the private sale market in those suburbs is recording very healthy results. Eastern suburbs comprises of a majority of the top 10 suburbs ranked by vendor discounting for houses sold by private sale over the most recent 12 month period. For example, Oakleigh, Bayswater North, Box Hill, Ashwood and Box Hill South all recorded an average vendor discount of less than 3 per cent, well below the majority of other suburbs in Melbourne. This is reflective of the city-wide private sale market more recently. The average time on market for houses sold over the last month may have risen slightly to 35 from 34 days, however, vendors did not suffer as their average discounting contracted to -5.3 from -5.6 per cent over the previous week. Key data Clearance rate week ending 29 June: 68.3 per cent Melbourne auctions expected week ending 6 July: 497 Melbourne private sales time on market week ending 29 June: 35 days houses Melbourne vendor discounting market week ending 29 June: -5.3 per cent houses Listings being prepared for market are 0.8 per cent higher in month ending 29 June seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne dwelling values show variable but moderate growth in 2014

According to the RP Data Rismark June home value results released today, Melbourne dwelling values rose by 1.8 per cent over June but are still lower over the quarter with a 2.4 per cent fall. This further highlights some very short term variability against a stable background with a 2.9 per cent rise over the first half of the year. Melbourne is showing all the signs of a stable but shallow growth phase with a 14.2 per cent rise over this cycle. The market is well-placed for spring, well ahead of any of the previous three years. The data shows that this is less of a roller coaster ride than the last two cycles in 2007 and 2010 and is therefore likely to be more sustainable. House values rose by 1.7 per cent in the month and by 3.3 per cent this year compared to a rise of 2.7 per cent for units which have shown zero growth this year. The median sale price from settled sales in the quarter was $630,000 for houses and $468,000 for units. Robert Larocca RP Data Victoria Housing Market Specialist

Property market myths and common facts; Melbourne

Quite often, myths or commonly accepted facts about the property market can turn out to be incorrect when a review of the actual numbers is conducted. Do people really buy and sell every 7 years? It’s often said that most home owners buy and sell every seven years, however, research shows that in Melbourne the average hold period for houses is 11.4 years and for units 9.5 years. While the hold period differs from suburb to suburb, there are a number that match the commonly accepted seven years. In Melbourne these include Pakenham, Narre Warren South, Burnley and St Kilda West. Some of the shortest hold periods for property ownership are in the city’s newest suburbs such as Lyndhurst, Dorren and Truganina where the average hold period for a house is around 4 years. At the other end of the spectrum is Vermont South with a hold period of 18.2 years. Is it true that houses double in value every decade? The answer to this question highlights that sometimes timing is everything in real estate. The RP Data Home Value index for houses in Melbourne shows values doubled in just over 7 years between February 2003 and October 2010 however, the same scenario occurred over 11 years between February 2003 and May this year. Do rents always rise? It seems that rents are often always rising when in fact they may not be. The reality is that it all depends on balance of demand and supply in the relevant suburb. For instance, over the past five years advertised rents for houses in Toorak, Dorren and Mernda have decreased. While in Clayton, Oakleigh and Eltham they have risen by no more than 1 per cent per annum. There are many more that have risen over this time including the popular suburb of Northcote where rents have risen by 28 per cent over 5 years. Houses sell for more than the advertised cost – but do they? A popular topic over dinner tables and in the press is the relationship between advertised prices for houses at auction and the sale price. The main view is that the sale price always exceeds the advertised price. Less often discussed is the fact that most homes sell for less than their advertised price. Around 70 per cent of homes sell by private sale and are usually sold for around 6 per cent below the initial advertised price. However, this does vary across the city with the discount being 8 per cent in Springvale, and 4 per cent in Yarraville. Robert Larocca RP Data Victoria Housing Market Specialist

Capital city auction numbers rise 38 per cent

RP Data National Auction Comment, week ending 29 June, 2014 A preliminary weighted average clearance rate of 68.1 per cent was recorded this week across capital cities compared to 65.4 per cent last week and 66.9 per cent this time last year. Based on the auctions conducted in the first six months of this year volumes have risen by a remarkable 38 per cent since 2013. More people are selling homes by auction this year and this is a sign of a market that is performing well and delivering results for sellers and buyers. Sydney continues to see the highest rates of sale at auction. This week a preliminary clearance rate of 73.2 per cent was recorded compared to 70.1 per cent last week. The improvements in the Melbourne market over the last few weeks have been sustained with a preliminary clearance rate of 69.3 per cent recorded compared to 69.1 per cent last week. In Brisbane, a preliminary clearance rate of 43.9 per cent was recorded compared to 32.2 per cent last week. Adelaide recorded a clearance rate of 66.7 per cent compared to 59.7 per cent last week. In Canberra a clearance rate of 63.6 per cent was recorded and in Perth there was a clearance rate of 50 per cent. Robert Larocca RP Data Housing Market Specialist 0409 198 350

Scheduled auctions in Sydney exceed those in Melbourne

RP Data National Auction Preview, week ending 29 June, 2014 There are 2,169 auctions scheduled across Australia this week across 1,137 different suburbs or towns. In capital cities there are 1,769 auctions expected compared to 1,572 to the same period last year. The overall national auction market is displaying a very consistent performance right now with stable clearance rates. Compared to this week last year, the only significant difference is in volumes with a significant rise expected in Sydney. With the exception of weeks that are affected by public holidays or very low volumes, this is also the first time Sydney has had more auctions than Melbourne for the year. This would have been inconceivable a year ago. In Sydney there are 758 auctions expected compared to 785 last week. Whilst similar to last week, it is significant to note that this is 27.6 per cent more than last year. In Melbourne there are 728 auctions scheduled compared to 946 last week. The Melbourne auction market appears to be improving with the clearance rate being close to 70 per cent in the last fortnight. Brisbane has 132 expected auctions following 141 last week Adelaide has 72 expected auctions compared to 74 last week Canberra has 33 scheduled auctions compared to the 35 last week Perth has 36 auctions compared to 45 last week There are 10 auctions scheduled in Tasmania Across Australia, the highest number of auctions is expected in Preston VIC and Randwick NSW , both of which have 14. Overall volumes are also high in the northern suburbs of Melbourne as Reservoir, which neighbors Preston has 13 auctions Robert Larocca RP Data Housing Market Specialist

RP Data Auction Market preview, Melbourne; Week ending 29 June, 2014

There are 728 auctions scheduled this week in Melbourne compared to 719 for the same time last year. The highest number of auctions are expected in the northern suburbs of Melbourne this week with 14 scheduled in Preston and 13 in neighbouring Reservoir. The Melbourne auction market appears to be improving with the clearance rate being close to 70 per cent last fortnight. That is compared to the clearance rate of 67.6 per cent this year from 18,657 auctions whilst last year the comparative number was 68.45 per cent from 14,226 auctions. The average time on market for houses sold at private sale tightened from 35 to 34 days. Vendor discounting softened slightly over the week, to -5.6 per cent, compared to -5.5 per cent over the previous week. Key data Clearance rate week ending 29 June: 69.1 per cent Melbourne auctions expected week ending 29 June: 728 Melbourne private sales time on market week ending 22 June: 34 days houses Melbourne vendor discounting market week ending 22 June: -5.6 per cent houses Listings being prepared for market are 1.8 per cent higher in month ending 22 June seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

Three out of ten properties sold by auction in Melbourne

Last year Melbourne saw 30.5 per cent of sales by auction compared to 21.1 per cent for the previous year. The proportion of sales by auction tends to follow the market; rising when prices and demand increases and falling in soft markets. Early indications this year are showing that new records are likely to be set. At the end of the March quarter, 30.6 per cent of sales were by auction compared to 21 per cent last year, and the previous high of 20.8 per cent in 2010. Due to a lack of auctions in January and a slow start to February, the proportion of sales by auction always rises as the year goes on. The same will be the case this year, especially in light of the records reached in May refer to recent blog . This means we are likely to see a significant shift in selling methods towards auctions this year. This would be unprecedented because price growth and clearance rates are lower than in other years when this occurred. The data points towards a shift in auctions as a selling method by Melbourne real estate agents, and one that vendors are clearly agreeing with. This may be due to research which shows that even if you fail to find a buyer at the auction, there is a high likelihood you will within 4 weeks. The data shows that within 4 weeks of the auction, the proportion of homes sold rises to around 80 per cent as sellers negotiate with buyers after the conclusion of the auction. This shows that the concentrated marketing and ‘sale date’ associated with an auction campaign helps ensure a timely sale. Robert Larocca RP Data Victoria Housing Market Specialist

Auction market stable across capital cities

RP Data National Auction Comment, week ending 22 June, 2014 A preliminary weighted average clearance rate of 66.6 per cent was recorded this week across capital cities compared to 65.5 per cent last week and 66 per cent this time last year. A medium term review of the national auction market shows stable performance after a period of appreciation in 2013 and the previous two years when the clearance rate was at comparatively soft levels of 44.7 per cent in 2011 and 54.1 per cent in 2012. In the Sydney market a preliminary clearance rate of 71.9 per cent was recorded compared to 69.3 per cent last week. The stability present nationally is especially the case in Sydney where the clearance rate has shown little variance over the last three months with high of 76.1 per cent and low of 67.3 per cent. In Melbourne there was a preliminary clearance rate of 69.1 per cent recorded compared to 69.2 per cent last week. Last week was the best result in three months and it has been matched this week as volumes remain strong. In Brisbane a preliminary clearance rate of 38.1 per cent was recorded compared to 43.5 per cent last week. Adelaide recorded a clearance rate of 58.8 per cent compared to 52.3 per cent last week. In Canberra a clearance rate of 65.4 per cent was recorded and in Perth there was a clearance rate of 30 per cent. In Tasmania 4 homes sold from 9 auctions. Robert Larocca RP Data Housing Market Specialist

Unemployment peaks lower than forecast on lower participation

The Australian Bureau of Statistics ABS recently published labour force statistics for May 2014. The data reported that the national unemployment rate was steady at 5.8%, the 3rd month in a row it had been recorded at this level. The rate of unemployment is up from 5.5% a year ago but still well below the 6.25% many had predicted it would have reached by now. The full-time unemployment rate at a national level is slightly higher than the overall unemployment rate, recorded at 6.0%. Although we have seen a fairly stable unemployment rate of late, the employment participation rate is continuing to trend lower. A key challenge for the Government is to encourage the long-term unemployed persons back into the workforce. Although the participation rate data suggests that this may not be working, keep in mind also that with an ageing population more and more baby boomers are reaching retirement age and exiting the workforce. The current workforce participation rate is recorded at 64.6% which is at around its lowest level since March 2006. Turning to actual employment, in May 2014 there was 11,564,555 persons employed nationally, 8,068,338 employed full-time and 3,496,216 employed part-time. As at May 2014, 30.2% of all employed persons were employed part-time. As you would expect, females are much more likely to be employed on a part-time basis compared to males. As at May 2014, 16.9% of total males employed were employed part-time compared to 45.9% of females employed. Although the proportion of males employed part-time is much lower than females it has been trending higher and is close to an historic high. Over the 12 months to May 2014, the number of employed persons has increased by 98,700 persons with a 49,700 person increase in full-time employment and a 49,000 person increase in part-time employment. At the same time a year ago, total employment had increased by 102,900 persons with full-time employment increasing by 22,100 persons and part-time employment rising by 80,700 persons. The national data highlights that the unemployment rate has seemed to have stabilised over recent months and jobs continue to be created however, the data at a state level is somewhat more varied. Based on the less volatile trend data, Tasmania has the nation’s highest unemployment rate at 7.5% and the Northern Territory the lowest at 3.3%. As you can see there is a big discrepancy in unemployment on a state by state basis. Looking at the current tend unemployment rate compared to trend unemployment a year ago we can see some different trends across the states. New South Wales was the only state where there was no change to unemployment over the year, steady at 5.5%. The unemployment rate rose in Victoria, Queensland, South Australia and Western Australia with the largest increases in Victoria and South Australia. In Tasmania, Northern Territory and Australian Capital Territory the unemployment rate is lower over the year with a substantial fall in the Northern Territory. The employment participation rate also varies significantly across the states. As you can see from the above chart, employment participation is trending lower across most states and below its recent peak in each state. The state and territories with the highest participation rate are: Northern Territory 76.2% , Australian Capital Territory 70.9% , Western Australia 68.2% and Queensland 66.4% . Across the remaining states, participation is lower, recorded at 63.0% in New South Wales, 64.2% in Victoria, 62.0% in South Australia and 60.9% in Tasmania. Overall the May release showed a level of stability returning to the unemployment rate. Keep in mind the Federal Budget forecasts indicate the unemployment rate to peak at 6.5% however, it is important to note that previous Government forecasts expected the unemployment rate to be at 6.2% currently. With an ageing population we are likely to see the employment participation rate trend lower which will increase pressure on business to improve productivity. On a state-by-state basis the employment picture varies and it will important to keep an eye labour market conditions particularly in Victoria and South Australia where the unemployment rate has risen sharply over the past year. Keep in mind upcoming high-profile manufacturing closures within the car industry are yet to really bite and will impact both Victorian and South Australian jobs.

NSW regional centre tops the list for auctions across Australia

RP Data National Auction Preview, week ending 15 June, 2014 There are 2,216 auctions scheduled across Australia this week with 1,787 expected in capital cities. The highest volume of auctions in one place this week is in the NSW regional town of Dubbo with 23 auctions planned before the weekend. Auction volumes have dropped from last week, however, in a sign of consistency they are still following the trend compared to last year. There are 8 per cent more auctions scheduled than the same time last year. It is important to note that volumes last week were boosted by the impact of Queen’s Birthday the previous weekend. In Melbourne there are 834 auctions scheduled compared to 1,016 last week. Last week’s clearance rate was the strongest in the past three months and was a very positive sign for the market and it will motivate vendors considering selling in spring. In Sydney there are 688 auctions expected compared to 798 last week. Last weekends clearance rate of 69.3 per cent was well down on the year to date result of 75 per cent and suggests improving conditions for buyers over winter in the auction market. Brisbane has 123 expected auctions following 132 last week. Adelaide has 65 expected auctions compared to 74 last week. Canberra has 33 scheduled auctions compared to the 41 last week. Perth has 36 auctions compared to 32 last week There are 13 auctions scheduled in Tasmania. Across Australia, the highest number of auctions are expected in Dubbo with 23 scheduled, most of which are for residential development blocks. In capital cities the highest volume are in Richmond VIC with 19 expected. Robert Larocca RP Data Housing Market Specialist

RP Data Auction Market preview, Melbourne; Week ending 22 June, 2014

There are 834 auctions scheduled this week in Melbourne compared to 820 for the same time last year. Last week was the eleventh time this year that there were more than 1,000 auctions in a week. The latest data shows the use of auctions as a sales method is consistent with last year. In the first three months of this year 30.6 per cent of sales were by auction. This is consistent with last year but is expected to rise as data for April and May is compiled following the settlement of sales. There was a rise of 7.9 per cent in new residential listings in Victoria over the last month with 9,616 homes being newly listed for sale. The average time on market for houses sold at private sale remained stable and tight at 35 days. Vendor discounting improved slightly over the week, at -5.5 per cent, compared to -5.6 per cent over the previous week. Key data Clearance rate week ending 15 June: 69.2 per cent Melbourne auctions expected week ending 22 June: 834 Melbourne private sales time on market week ending 15 June: 35 days houses Melbourne vendor discounting market week ending 15 June: -5.5 per cent houses Listings being prepared for market are 2.4 per cent higher in month ending 8 June seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne suburbs where homes rarely come up for sale

Folklore says that people buy and sell every seven or so years. However, the truth does seem to be longer with the average hold period for all the homes sold in Melbourne in the year ending 31 March being 11.4 years, and 9.5 years for units. What’s even more interesting are the suburbs whose owners seem to rarely sell; they cover a range of prices and locations in Melbourne. Topping the list with the suburb for the longest period of ownership are the home owners of Vermont South. In Vermont South the average hold period is 18.3 years. If you really like the area and don’t want to wait that long, the average hold period in the more affordable Vermont is only 13.8 years. The top 10 list also has three suburbs with million dollar house values, Ormond where the average hold period is 16.9 years, Caulfield North at 15.4 years and Parkville at 15.4 years. At the more affordable end of the market is Tullamarine. Owners of houses there sell on average every 15.7 years. The fact that the houses in Tullamarine are as tightly held as Ormond but under half the value suggests owners reasons for selling infrequently is not strongly related to their cost. Rather, there will be a range of other demographic reasons why people sell infrequently, which includes what stage of life they were at when they purchased, along with the actual age of the suburb. One interesting and common factor is that each of the suburbs in the top 10 has a lower than average proportion of investors as owners. Vermont South for instance has less than 1 in 10 homes owned by an investor. In Wheelers Hill, which has an average hold period of 16.2 years, only 10.6 per cent of homes are owned by investors. This factor alone does not explain the long periods of ownership in Tullarmarine in which investors own 16.2 per cent of houses. It is likely to be a special case due to its proximity to the major economic activity centre and employment generator, the airport. Robert Larocca RP Data Victoria Housing Market Specialist

an overview of RP Dataâ

RP Data has just released its quarterly Pain & Gain Report for the March 2014 quarter. Over the first quarter of the year, 9.8% of properties nationally sold for less than their previous purchase price meaning 90.2% of properties sold at or above their previous purchase price. This analysis doesn’t include expenses such as holding costs and purchase and selling costs so the proportion of actual loss-making re-sales would be higher than this reported figure on a net basis. The figures also showed that there was a big discrepancy between the proportion of loss-making re-sales across the capital cities and regional markets. The data showed that loss-making re-sales are much more prevalent in regional areas than across capital cities. This is reflective of the fact that although values are higher over the year in all capital cities, it is not the case across many regional areas. Over the 3 months to March 2014, 6.5% of properties across the capital cities re-sold for less than their previous purchase price compared to 16.0% of re-sales in regional areas. The above chart shows the long-term proportion of loss-making re-sales across both the capital cities and regional markets. Outside of a recent period between the middle of 2004 and early 2009, capital city markets have consistently recorded a lower proportion of loss-making re-sales than regional areas. Recently the differential between capital city and regional markets has been significant which is reflective of the ongoing weaker capital growth conditions within major regional housing markets. Across the major capital city markets the proportion of loss-making re-sales is generally trending lower from a recent peak. This is reflective of the low interest rate environment and the rising home values which results in fewer vendors selling their home for less than what they purchased it for. With mortgage rates touted to remain at low levels for some time we would anticipate that the proportion of loss-making re-sales will continue to trend lower across most capital cities. While we are seeing general improvement in capital cities, regional markets are experiencing a wide variety of performances. Markets that are coastal and linked to the lifestyle segment of the market are seeing a high proportion of loss-making re-sales however, the proportion is now generally trending lower. On the other hand, markets linked to the resources sector, some of which are coastal, are now seeing a much higher proportion on loss-making sales. As many resource projects shift from construction to production demand for workers is much lower which in-turn impacts on the residential housing market, significantly in some instances. Across some of the major lifestyle markets depicted in the chart above you can see that the proportion of loss-making re-sales remains high but is now clearly trending lower. In the Bunbury region of Western Australia, the proportion of loss-making re-sales peaked over the three months May 2012 at 22.3% and have since trended lower and over the most recent quarter were recorded at 16.5% of total sales. In Cairns the recent peak saw 42.6% of re-sales at a loss over the three months to June 2012 and the proportion has since fallen to 28.2%. Loss-making resales on the Gold Coast peaked at 38.6% of all sales over the three months to December 2012 and have since fallen to 25.6% of all sales. Within the Richmond-Tweed region 22.3% of re-sales were at a loss over the March 2014 quarter, down from a peak of 28.9% over the three months to October 2012. On the Sunshine Coast loss-making re-sales peaked at 36.0% of re-sales in October 2012 and have fallen to their current 23.2%. While the proportion of loss-making re-sales is trending lower in coastal markets we’re seeing a rise in other markets, particularly those linked to the resources sector. Over the first quarter of 2014, 16.3% of re-sales were at a loss in the Fitzroy region of Queensland up from 10.0% a year ago. In the Mackay region, 23.3% of re-sales over the first quarter of 2014 were at a loss compared to 14.4% a year earlier. In the Outback region of Western Australia which includes many resource areas loss-making re-sales have risen from 12.0% of sales in the first quarter of 2013 to 17.3% in the first quarter of 2014. There are some clear trends emerging with regard to loss-making re-sales. As home values and sales activity rise across the capital cities the proportion of loss-making re-sales is trending lower as you’d expect . Certainly the capital city markets are experiencing far fewer loss-making sales than regional markets. In many coastal lifestyle markets we are starting to see some low-levels of value growth returning and sales volumes lifting. As a result, loss-making re-sales are still relatively high but are beginning to trend lower. In those areas linked to the resources sector we are seeing the proportion of loss-making re-sales trend higher. This is occurring on the back of many mining projects shifting from construction to production phase. In these areas we are generally seeing falling home values, sales volumes and rental rates while discounting levels and time on market increase. With mortgage rates set to remain low over the coming months we would anticipate that these broad trends will continue. Look for the capital cities and lifestyle markets to see continuing falls in loss-making re-sales whilst markets linked to the resources sector to experience tougher conditions with losses becoming more prevalent.

Demand in Melbourne auction market rises

RP Data National Auction Comment, week ending 15 June, 2014 A preliminary weighted average clearance rate of 66.6 per cent was recorded this week across capital cities compared to 60.6 per cent last week and 63.3 per cent this time last year. Sydney has returned a result consistent with its performance over the year and Melbourne has seen a strong week with another 1,000 plus weekend and a clearance rate above trend. In the Sydney market a preliminary clearance rate of 71.7 per cent was recorded compared to 67.3 per cent last week. In Melbourne there was a preliminary clearance rate of 69.6 per cent recorded compared to 62.4 per cent last week. The traditional winter slowdown is more akin to the spring market in some recent years. In Brisbane a preliminary clearance rate of 44.7 per cent was recorded compared to 37.3 per cent last week. Adelaide recorded a clearance rate of 50 per cent compared to 59.4 per cent last week. In Canberra a clearance rate of 42.9 per cent was recorded and in Perth there was a clearance rate of 25 per cent. In Tasmania 3 homes sold from 14 auctions. For additional information, contact media@rpdata.com or RP Data auction market commentator – robert.larocca@rpdata.com Robert Larocca RP Data Housing Market Specialist

Capital city auction volumes rise 9 per cent on same time 2013

RP Data National Auction Preview, week ending 15 June, 2014 There are 2,345 auctions scheduled across Australia this week with 1,936 expected in capital cities. Auctions will occur in 1,096 separate suburbs. The 9 per cent increase in auction volumes compared to this time last year is driven mainly by the Sydney market where there has been a substantial shift in selling methods for residential property. This increase is indicative of a preference by real estate agents and vendors to capitalise on the increased competition present in the market. In Melbourne there are 922 auctions scheduled compared to 335 last week. In the first three months of this year 30.6 per cent of sales were by auction. This is consistent with last year but is expected to rise as data for April and May is compiled once sales are settled. In Sydney there are 744 auctions expected compared to 577 last week. The substantial shift to the use of auctions for sales is revealed by new data showing that in the first three months of this year an unprecedented 25.5 per cent of all sales were by auction compared to 13.9 per cent last year. Brisbane has 117 expected auctions following 95 last week. Adelaide has 69 expected auctions compared to 78 last week. Canberra has 39 scheduled auctions similar to the 44 last week. Perth has 29 auctions, higher than last week’s 38. There are 15 auctions scheduled in Tasmania. Across Australia, the highest number of auctions are expected in Richmond VIC which has 18 scheduled. There are also 14 in Doncaster East VIC and Mosman NSW . Robert Larocca RP Data Housing Market Specialist

Forget affordability measures and ask yourself some tough questions

There are many measures of affordability in the marketplace, sadly I believe that many of these measures fail to accurately depict the affordability or otherwise of housing in Australia. The main reason being that housing affordability is an extremely complex issue and many factors drive the affordability of housing. In this blog post I am going to investigate some of these factors and tell you what you should really be asking yourself about affordability when purchasing a home. Can I start by stating that simplistic means of comparing property prices between countries I believe are ineffective. Due to different tax regimes, standards of housing and attitudes to property and wealth accumulation there may be perfectly good reasons why a household is prepared to spend more on housing in Australia for example than they are in the United States. I think common measures such as the median multiple ratio of household income to property prices are not necessarily a good way to measure affordability or otherwise, there are a lot more factors at play. Interest rates Interest rates are obviously an important component in determining housing affordability. When interest rates are lower, interest repayments on home loans are lower and as a result ‘affording’ the repayments on a mortgage should be easier. Of course, as we are seeing at the moment, lower mortgage rates often encourage higher property values. So while it’s true that lower interest rates make housing relatively more affordable, if values are rising and sales increase then it can somewhat off-set the affordability benefit of lower mortgage rates. Furthermore, the typical home loan in Australia is 25 years and the vast majority of home loans are on a variable rate. As a result, as the Reserve Bank adjusts monetary policy there is virtually an instant effect on household budgets and balance sheets. For example, at the moment the standard variable mortgage rate sits at 5.95% however, over the past 10 years the variable mortgage rate has averaged 7.27%, over the last 20 years it has averaged 7.45% and over the past 25 years the typical home loan length it has averaged 8.47%. Over the past 25 years, standard variable mortgage rates have been as high as 17.0% and as low as 5.75%. The point is that interest rates can vary greatly over 25 years and over the life of the loan the current interest rate is not a great means of measuring the cost of a mortgage over its lifetime. Wages / Income If you are going to take out a mortgage on a home as most purchasers do you are going to need an income and you are going to need some savings. In Australia there are a number of measures of wages/income and it is difficult to know exactly which one is best to use to measure housing affordability. The National Accounts measure the ‘Real net national disposable income – chain volume’. This measure does have a number of shortcomings in that it is not an individual measure and that it includes items that one can’t really spend such as superannuation. Additionally this data is only available from a national standpoint. The Australian Bureau of Statistics ABS publishes its wage price index each quarter however, it measures wages only and doesn’t measure income captured from other sources. The Census is undertaken each 5 years and does report on the median weekly household income however, the shortcoming here is that it is only updated every five years. We also have the Household Income Survey from the ABS however it is only undertaken bi-annually and takes a fairly macro view of household incomes Unfortunately all of these measures have significant shortcomings which need to be considered when looking at any housing affordability measure. Labour force / unemployment Paying off a mortgage eats up a significant portion of a family’s wage. Undoubtedly if home values weren’t so high and mortgages weren’t so large disposable incomes would be much greater. Although labour force data or unemployment statistics need not necessarily be an input into any housing affordability measure they are a key consideration for someone looking to purchase. The threat of unemployment means that despite the fact housing may seem affordable it is less likely someone would purchase. Obviously if you are unemployed it is going to be difficult to purchase a home. Another factor to consider is although measures of income show that over recent years wages and disposable income have increased, what they don’t take into account is how many more women are working nowadays. Labour force data shows that in May 2014, 54.1% of the workforce was male and 45.9% was female, 30 years ago 62.3% was male and 37.6% was female. Today, 35.5% of full-time workers are female compared to 28.9% 30 years ago. The point here is that although household incomes have increased, a big proportion of the increase is due to the structural change associated with a greater number of women in the workforce. The rising prevalence of dual income households means that whereas 20 to 30 years ago couples could afford mortgage repayments on a single wage, today they largely require dual incomes. Home values / prices Most measures of housing affordability look at median prices or median values. The important thing to remember here is that a median is just the middle value so there are just as many homes worth more and less than that figure. In fact the median price looks only at the middle value of properties which have sold over a period. This obviously has significant shortcomings because what is predominately selling could be at the affordable or expensive end of the market and this could bias the median one way or another. Remember that typically only 5% to 7% of total housing stock transacts in a given year. Another important consideration here is that a national median measure doesn’t really tell you very much at a localised level. In Australia, 66% of residents live in a capital city with around 55% in Sydney, Melbourne, Brisbane or Perth. Quite simply many residents don’t have a choice but to live in a capital city so if you are trying to determine affordability in Melbourne, the cost of housing in Mildura is of no valuable comparison whatsoever. Rental rates If you don’t own a home or pay-off a mortgage you have to live elsewhere, for the most part non-homeowners rent. The cost of renting is an important consideration when trying to determine housing affordability. If rents are increasing but home values are flat or falling purchasing a home may start to look a more attractive prospect. Once again the challenge with a measure which compares rents to house price or mortgage repayments is that it is not a localised analysis. For example for the cost of renting in Paddington in Sydney you may actually be able to pay off a mortgage in Guildford but to the renter is the opportunity cost of owning their own home and being further away from the city centre, harbour and the beaches worthwhile? Who knows but for anyone looking to purchase these are the sorts of questions they need to be asking themselves. The other key consideration is that the ongoing costs associated with owning a home as opposed to renting are difficult to determine, but they are much more than renting. As a renter, the ongoing costs generally include: the rent, the bond, electricity, gas if applicable , cleaning if you move rentals and the cost of moving if/when you move. As an owner of a home the costs incurred include: the mortgage, electricity, gas, council rates, stamp duty when you purchase, ongoing maintenance of the property, strata fees if you own a unit and agent fees if/when you decide to move. The ongoing costs associated with owning a home are much greater than the ongoing costs of renting. Who does housing affordability affect most? Housing affordability affects everyone. The high cost of housing acts as a disincentive for people to move to more appropriate locations, discourages people from upsizing and downsizing and discourages movement intra or interstate for employment. The group most affected by housing affordability however is those who don’t as yet own a home. Again if we think about many of the measures of affordability used they look at typical or median prices values and compare to interest rates and typical wages. The problem with this approach is that very few people are actually typical. As a generalisation, most people that rent are younger, starting out their careers. There is a high likelihood that their wage is currently lower than the median although there is a good chance it will increase as they are promoted or move jobs . If their wage is below the typical wage then they should not be looking to buy the typical or median house . Of course there are plenty of renters that earn above average wages but choose not to purchase as well but when trying to tackle the affordability question I think many of the measures that we look at are far too simplistic, but hamstrung by the quality and granularity of income data. Housing affordability is an individual thing and none of the measures really tell the true story about how affordable or unaffordable housing in Australia is. When determining whether you can afford to buy a home I think the most important things to consider are: What are current mortgage rates and at what higher level would I not be able to repay my mortgage? How secure is my job and what would happen if I was to lose my job for an extended period? Over the next few years what is the realistic expectations for my wage, will it rise and by how much? What impact would it have if I found a partner or lost a partner on my ability to repay the mortgage? If I plan to have children, children cost a lot what impact would that have on my ability to repay the mortgage? Compared to my current rent and associated costs, how much more is paying off a mortgage and the other day-to day costs of home ownership really going to be and can I afford this? What am I willing to sacrifice in order to buy a home; lifestyle, location, overseas travel etc? What is the opportunity cost of buying a home? I am sure there are many more questions to ask when looking to purchase but I think as a start these questions are essential. I say that the measures of affordability which are readily available should be taken with a grain of sale. It’s more important to ask yourself some tough questions about whether or not you can really afford to be a home owner. If you have any doubt you really need to consider whether it is worth the risk or not. For what it’s worth I think that housing affordability is a significant issue for young Australian’s particularly those within our capital city markets. The major problem is that most Australian’s choose to build wealth through property and 23 years of unabated economic growth has on exacerbated this. The challenge now is how can you deliver affordable housing for younger Australian’s without bringing down the cost of existing housing which politically and economically would be detrimental to the overall health of the Australian economy.

RP Data Auction Market preview, Melbourne; Week ending 15 June

There are 922 auctions scheduled this week in Melbourne compared to 868 for the same time last year. Auction volumes remain high despite the season. Based on settled sales in the first quarter of this year, the suburbs with the highest number of house sales were mainly in the growth areas, suburbs with a high supply of new homes, such as Pakenham with 185 sales, Berwick with 139 sales and Frankston with 134 sales. Whilst not a growth suburb, Glen Waverley was fourth at 117; largely the result of it being a large suburb. We also saw a contraction in the average time on market for houses sold at private sale from 39 to 35 days. This was coupled with a rise in vendor discounting to – 5.6 per cent from -5.5 per cent over the previous week. Key data Clearance rate week ending 8 June: 62.4 per cent Melbourne auctions expected week ending 15 June: 922 Melbourne private sales time on market week ending 8 June: 35 days houses Melbourne vendor discounting market week ending 8 June: -5.6 per cent houses Listings being prepared for market are 1.1 per cent higher in month ending 8 June seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

Investor activity high in growth suburbs of Melbourne

Research by RP Data comparing the level of property ownership between owner occupiers and investors at a suburb level in Melbourne reveals some clear and interesting trends. The results show that ownership for investment purposes in the Melbourne detached housing market is strongest in the growth suburbs. In many of the cities growing outer suburbs investor ownership accounts for more than 3 in every 10 properties. When ranked by level of ownership by investors, the top three suburbs are Point Cook which has 41.9 per cent of all houses owned by investors, followed by Tarneit with 40.9 per cent and Truganina at 39.8 per cent. In each case, median rents are below the Melbourne average of $444 per week and yields are in excess of the metropolitan average of 3.3 per cent. In Point Cook the median advertised rent is $380 per week and the indicative gross yield is 4.3 per cent. In Tarneit the weekly rent is $315, the yield is 4.4 per cent and in Truganina the rent is $320 per week and the yield is 4.7 per cent. Clearly investors in these areas are motivated by the yield. Only time will tell how these suburbs will fare from a capital gains perspective as they are still experiencing a high rate supply with many new properties being built and sold. Coupled with this is the short length of ownership making it difficult to draw strong conclusions on capital gains into the future. At the other end of the spectrum are the areas with the lowest proportion of investor ownership and highest level of owner occupiers. RP Data’s research shows that less than 1 in 20 houses in the suburbs of Narre Warren North, Wonga Park, Launching Place, Park Orchards and Montrose are owned by investors. Like many other suburbs with a very low level of investor activity, these places tend to be in the outer eastern or north eastern suburbs. In the unit segment of the market, the suburbs with the highest levels of investor ownership are often those with significant and large developments with suburbs such as Travencore, Kingsville, Carlton, Elwood, Notting Hill, Hawthorn and Melbourne topping the list. Each of these areas has more than 7 in 10 units owned by an investor. If you are looking at this data with a view to investing in residential property it is important to appreciate that just because investor concentration is high in these areas it does not mean these are the areas likely to deliver the best return on an investment. When making investment decisions, great care and attention to detail such as using the correct research is imperative. Robert Larocca RP Data Victoria Housing Market Specialist

Low auction volumes across capital cities

RP Data National Auction Comment; Week ending 8 June, 2014 A preliminary weighted average clearance rate of 59.9 per cent was recorded this week across capital cities compared to 66.4 per cent last week and 61.4 per cent this time last year. This is well below the year’s high of 76.2 per cent recorded in late February, however comparatively low volumes this week reduce its value as an indicator to the state of the market. In the Sydney market a preliminary clearance rate of 65.7 per cent was recorded compared to 73 per cent last week. In Melbourne there was a preliminary clearance rate of 61 per cent recorded compared to 65.4 per cent last week. In Brisbane a preliminary clearance rate of 42.9 per cent was recorded compared to 42.5 per cent last week. Adelaide recorded a clearance rate of 63 per cent compared to 55.3 per cent last week. In Canberra a clearance rate of 50 per cent was recorded and in Perth there was a clearance rate of 33.3 per cent. In Tasmania 4 homes sold from 17 auctions. Robert Larocca RP Data Housing Market Specialist

Housing finance data for April 2014

Housing finance data for April 2014 was released today by the Australian Bureau of Statistics ABS . The headline figure for the number of owner occupier housing finance commitments was flat over the month however, dig a little deeper and there are some differing trends emerging. As mentioned, the number of owner occupier housing finance commitments was flat over the month following on from a -0.8% fall in March. This data is split into commitments for refinance purposes and commitments for non-refinances or new loans . Refinance commitments rose by 0.6% compared to a -0.3% fall in non-refinance commitments. Non-refinance commitments fell over consecutive months and it was the first time this has happened since December 2012. Given the number is a count it is important to look at the trend and it is clear from the first chart that the number of owner occupier commitments, whether it be for non-refinances or refinances is beginning to flatten. Year-on-year, refinance commitments are 8.6% higher compared to a 5.7% rise in non-refinance commitments. The number of owner occupier housing finance commitments for the construction of new dwellings and the purchase of new dwellings have shown a strong rise recently however, as the above chart shows there has been some recent weakness in commitments for the purchase of new dwellings The number of commitments for construction of new is almost three times greater than the number for purchase of new nevertheless, the recent weakness is certainly something to keep track of. The data on the number of commitments is important however it is narrow in its scope given it does not include investors. From a banking perspective, the value of the funds they are lending is arguably more important than the number of loans written. The total value of housing finance commitments which includes investor commitments increased by 1.7% in April and increased by the same amount if you remove refinance commitments. Over the month, owner occupier refinance commitments were 1.6% higher, owner occupier non-refinance commitments were 1.3% higher and investment loan commitments increased by 2.3%. As the above chart shows, investment and owner occupier lending is at record high levels whereas non-refinance loan commitments are still -5.7% lower than their previous peak. In terms of the value of finance commitments all three segments continue to record a rise and are trending higher. Year-on-year the total value of housing finance commitments are 20.4% higher with owner occupier refinances up 19.1%, owner occupier non-refinances up 13.4% and investment loans 29.8% higher. It’s also important to look at the make-up of lending across owner occupiers and investment loans. Over the month of April, 43.0% of all lending was to owner occupiers for non-refinances, 39.4% was to investors and 17.6% was to owner occupiers for refinances. As the above chart shows the proportion of lending to investors is high on an historical basis. In fact investment lending is sitting at levels not seen since late 2003. It is clear from the data that there is significant demand for housing from investment currently. The big question of course is how sustainable is that demand given there was a sharp slowdown in this segment of the market shortly thereafter lending last reached similar heights. It is interesting to pair this data with recently released quarterly data from the Australian Prudential Regulatory Authority APRA about Authorised Deposit-taking Institutions’ ADIs exposure to property. The latest data showed that interest-only loans accounted for 39.4% of all loans over the quarter a similar proportion to these investor figures . However, the data also suggested that loans with a loan to value ratio LVR of more than 90% may be getting harder to find with 13.5% of new loans over the quarter with an LVR of more than 90% which was the lowest proportion since September 2011. Focussing on lending to first home buyers, there were 6,074 housing finance commitments to first home buyers in April 2014. This figure was -7.3% lower over the month and -12.7% lower year-on-year. As a proportion of all owner occupier housing finance commitments, first home buyers accounted for an equal record low of just 12.3% of the commitments over the month. The RP Data Mortgage Index RMI which is an index of mortgage events across RP Data’s proprietary platforms has a strong correlation with housing finance data and is a weekly index. The RMI predicted a softening of activity some six weeks ago and is indicating a sharp rebound in the housing finance data once the May data is released. Note that the RMI data is correlated strongly to the raw housing finance data not the seasonally adjusted figures which are referred to elsewhere throughout this post. The data seems to suggest that the growth in the number of new owner occupier housing finance commitments is starting to or has topped out. There is still plenty of activity in the owner occupier refinance and investment segments of the market. Of course our chief concern remains the high level of investment activity in the market. Total returns from residential property have been strong over the past 12 to 18 months however, we believe that the peak level of capital growth has now passed and rental yields continue to fall. Although total returns are still strong they are likely to diminish from here and where will that leave these investors especially if they were simply chasing the short-term value appreciation which has been particularly prevalent in Sydney and Melbourne over the past year. The good news is that the higher risk, high LVR loans are reducing however, there are still a lot of instances in which mortgagees are only paying back the interest component of the mortgage.

Auction market takes a breather for the long weekend

RP Data National Auction Preview, week ending 8 June, 2014 There are 1,425 auctions scheduled across Australia this week with 1,073 expected in capital cities. Volumes remain higher than this time last year and are 38% higher, however, these are lower than last week due to the long weekend in most parts of the Australia. After the record number of auctions in the first five months of the year, Sydney continues as the strongest auction market. In Sydney there are 532 auctions expected compared to 1,316 last week. Sydney’s year to date clearance rate is 75.6 per cent from 15,187 auctions, well up on the 68 per cent from 9,260 this time last year. In Melbourne there are 303 auctions scheduled compared to 1,356 last week. Melbourne has a year to date clearance rate of 67.5 per cent and the market has cooled after the high of 76.6 per cent in early March. Brisbane has 84 expected auctions following 219 last week. Adelaide has 70 expected auctions compared to 87 last week. Canberra has 41 scheduled auctions similar to the 48 last week. Perth has 33 auctions, higher than last week’s 30. There are 24 auctions scheduled in Tasmania. Across Australia the highest volume of auctions will be found in Auburn NSW and Blacktown NSW , both of which have 10 scheduled. Robert Larocca RP Data Housing Market Specialist

Has the housing market moved through the peak of the growth cycle?

The RP-Data Rismark Home Value Index reported its first month on month fall in May after capital city dwelling values consistently rose over the previous eleven months. The extent to which the May decline was a seasonal factor has been a key topic across the media; generally the month of May is a seasonally weak time for housing markets and no doubt the most recent result suggests that was the case again this year. When we adjust our index for seasonality the May numbers are still down 1.2% compared with a 1.9% fall in the original index reading. When we take the adjusted reading and also look at trend rate of growth over a rolling three month period it becomes increasingly evident that the Australian housing market has probably moved through the peak of its growth phase. In fact, the quarterly rate of growth peaked back in June of last year at 1.9% in original terms and has since trended progressively lower. A few other factors are lining up to suggest the housing market may be cooling. Consumer sentiment, which shows a high correlation with housing demand, peaked in September last year. After the index tumbled in May as consumers reacted pessimistically to the May budget announced the consumer sentiment reading is down 16 percent from the recent peak reading. Historically buyer demand tends to move with consumer confidence readings; when consumers are confident they are generally much more willing to make a high commitment decision such as purchasing a property. We have also seen some softening in our vendor metrics. Auction clearance rates peaked in February this year at 76% and last week were recorded at a still healthy but lower 66%. Vendor discounting eased ever so slightly in April, rising from 5.4% to 5.6% in April. And the average selling time showed a modest increase, rising from 36 days to sell the typical capital city property to 37 days which is still a historically low reading . Another factor that is likely to be dampening housing market conditions is affordability and the ratio of rental prices to dwelling prices. Value growth has substantially outpaced rental growth which means purchasing a home is becoming substantially more expensive than renting. Over the past five years Sydney dwelling values have increased by 32.5% while rents are up 25.7%. Similarly, in Melbourne values are up 26.9% over the past five years while rents are up a much lower 16.2%. Both cities have seen investment yields move substantially lower to be the lowest of any capital city. While value growth in the housing market may be moderating across combined capital cities, it’s important to remember that each city and region is at a different stage of the growth cycle. While Melbourne, Sydney and Perth appear to have moved through the peak of their cycle, momentum seems to have gathered some pace in those markets where growth conditions have previously been more sedate than the larger cities. Brisbane, where transaction numbers are more than 20% higher over the March quarter compared with the same period a year prior, has seen a pick-up in the rolling quarterly pace of growth while Adelaide and Hobart have also showed some evidence improving market conditions. Historically these capital cities have lagged behind Sydney and Melbourne in market growth phases. We don’t believe that the falls recorded in May are set to continue however, a slower rate of growth over the coming months is likely. The real test for the market will be throughout the spring selling season where sales and listings ramp up once again. Given the housing market began this year with momentum it seems unlikely that value growth will return to the highs recorded over the second half of 2013.

RP Data market preview, Melbourne; Week ending 8 June, 2014

There are 303 auctions scheduled this week in Melbourne compared to 197 for the same time last year. Volumes are temporarily low due to the long weekend. So far this year there have been 16,357 auctions and a clearance rate of 67.5 per cent compared to 68.6 per cent from 12,341 auctions this time last year. The high volume of residential listings this year is having a positive impact for buyers. Home values have fallen for the second month in a row and auction clearance rates have remained in the 60’s. The RP Data-Rismark May Home Value Index released this week showed that the value of a house dropped by 3.6 per cent in the month resulting in a rise of only 1.6 per cent over 2014. Unit values fell by 2.6 per cent over the year following a drop of 3.4 per cent in the month. It’s unlikely that buyers over winter and into spring will see their purchasing power diminished. We also saw a small fall in the average time on market for houses sold at private sale from 41 to 39 days. This was coupled with a rise in vendor discounting to – 5.5 per cent from -5.4 per cent over the previous week. Key data Clearance rate week ending 1 June: 65.4 per cent Melbourne auctions expected week ending 8 June: 303 Melbourne private sales time on market week ending 1 June: 39 days houses Melbourne vendor discounting market week ending 1 June: -5.5 per cent houses Listings being prepared for market are 1.1 per cent higher in month ending 1 June seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne house and unit values fall for two consecutive months

The key differences between the past two property cycles and the current one has become much clearer following Monday’s release of the RP Data-Rismark Home Value Indices results for May. The May results showed that the value of a house dropped by 3.6 per cent in May resulting in a rise of only 1.6 per cent over 2014. Unit values also fell by 2.6 per cent over the year following; a drop of 3.4 per cent in the month. After a new nominal peak in Melbourne house values was reached in March, there has been two consecutive months in which values have fallen ensuring buyers in winter and early spring won’t face rapid price rises. In fact, they are likely to see houses valued lower than they were in real terms in 2010. This result should also eliminate any concerns that the local market was locked into a cycle of unstainable growth in prices. This upswing phase in house values started in May two years ago and is clearly more moderate than the 2007 and 2010 cycles due to better alignment between supply and population growth along with the fact that consumers remain cautious. Over the past two years, house values in Melbourne have risen by 13.1 per cent and are now only 0.7 per cent higher than the October 2010 peak. Robert Larocca RP Data Victoria Housing Market Specialist

RP Data National Auction Comment; Week ending 1 June, 2014

Sydney leads a strong week for the auction sales across capital cities A preliminary auction clearance rate* of 68.3 per cent was recorded this week across capital cities compared to 67.1 per cent last week and 72.1 per cent this time last year. Auction volumes reached record levels across the nation in May. This week’s clearance is lower than this time last year however there were 3,037 auctions held compared to only 1,845 in capital cities this time last year. The higher volumes are partly the result of an increased use of auctions to take advantage of improved demand from buyers. In the Sydney market a preliminary clearance rate of 77.1 per cent recorded compared to 73.1 per cent last week. In Melbourne there was a preliminary clearance rate of 64.6 per cent recorded compared to 66.6 per cent last week. In Brisbane a preliminary clearance rate of 48.8 per cent was recorded compared to 49.4 per cent last week. Adelaide recorded a clearance rate of 59.3 per cent compared to 64.2 per cent last week. In Canberra a clearance rate of 64 per cent was recorded and in Perth there was a clearance rate of 58.8 per cent. Robert Larocca RP Data Housing Market Specialist

New listings much higher than a year ago while total listings have recently risen and are now are at a similar level as a year ago

RP Data tracks the number of unique residential properties listed for sale each week across the nation, individual states, individual capital cities and combined capital cities. The data is captured for residential houses and units as well as vacant residential land. The count of listings is undertaken on a rolling 28 day basis and separates the data by new property listings those not seen for six months , re-listed properties those seen within the last six months and total listings new and re-listings . Over the 28 days to 25 May 2014, there were 248,905 unique properties listed for sale across the country. Of this 248,905, 44,848 were new listings over the previous 4 weeks with the remaining 204,057 being re-listed properties. The number of new listings was at its highest level since the week ending 13 April 2014 with new listings having trended higher over the past four weeks. Re-listed properties were at their highest level since the four weeks ending 12 January 2014. Re-listings have also trended higher over the past four weeks. As a result, total property listings are at their highest level since the four weeks ending 16 March 2014. Compared to the same time a year ago, the number of newly advertised properties are much higher +12.4% while total listings were virtually unchanged. Looking at the new stock which has been listed for sale over the past four weeks, 31,925 new listings were for houses, 10,232 new units were listed and 2,691 new vacant land listings entered the market. Over the past four weeks, 71.2% of new listings were for houses, 22.8% were units and 6.0% were for vacant land. Re-listed stock also shows a high proportion of houses compared to units and vacant land. Over the most recent four weeks there were 134,461 re-listed houses 65.9% , 37,679 re-listed units 18.5% and 31,917 re-listed vacant land lots 15.6% . On a state-by-state basis we can see some significant variations in listing performance. The number of new property listings is higher than a year ago in each state except for Queensland -1.3% and the Australian Capital Territory -14.7% . Total listings are higher than a year ago in New South Wales, Western Australia, Tasmania and the Northern Territory but lower elsewhere. New South Wales and Victoria are the most populous states however, Queensland has the highest number of property listings with 4,693 more properties for sale than across New South Wales. Looking at the combined capital city market, there were 28,085 new properties listed for sale over the four weeks to 25 May and new listings were 17.5% higher than a year ago. Capital city new property listings accounted for 62.6% of all new listings nationally. Over the same period, there were 104,705 total capital city property listings which was -4.1% lower than the previous year. Total capital city property listings accounted for just 42.1% of all listings nationally. This reflects the much tighter supply of stock available for sale across capital city markets compared to regional areas of the country and at least partially explains why generally home values are rising at a faster pace in capital cities than in regional marketplaces. Throughout the individual capital cities new property listings are generally higher than a year ago with Canberra the only exception. Sydney in particular is seeing a significant rise in new listings which are 37.5% higher than they were a year ago. Although the amount of new stock coming to the market is generally higher than a year ago, total stock levels are generally lower with Perth, Hobart and Darwin the exceptions. The fact that new listings are much higher than last year but total listings are generally lower indicates a greater level of absorption and the fact that properties are selling quicker than they were a year ago. Although total listings in Melbourne are -7.0% lower than they were a year ago, it is quite interesting to note that Melbourne currently has 31,867 properties for sale compared to 22,124 in Sydney, a difference of 9,743 properties. As we head into a seasonally quieter period for housing market activity it will be interesting to see whether new and total listings continue to rise. In recent weeks we have noted that auction clearance rates have trended lower despite the fact that volumes remain high, particularly high for this time of year. We would expect new listing activity will slow over the coming months and ramp back up in spring. It will be interesting to watch because sales volumes are still trending higher as are housing finance commitments and if new listings fall we may see even greater demand for the available stock in certain markets throughout the coming months.

Sydney & Melbourne auction markets break records in pre Queen’s Birthday auctions

RP Data National Auction Preview, week ending 1 June, 2014 There are 3,439 auctions scheduled across Australia this week with 2,855 expected in capital cities. There are 1,010 more auctions in capital cities than was the case on the same weekend a year ago but only 69 more than last weekend. The high volume this week is a result of a generally buoyant market, a reduction in auctions next week due to the Queen’s Birthday holiday and a shift towards auctions in Sydney and Melbourne. The Sydney and Melbourne markets are both setting records for the number of auctions in the first five months of the year. In Melbourne there are 1,264 auctions scheduled compared to 1,211 last week. With a clearance rate remaining in the mid 60’s buyers continue to be well placed. In Sydney there are 1,223 auctions expected in what is the record run of 7 weeks over 1,000 this year. So far this year there has been a record 13,871 auctions, 60.9 per cent more than the same time last year. In Canberra 45 auctions are scheduled, well down on last weeks 76. Perth has 27 auctions, also well down on last weeks 70. After Sydney and Melbourne the largest volume of auctions are in Queensland outside of Brisbane with 261 scheduled. There are 192 in Brisbane. In Adelaide 83 auctions are expected compared to 121 last week. There are 16 auctions scheduled in Tasmania. Across Australia the highest volume of auctions will be found in Richmond VIC and Randwick NSW , both of which have 24 scheduled Robert Larocca RP Data Housing Market Specialist

Taxation revenue from property continues to climb in 2012-13

Earlier this week the Australian Bureau of Statistics ABS released data which revealed that 46.4% of state and local government taxation revenue over the 2012-13 financial year came from property related taxes. The data showed that over the year, state and local governments collected a record $35.931 billion in taxes from property related sources. In comparison, they collected $20.752 million in taxes from employers, $11,089 million in taxes from the provision of goods and services and $9.638 million in taxes on the use of goods and performance of activities. As this shows, at a state and local government level property taxes are the largest source of revenue. The total value of property related taxes increased by 7.2% over the most recent financial year. In comparison, taxes on employer’s payroll and labour force rose by 5.1%, taxes on the provision of goods and services rose 2.4% and taxes on the use of goods and performance of activities rose 8.6%. With home values nationally beginning to rise in June 2012, it is clear that state and local government are a major benefactor. With higher home values, taxes such as land tax, municipal rates and stamp duty on conveyances all increase. Of the $35.931 billion in property related tax revenue collected in 2012-13, 40% came from municipal rates and 36% came from stamp duties on conveyances. Land tax was the only other sizeable contributor to property related tax accounting for 17% of revenue. Over the year the most significant increase in property related taxes came from stamp duty, up by 16.9%. The amount of tax revenue collected from municipal rates increased by 6.8%, and land taxes increased by 1.5%. Property related tax revenue is only collected by those who own properties. Ultimately every property is owned by someone, some as an owner occupier and some as an investor. The taxes levied against property are typically only payable by the owner of the property. Given this, those who choose to rent rather than own property pay no tax on property. Not to mention the fact that the cost of renting is typically much lower than the cost of owning, it is no surprise more people are choosing to rent rather than own property. State and local governments have clearly experienced a significant revenue boost via the improvement in the residential housing market over the year. Stamp duty in particular has seen a significant rise. With sales volumes and property values rising there have been more sales to receive stamp duty from and at a higher price which also increases the stamp duty collected. Of course, the issue with stamp duty is that it is a tax only collected across those properties which sell. From a residential perspective this is just 5% to 7% of the total housing stock over a given year. Stamp duty also acts as a disincentive for home owners to transact property on a more regular basis because it is a tax paid on a new purchase. Many people have called for the removal of stamp duties which would be a positive move to encourage greater mobility of residents. Of course state and local governments would lose 36% of their property related tax revenue and 17% of their total taxation revenue. Many have called for replacing stamp duty with a blanket land tax, another tax would likely be very unpopular and you’d have to consider how equitable that would be particularly for those who have recently paid stamp duty. To put a blanket land tax into perspective to cover the $12.841 billion in stamp duty revenue over the 2012-13 financial year, each residential dwelling would have to pay $1,391.69 based on the ABS estimate of 9,226,900 residential dwellings as at June 2013. Keep in mind that stamp duty isn’t just payable on residential property transactions. Over the year, stamp duty revenue was higher in each state except for Victoria -1.4% , Queensland -6.7% and the Australian Capital Territory -3.3% . New South Wales 21.4% , Western Australia 33.0% and the Northern Territory 35.5% recorded the greatest rises in stamp duty revenue. According to the RP Data-Rismark Home Value Index, Sydney home values rose by 5.6% over the year, Perth values were 6.0% higher and Darwin values were 6.1% higher. Conversely, Melbourne home values were 3.4% higher, Brisbane values were just 0.6% higher and Canberra value were 1.1% higher. Clearly home value rises have a positive effect on stamp duty revenues. The data highlighted shows that property is the most important source of revenue for state and local governments, accounting for 46.4% of their total taxation revenue. The issue of course is that these levels of government are looking to constantly grow their revenues. The two main sources of property related revenue are rates and stamp duty. Rates can be grown by encouraging a greater number of ratepayers into a region create more housing and stamp duty can only be lifted by changing the rates or encouraging higher prices and/or more sales. In certain regions increasing the supply of ratepayers is not possible so it is clear that stamp duty is an extremely important source of revenue. With the housing market recording significant value growth and much higher sales volumes throughout the 2013-14 financial year no doubt stamp duty revenue will be much higher again. The question is can governments continue to rely on property being a one-way bet? Particularly when the Reserve Bank has repeatedly warned of late that it is not.

RP Data market preview, Melbourne; Week ending 1 June, 2014

There are 1,264 auctions scheduled this week in Melbourne compared to 867 for the same time last year. The strong level of auction listings in the first 5 months of this year compared to 31.6 per cent higher last year is a reflection of two things; firstly it shows the confidence of vendors where they are willing to sell for a reasonable price, and secondly, a preference by real estate agents for auctions as a method of sale in an improving market. The strong volumes will also mitigate price growth as buyers’ bargaining power is increased. We saw a small rise in the average time on market for houses sold at private sale from 40 to 41 days. Vendor discounting reduced to – 5.4 per cent from -5.5 per cent the previous week. Key data Clearance rate week ending 25 May: 66.6 per cent Melbourne auctions expected week ending 1 June: 1,264 Melbourne private sales time on market week ending 25 May: 41 days houses Melbourne vendor discounting market week ending 25 May: -5.4 per cent houses Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne auction market records

With the first 5 months of 2014 almost complete, it is worth noting that a large number of auction records have been broken in the Melbourne market. Highest volume of auctions ever Taking into account the expected auctions this week there have been around 16,236 auctions already held this year which is 30 per cent more than the previous high in 2010. Most 1,000 plus weeks ever Once the planned auctions scheduled for this week are held, there will have been 10 weeks in the year when the volume has exceeded 1,000. This is more than three times the record of three weeks in 2010. Most consecutive weeks over 1,000 Never before has Melbourne seen two or even three consecutive weeks with over 1,000 auctions before June. Single week record for auctions prior to June Melbourne has broken the 1,294 auction recorded three times this year including the peak of 1,530 in the week ending on 13 April. Most homes sold by auction prior to June Even if there are no homes sold at auction this week, the number sold by auction will have been reached a record high. The previous record of 9,758 from 2010 will probably be exceeded by around 1,000. These records are impressive as they show a healthy market but they don’t mean that it has been just a sellers market. Around one third of homes offered at auction have been passed in as the vendors expectations have not been matched by the market on the day. Robert Larocca RP Data Victoria Housing Market Specialist

APRA Data highlights rising prominence of interest-only and high LVR lending

APRA today released data on Australian ADIs Authorised Deposit-taking Institution exposure to property earlier today. The data showed that at the end of the March 2014 quarter, there was $1.2 trillion worth of residential loans to households across Australia, up from $1.17 trillion at the end of 2013. Focusing on the total value of lending, 35.4% of the outstanding loans to domestic ADIs have an offset facility and 35.4% are interest only mortgages. The proportions of each are at a record high level currently. On the other hand, only 3.1% of mortgages are low-documentation loans which is at a historic low proportion. Just 0.1% are other non-standard loans. Looking at the number of loans, 29.6% of all loans have an offset facility and 78.0% have a re-draw facility. In terms of the number of loans, 28.0% are interest-only mortgages and 3.5% are low-documentation loans. The proportion of loans with an offset facility and the proportion of interest-only mortgages are at a record high while the proportion of low-documentation loans is at a record low. The average outstanding balance for residential loans was recorded at $235,000 at the end of March 2014, up from $233,500 at the end of 2013. Loans with an offset facility $281,400 and interest-only mortgages $297,200 have a much higher average balance than the average across all loans. Over the first quarter of 2014, there was $73.815 billion in new residential mortgages, down from $84.160 billion over the final quarter of 2013. Of these new loans, 64.3% were to owner occupiers and 35.7% were to investors. As I mentioned previously, the proportion of interest-only loans which were outstanding to banks was recorded at 35.4% based on value however, interest-only lending was much higher over the quarter with 39.4% of new loans interest-only loans. It is clear that low-documentation loans are becoming harder to receive. Over the March 2008 quarter, 11.5% of loans were low-documentation, over the most recent quarter just 0.6% of new loans were low-documentation. Over the quarter, 3.1% of loans were approved outside of serviceability which was steady over the quarter. The proportion of loans approved outside of serviceability has been higher than it is currently but was consistently lower than 3% of all loans before the June 2012 quarter. The level of higher LVR lending also increased over the first quarter of this year with 34.8% of new loans having an LVR of 80% or more, up from 34.2% over the previous quarter. The proportion of new loans with an LVR of more than 80% is at its highest level since the December 2011 quarter 34.9% . Although higher LVR lending is increasing, the proportion of loans written with an LVR of 90% or more was recorded at 13.5%, down from 13.6% the previous quarter. This indicates that there is growth in the 80% to 90% LVR segment, which accounted for 21.3% of new mortgages over the quarter, up from 20.7% the previous quarter. The proportion of new loans with an LVR of between 60% and 80% accounted for the largest proportion of new loans at 41.2% and sitting at its highest proportion since September 2011 41.5% . By combining the latest data from APRA with recently released data from the ABS, you get some really valuable additional insights into the exposure of Australian ADIs to residential property. The ABS estimates that there were 9.334 million residential dwellings in Australia at the end of March 2014 and the latest APRA data highlights that there was 4,999,800 outstanding mortgages at the end of March 2014. This indicates that only 53.6% of all dwellings nationally have a mortgage. Of course as you can see from the chart which follows the proportion of mortgages properties is rising. The ABS estimates that the total value of residential dwellings across Australia was $5.1 trillion at the end of March 2014. Pairing that with the value of outstanding mortgages reported by APRA at the same time $1.2 trillion it indicates that only 23.4% of the value of Australian housing is mortgaged to Australian ADIs. This analysis highlights that for better or worse, Australian’s store significant wealth within their residential properties. Overall the data indicates that the proportion of interest-only lending and loans with an off-set facility is increasing. No doubt APRA will have a close eye on this phenomenon, particularly interest-only lending which is inherently more risky than when both the principal and interest is repaid. The majority of new mortgages are written on an LVR of less than 80% however, the rising proportion being written between 80% and 90% will no doubt be closely scrutinised. It is encouraging to see that there are fewer new mortgages being written with an LVR above 90%. Although the current value of housing compared to that mortgaged is relatively low, a sharp down-turn in property values would have a significant impact on more recent purchasers. The first five years of a mortgage is inherently the riskiest. Whilst those who have owned their home and have significant equity within it can weather a down-turn, recent buyers with little or no equity, and those who have leveraged their equity for other investments are significantly more exposed in the event of a downturn.

RP Data National Auction Comment; Week ending 25 May, 2014

Volumes rise and demand increases across capital city auction markets A preliminary auction clearance rate* of 66.1 per cent was recorded this week across capital cities compared to 66.6 per cent last week and 67.1 per cent this time last year. Demand from buyers was clearly sufficient to ensure that the clearance rate was largely unaffected by the substantial 61 per cent rise in homes on offer at auction compared to this time a year ago. In the Sydney market demand strengthened with a preliminary clearance rate of 76.2 per cent recorded compared to 69.9 per cent last week. Buyers have welcomed the increased choice this week. In Melbourne demand and supply continue to be well balanced with a preliminary clearance rate of 61.7 per cent recorded compared to 68.8 per cent last week. In Brisbane a preliminary clearance rate of 49.5 per cent was recorded compared to 46.5 per cent last week. Adelaide recorded a clearance rate of 67.2 per cent compared to 63.8 per cent last week. In Canberra a clearance rate of 50.9 per cent was recorded and in Perth there was a clearance rate of 45.2 per cent. In Tasmania there was 2 sales from 4 results. Robert Larocca RP Data Housing Market Specialist *Weighted average

RP Data National Auction Preview; Week ending 25 May, 2014

Unprecedented volume of auctions across Australian capital cities this week There are 3,111 auctions scheduled across Australia this week with 2,589 expected in capital cities – a remarkable 53 per cent more than the 1,687 auctions held a year ago. Vendors may be concerned about the high volume of competing auctions but should gain confidence from last week’s results when there was a small increase in the clearance rate to 66.6 per cent across capital cities from 65 per cent in conjunction with increased supply. The increase in volumes this week is largely as a result of an unprecedented surge in listings in Melbourne and Sydney for May, both of which have more than 1,000 auctions. In Melbourne there are 1,137 auctions scheduled in what is the ninth week this year with over 1,000. In Sydney volumes are almost twice last year’s at 598, with 1,017 homes to be offered for sale at auction. Both Canberra and Perth are expecting a record number of auctions so far this year with 72 expected in Canberra and 69 scheduled in Perth. In Adelaide, 119 auctions are expected compared to 121 last week. In Brisbane 175 auctions are expected following last week’s 133. There are 8 auctions scheduled in Tasmania. Across Australia, the highest volume of auctions will be found Melbourne’s expensive eastern suburbs with 24 scheduled for Glen Iris. In Sydney the highest volume of auctions are in the inner city suburb of Paddington with 21 scheduled. Robert Larocca RP Data Housing Market Specialist

RP Data market preview, Melbourne; Week ending 25 May, 2014

Melbourne auction volumes remain high as there are 1,137 auctions scheduled this week in Melbourne, compared to 823 at the same time last year. This will be the ninth week with more than 1,000 auctions in Melbourne. The highest number of auctions this week is in Glen Iris with 24 followed by Northcote and South Yarra, both with 19. The Melbourne auction market continues to record reasonable clearance rates in light of the very strong volumes. Volumes in the auction market are consistent with those across the residential market which is seeing more new homes being listed and more sold. In Melbourne there are 31,604 homes listed for sale, 8.7 per cent lower than a year ago. At the same time new listings have been consistently higher than a year ago, over the month ending 18 May there was 15.7 per cent more new listings. Key data Clearance rate week ending 18 May: 68.5 per cent Melbourne auctions expected week ending 25 May: 1,137 Melbourne private sales time on market week ending 18 May: 40 days houses Melbourne vendor discounting market week ending 18 May: -5.5 per cent houses Listings being prepared for market are 1.3 per cent lower over the month ending 18 May seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

A case study of Sydney housing over time

Over the three months to April 1990, the median selling price of a dwelling a combination of houses and units across Sydney was recorded at $152,500. As at April 2014, the median selling price of a dwelling was $680,000 which represents a 347% increase in selling price over the 24 year period. Of course a median price is only measured across properties which actually transacted but it is interesting to look at what the median priced home is over time The following charts will look at the changes in median price over time and the location of median priced sales. Note that the each dot represents one sale and the red dots indicate house sales while the blue dots represent unit sales. The buffers shown on the maps represent a 10 kilometre, 20 kilometre and 50 kilometre distance from the Sydney CBD. 3 months to April 1990 The median price of a Sydney home over the three months to April 1990 was $237,000, across the city there was 12 sales at that price over the period, 3 of which were units and the remaining 9 were houses. Apart from 1 sale at Sylvania, the reaming 11 sales all occurred within a 20 kilometre radius of the city. For houses, you will note that 4 of the 9 suburbs are located within a 10 kilometre radius of the city and for units, Epping was the only suburb with a sale outside of the 10 kilometre region. 3 months to April 1994 Moving to April 1994, there were 34 sales at the median price over the three month period and the median price was recorded at $169,000. Comparing this chart to the previous chart you see that the median priced house is beginning to move further away from the city centre with only 5 of the 24 median priced house sales within 10 kilometres of the city centre and 5 of those 24 sales were located more than 20 kilometres from the city centre. For units, 3 of the 10 sales were outside of a 10 kilometre radius of the city, 2 of which were more than 20 kilometres away. 3 months to April 1999 By April 1999, the Sydney median house price was recorded at $237,000 and over that three month period there was 28 houses sold at that price and 31 units. The big shift over the five year period was the fact that none of the median priced house sales were within a 10 kilometre radius and a greater proportion were located more than 20 kilometres from the city than those within 20 kilometres. Within a 10 kilometre radius of the city, units where the only sales at the median price however, units transacting at the median price were becoming more common in areas more than 10 kilometres from the city centre. 3 months to April 2004 The median Sydney dwelling price over the three months to April 2004 in Sydney was recorded at $440,000. Over the preceding 3 months there were 62 house sales and 65 unit sales at that price. Compared to five years earlier there were a few house sales within 10 kilometres of the city centre however, once again the majority occurred more than 20 kilometres from the city centre. For units, most sales still occurred close to the city centre however, more and more were transacting at the median price further away from the city centre. 3 months to April 2009 By April 2009, the median dwelling price in Sydney was slightly lower than from five years earlier, recorded at $420,000. Keep in mind that from early 2004 to mid-2009 there was no growth in Sydney home values after they fell by around 10%. The map is quite similar to the previous one with 102 houses and 103 units sold at the median price. Once again only a few house sales were within a 10 kilometre radius of the city with the vast majority occurring more than 20 kilometres from the CBD. Unit sales were fairly similar and mostly focused within the 20 kilometre radius of the city. 3 months to April 2014 Over the most recent three month period, the median Sydney dwelling price was recorded at $680,000. Over the three month period and note these figures will be revised higher there was 31 house sales at the median price and 40 unit sales. Looking at the above map again we see few house sales within a 20 kilometre radius of the city and the median priced unit is pushing further away from the city centre with more and more sales occurring more than 10 kilometres from the CBD. The analysis is an interesting exercise in how over time, the ‘typical’ home across the city is moving further and further away from the city centre. As a result, it is no wonder we are seeing growing levels of higher density development in the major capital cities. As the typical housing option moves further away from the city centre, those that need or want to be close to the city centre look for more affordable alternatives such as units. As the city continues to grow and density in the inner city increases we would expect a further drift outwards of both the typical house and unit sale in Sydney.

Days on market drops in Melbourne

The average number of days a house spends on the market has fallen to a new low according to the latest RP Data monthly update. In March a house for sale by private sale in Melbourne spent 35 days on the market. As most auction selling campaigns are around 28 days, it is interesting to note that private sales are delivering, in broad terms, similarly quick sales. This is also significant because the majority, around 69 per cent in 2013, of Melbournians sell by private sale. Comparing March this year with the past few years shows the change clearly, last year the time on market was 45 days, the year before that it was 57 days and in 2010, when the market last peaked, it was 38 days. There is clearly a reflection between the strength of the market and the time it takes to sell a house. Units are taking slightly longer; around 37 days – but this is not a significant difference and they show a similar trend over time. On a suburban level the shortest time on market is generally found in the outer east of the city in The Basin, Croydon South and Knoxfield. Time on market data on a suburban level is calculated over a longer time period so fluctuates to a lessor degree but still clearly shows the areas where sales are more rapid. Robert Larocca RP Data Housing Market Specialist

RP Data national auction market comment; Week ending 18 May, 2014

National auction market stable despite a strong rise in the number of properties taken to auction. A preliminary auction clearance rate* of 65.4 per cent was recorded this week across capital cities compared to 65.0 per cent last week and 67.3 per cent this time last year. The auction clearance rate has maintained a stable performance despite a 42 per cent rise in the number of properties taken to auction this week and concerns the federal budget may have a negative impact on buyer demand. In the Sydney market a weaker preliminary clearance rate of 70.9 per cent was recorded compared to 73.3 per cent last week highlighting improving conditions for buyers. In Melbourne a preliminary clearance rate of 64.5 per cent was recorded compared to 61.9 per cent last week. Auction numbers rose steeply this week and it is significant that the clearance rate didn’t drop below the lows of the last fortnight. In Brisbane a preliminary clearance rate of 49.5 per cent was recorded compared to 46.7 per cent last week. Adelaide recorded a clearance rate of 65.5 per cent compared to 62.3 per cent last week. In Canberra a clearance rate of 52.6 per cent was recorded and in Perth there were 8 auction sales from 17 results. In Tasmania there was 2 sales from 5 results. Robert Larocca RP Data Housing Market Specialist For further comment or inquiries from the media please call 0409 198 350. *Weighted average

RP Data national auction preview; Week ending 18 May, 2014

There are 1,994 auctions scheduled across capital cities this week. This is 30 per cent more than last week and 31 per cent more this time last year. Volumes have increased over the last week in all cities with the exception of Canberra. Last weeks improved clearance rate, up 1.8 percentage points to 65 per cent was driven by stronger demand in Sydney. This week Melbourne has 979 auctions compared to 710 last week and there are improving conditions for buyers with clearance rates persistently in the low 60’s. Sydney continues to return strong clearance rates and this week there is a rise in auction numbers to 724 from 618. In Adelaide there are twice as many auctions with 115 expected compared to 57 last week. In Brisbane 112 auctions are expected following last week’s 89. There are 27 auctions expected in Canberra, 37 in Perth and 8 in Tasmania. Across Australia the highest volume of auctions will be found in Reservoir and Richmond in Melbourne, both of which have 20 scheduled. In Sydney the highest volume of auctions are in the inner northern suburb of Waverton with 12. Robert Larocca RP Data Housing Market Specialist

RP Data Melbourne market preview; Week ending 18 May, 2014

There are 979 auctions scheduled this weekend in Melbourne compared to 738 for the same time last year. Conditions in the Melbourne auction market continue to be relatively cool. The clearance rate has exceeded 70 per cent only twice so far in 2014 and has been slowly drifting down since that time. As conditions are shifting in favour of buyers at auction the significant lift in volumes this week will prove to be a challenge for the market. Conditions in the private sale market remain tight with the latest time on market monthly data showing a new low for houses. In March the days on market for houses dropped to 35, the lowest on record. Time on market for units reached 37 days highlighting softer conditions in the higher density market as this is higher than the record low of 32 days in May 2010. Key data Preliminary clearance rate week ending 11 May: 61.9 per cent Melbourne auctions expected week ending 18 May: 979 Melbourne private sales time on market week ending 11 May: 38 days houses Melbourne vendor discounting market week ending 11 May: -5.5 per cent houses Listings being prepared for market are 2.5 per cent higher in month ending 11 May seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

The growing gap in the Melbourne market

In recent times the market for houses in Melbourne has outperformed, in terms of value growth, the unit market. In many respects this is due to increased supply and it also signifies a broader structural change in the market. According to the latest RP Data Rismark Home Value Index April results, the value of houses grew by 12.2 per cent over the last year and by 5.4 per cent over the first four months of this year. In comparison, the value of units has grown by 6.8 per cent over the last year and by 0.9 per cent this year. A review of data over the medium term shows that houses have consistently outperformed units in terms of value growth over time. In April the value of a unit was 70 per cent that of a house. A year ago unit values were 74 per cent that of houses and five years ago it was 75 per cent. Interestingly when the index commenced in 1995 unit values were 88 per cent of a house. Over that time unit sales as a proportion of all sales in Melbourne have risen from 28 per cent to 34 per cent. Houses have recorded stronger levels of value growth than units and as a result are becoming comparatively more expensive than units. The change in values and sales numbers is a reflection of a broad structural change in the Melbourne housing market. Over the past decade the number of medium and high density dwellings has grown as a consequence of planning policies, demand from buyers and affordability issues. As Melbourne continues to grow and requires more dwellings, the most efficient way to supply these new dwellings is through higher density homes. The majority of dwelling approvals in Melbourne are now for units as opposed to detached houses and state governments’ over the last decade have made it clear that in order to cater to the city’s growing population there will be more higher density housing. Robert Larocca RP Data Housing Market Specialist

Housing finance data for March 2014

The Australian Bureau of Statistics ABS released housing finance data for March 2014 earlier today. The data showed that the number of owner occupier housing finance commitments fell by -0.9% in March. In value terms, lending to owner occupiers was -1.2% lower over the month and lending to investors was down -0.8%. Looking at the break-down of housing finance commitments by value over-time, you can see that on a 12 month average basis, the greatest proportion of lending over the past year has gone to investors 37.7% followed by: owner occupier subsequent purchasers non-first home buyers 36.7% , refinances by owner occupiers 17.6% and owner occupier first home buyers 7.9% . As the above chart shows, investment lending is at its highest level in a number of years and there has previously only ever been one period where investment lending was greater than lending to subsequent purchasers. The proportion of lending to first home buyers is at a record low, accounting for an average of 7.9% of the value of finance commitments over the 12 months to March 2014. Turning the focus to the monthly data on the number of owner occupier housing finance commitments, as mentioned these were -0.9% lower with refinance commitments down -1.0% and non-refinance commitments falling -0.9%. Despite the monthly fall, as the above chart shows, both refinances and non-refinances are trending higher albeit non-refinances in particular remain well below historic average levels. Over the month, owner occupier housing finance commitments to first home buyers increased by 12.2% which was the largest monthly rise since May 2012. Despite the monthly rise, first home buyer commitments remain slightly lower than a year ago -0.8% . As a proportion of total owner occupier finance commitments, first home buyers accounted for 12.6% of commitments in March, up from 12.5% in February but down from 14.1% in March 2013. The total value of investment housing finance commitments fell by -0.8% in March 2014 however, it has increased by 27.9% year-on-year. As mentioned, the proportion of investment commitments has, on average, been higher than owner occupier subsequent purchases over the past year. In March, investment finance commitments accounted for 39.1% of total finance commitments. The level of investment activity remains at a level which is well above average and of a magnitude not recorded since late in 2003. Although it is hard to bed down any timely and accurate statistics on overseas buyers it is important to note that if foreign buyers are purchasing with funds sourced from abroad, they are not captured in these figures. With the level of investment remaining stubbornly high, it is no wonder that the Reserve Bank continues to repeat its warning that housing in Australia is not a one-way bet. Obviously low mortgage rates coupled with strong value growth, particularly in Sydney and Melbourne is attracting the attention of investors. The potential challenge will be what happens next with investors once value growth slows and mortgage rates rise. The last time we saw investment activity at these levels we also witnessed a marked slowdown in value growth nationally. As an example, in Sydney, values began falling shortly thereafter and values took five and a half years to return to their previous peaks. Investors jumping into the market at this time should definitely bear this in mind. Overall, the monthly read on housing finance data was weak, however, the trend shows that demand for finance is continuing to escalate. In particular, investors and upgraders are really driving the housing market at the moment. However, the level of activity by owner occupiers purchasing homes as opposed to refinancing remains well below average levels. Obviously the rise in investment lending is to some extent restricting the level of lending to owner occupiers.

RP Data national auction review; Week ending 11 May, 2014

The preliminary auction clearance rate* of 67.4 per cent was recorded this week across capital cities compared to 62.3 per cent last week and 65.6 per cent this time last year. Volumes have been lower this week as the market heads into a traditionally quieter time in winter. The higher clearance rate is largely a factor of a stronger Sydney market where a preliminary clearance rate 76.1 per cent was recorded compared to 71.4 per cent last week. The higher national clearance rate does not represent a significant shift in the market and is broadly in line with the trend this year, particularly with the results prior to Easter and Anzac Day. In Melbourne a preliminary clearance rate of 63.4 per cent was recorded compared to 61.9 per cent last week. Last week’s Melbourne clearance rate was the lowest since late 2012 and is running counter to the established trend through the last year and also reflects moderating growth in property values. In Brisbane a preliminary clearance rate of 54.8 per cent was recorded compared to 42.4 per cent last week. Adelaide recorded a clearance rate of 60.5 per cent compared to 62.7 per cent last week. In Canberra a clearance rate of 58.8 per cent was recorded and in Perth there was one auction sale from eight results. In Tasmania there was two sales from three results. Robert Larocca RP Data Housing Market Specialist For further comment or inquiries from the media please call 0409 198 350. *Weighted average

RP Data National Auction Preview; Week ending 11 May, 2014

Auction volumes fell in all capital cities this week with around 1,376 expected compared to 2,053 last week. This change is consistent with last year’s activity as the market moves into the cooler months. Speculation surrounding the Federal Budget announcements next week is unlikely to have an impact on auctions as buyers and sellers generally made the decision to enter the market many weeks ago. Around the country, the largest volume of auctions is in Melbourne where 643 are expected compared to 891 last week. In Sydney, where there has already been 51 per cent more auctions than this time last year, 565 are expected compared to 821 last week. Adelaide is expecting 53 auctions compared to 97 last week. In Brisbane volumes have halved and are down to 70 from 142. In Canberra 31 auctions are scheduled; down from 47 last week while in Perth there are 14 auctions and 11 in Tasmania. Robert Larocca RP Data Housing Market Specialist

Week ending 11 May, 2014

There are 643 auctions scheduled this week in Melbourne compared to 807 this weekend last year. This is a 20 per cent reduction and reflects the record 7 weekends with over 1,000 auctions already held. Last weekends clearance rate was the lowest since late December in 2012. The most popular areas for auctions this weekend are in the inner north where there are 10 in both Pascoe Vale and Preston. Melbourne is currently returning a below average clearance rate when compared to the market nationally and that should translate into better conditions for buyers over the next few months. The lower clearance rate should also indicate to vendors with an auction in the next month the importance of taking current market conditions into account when setting a selling price. Conditions eased slightly in the private sale market with time on market for houses stable at 33 days and vendor discounting still stable at -5.6 per cent. The lowest vendor discount on a suburban basis is in Armadale for units at -2.6 per cent followed by houses in Vermont at -2.7 per cent and houses in Bayswater South at -3 per cent. Key data Clearance rate week ending 4 May: 61.9 per cent Melbourne auctions expected week ending 11 May: 643 Melbourne private sales time on market week ending 4 May: 35 days houses Melbourne vendor discounting market week ending 4 May: -5.6 per cent houses Listings being prepared for market are 7.5 per cent higher in month ending 4 May seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

Highlights from the March 2014 building approvals data

The Australian Bureau of Statistics ABS released dwelling approvals data for March 2014 earlier this week. Although the monthly reading recorded a fall, the trend of the data showed that the number of approvals is continuing to rise. Total dwelling approvals fell by -3.5% seasonally adjusted over the month however, they are still 20.0% higher year-on-year. House approvals fell by -0.5% over the month compared to a much larger -7.5% fall in the more volatile unit category. Year-on-year both houses and units have recorded a significant increase, up 19.1% and 21.3% respectively. The month-to-month index is inherently volatile; as a result we prefer to look at the rolling annual number of approvals. Over the 12 months to March 2013, there were 188,153 dwelling approvals nationally. This was the highest annual number of approvals since the 12 months to January 1995. Annual house approvals outweighed unit approvals with 104,598 and 83,554 approvals respectively. House approvals are at their highest level since April 2011 while unit approvals are currently at an all-time high. With interest rates currently set at low levels, population growth quite high and property values rising, developers are becoming more comfortable in seeking applications for new developments. Of course this is just the approval stage and it will be interesting to see what proportion of these approvals actually make it to commencement in the near-term. Across the individual capital city markets the annual number of approvals is also generally trending higher with record high approvals in some capitals. Following is the annual number of approvals across the capital cities with the annual change in brackets: Sydney 38,436 approvals 35.7% , 42,231 2.7% in Melbourne, 19,566 43.8% in Brisbane, 8,264 36.4% in Adelaide, 24,375 in Perth 45.1% , 770 5.8% in Hobart, 1,637 -23.7% in Darwin and 5,157 27.6% in Canberra. As you can see dwelling approvals are generally trending higher over the past year. In fact dwelling approvals over the year were at a record high level in Sydney and Perth. In Melbourne dwelling approvals are at their highest level since November 2011, Brisbane approvals are at their highest level since July 2004, in Adelaide approvals are at their highest level since August 2011, Hobart approvals are at their highest level since January 2013, Darwin approvals are trending lower and Canberra approvals are at their highest level since February 2012. The other interesting evolution of the market is the ongoing rise in prominence of unit approvals. The number of unit approvals is at a record high in both Sydney and Brisbane. As a proportion of all dwelling approvals, more than 50% of all approvals over the past year have been for units rather than houses in Sydney, Melbourne, Brisbane, Darwin and Canberra. Sydney has consistently approved more units than houses for the past 20 years and both Darwin and Canberra have approved more units than houses consistently since 2010. The rising prominence of unit approvals in Melbourne and Brisbane is a relatively new phenomenon with unit approvals over-taking those of houses in Melbourne from August 2012 and in Brisbane from June 2013. It is encouraging to see that dwelling approvals are trending higher nationally and across most capital cities. This is a desired outcome of low interest rates with the Reserve Bank hoping that a pick-up in dwelling construction can somewhat offset falling mining investment. New dwelling construction also has a significant multiplier effect throughout the economy creating jobs and encouraging additional retail spending. The main challenge will be that in many cities we are seeing an unprecedented level of units approved for construction. Certainly demand for units has risen over recent years however, the pipeline of approvals is at record levels which are not yet tested. Obviously most developments will need a level of presale to trigger finance to commence construction and it will be interesting to see how many of these unit approvals actually make it to construction phase over the coming months and years.

Investors up, first home buyers down in the Melbourne market

A unique and interesting feature of the current housing market in Victoria is not only a rise in investor activity, but the falling numbers of first home buyers. It may be easy to draw the conclusion that investors have forced first home buyers out of the market, however, this is not supported by the data available from the Australian Bureau of Statistics ABS data, rather it indicates a rise in the overall share of all non first home buyers. Analysis of data from the ABS shows that the market share of local investors has been cyclical over the past decade. In the most recent twelve months investors represented 36.1 per cent of the total value of loans in Victoria compared to 34 per cent in the preceding twelve months. In the twelve months ending Feb 2011 – the last rising cycle – the proportion was 37 per cent. A similar rise was also evident in 2007 suggesting that as the market strengthens so too does the level of investor activity rise. Unlike investors the number of first home buyers have shrunk to record lows. In February there were 1,402 dwellings financed for first home buyers in Victoria, a mere 11.7 per cent of the entire number financed. This was lower than in January when they represented 12.7 per cent of the market. In raw terms, this is the lowest since July 1991 when the population of Victoria was also 31 per cent lower than it is today. More first home buyers are staying in rented accommodation or with family. During the last rising cycle, in 2010, there were a higher proportion of both first home buyers and investors. When home values last peaked, in October of 2010, the proportion of first home buyers was 18.2 per cent. Over that year investors were 37 per cent of the market in value terms. If first home buyers were being forced out by investors you would expect there to be a lower proportion in 2010 and 2007, yet this was not the case. Other factors have also changed for first home buyers including the levels of financial assistance. The state government now provides up front financial assistance for new homes only unlike in 2007 and 2010 when it was also available for established homes. And as prices are comparable in real terms with late 2010, there are clearly reasons other than investor activity for first home buyers now being such a small portion of the market. Robert Larocca RP Data Victoria Housing Market Specialist

a wrap of the weekend auction markets: Week ending 4 May 2014

Auction volumes increase while clearance rates dip below the same time last year. After two subdued weeks for auctions, the number of auctions held across the combined capital cities increased this week, with 2,033 capital city properties taken to auction, compared to just 881 over the previous week. The preliminary clearance rate for last week was recorded at 66.3 per cent, having increased from 64.6 per cent the previous week. After an unseasonably strong start to the year, auction clearance rates are showing signs of softening, albeit only by a very small amount. One year ago, there were 1,749 capital city properties taken to auction and the auction clearance rate was recorded at 67.7 per cent. This is the first time so far this year where the current clearance rate has underperformed when compared to the same time one year ago. In Sydney last week, 817 auctions were scheduled and the preliminary clearance rate was recorded at 75.7 per cent, up from 71.3 per cent over the previous week when the auction market was much quieter, with 361 Sydney properties taken to auction. So far this year, Sydney has been the strongest performing auction market in terms of clearance rates and has continuously been stronger when compared to the same week last year, however, this gap is beginning to close, with the current clearance rate more reflective of the clearance rates seen across the city at the same time last year when the market was beginning to strengthen. A preliminary clearance rate of 63.7 per cent was recorded last week in Melbourne from 691 auction results with a total of 878 auctions scheduled across the city. At the same time last year, a clearance rate of 70.4 per cent was recorded from 822 auctions. The total number of auction results will rise to exceed the total from last year but the clearance rate will not. Auction demand for last week matched last month when a clearance rate of 62.3 per cent was recorded. Overall results for April were lower than the 69.4 per cent recorded in March. Much like Melbourne and Sydney, Brisbane recorded an increase in auction volumes last week, with 141 properties taken to auction across the city. The preliminary auction clearance rate for these properties was recorded at 42.5 per cent, down from 49.2 per cent the previous week across just 66 auctions. At the same time last year the Brisbane clearance rate was recorded at 45.1 per cent with 153 properties auctioned over the week. Last week, 98 Adelaide properties were taken to auction, up from 51 over the previous week. Similar to auction volumes, the auction clearance rate increased over the week from 64.4 per cent to 65.6 per cent. At the same time last year, conditions across the auction market were weaker with 92 auctions and a 56.4 per cent clearance rate. If we take a quick look around Australia’s other capital cities and regions performance was varied, much like it is most weeks. In Canberra there were 45 auctions with a clearance rate of 60 per cent, in Perth 40 properties were auctioned and the clearance rate was recorded at 50 per cent, while across the Northern Territory, 11 residential properties were taken to auction and the preliminary clearance rate was recorded at 37.5 per cent. Across Tasmania 14 properties were taken to auction over the week, but at this point RP Data has only collected 5 results, with no successful sales. Currently, RP Data is tracking 1,376 capital city auctions over the coming week. *Melbourne auction commentary provided by Robert Larocca, RP Data’s Victorian Housing Market Specialist

Melbourne home values record small drop in April

Melbourne house values recorded a very minor reduction in April with the latest RP Data Rismark Index results showing a change of -0.4 per cent. Over the last three months they have recorded a 1.7 per cent rise and in the last 12 months there has been a 12.2 per cent rise. The median house price based on settled sales over the last three months is was $615,000. The underlying health of the market is shown by the fact that over the last year only one capital city, Sydney, has recorded a greater rise in house values. At the same time the result should allay concerns that Melbourne was moving into a period of rapid and unsustainable property price growth. There is now a significant gap between units and houses. Unit values recorded a change of -1.6 per cent in April, over the last three months they have risen 0.7 per cent and in the past 12 months the rise is just over half that of houses at 6.8 per cent. Demand in the auction market also fell with a clearance rate in April of 63.8 per cent from 3,176 auctions in Melbourne. In March, which was a record month in terms of volumes, the clearance rate was 69.9 per cent from 5,322 auctions. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 4 May, 2014

There are 851 auctions scheduled this week in Melbourne compared to 822 this weekend last year. It’s interesting to note that the suburbs which have had the highest volume of houses for sale as a proportion of the total number of homes over the past year are found in the Mornington Peninsula. Mount Eliza had 8.6 per cent of its housing stock on the market followed by 7.9 per cent in Mount Martha and in Safety Beach. At the other end of the spectrum is the highly sought after Fitzroy North where a mere 2.6 per cent of houses were on the market. Given the high demand in Fitzroy North there is no doubt that if more homes were on the market they would find sellers. Conditions remain tight in the private sale market with time on market for houses stable at 33 days and vendor discounting also stable at -5.6 per cent. Key data Preliminary clearance rate week ending 20 April: 63 per cent Melbourne auctions expected week ending 4 May: 851 Melbourne private sales time on market week ending 27 April: 33 days houses Melbourne vendor discounting market week ending 27 April: -5.6 per cent houses Listings being prepared for market are 13.5 per cent higher in month ending 27 April seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne suburbs where rents have dropped

In March 2009, the median advertised rent for a house in Melbourne was $379 per week compared to $442 this year. This has equated to a rise of 16.6 per cent over 5 years. Surprisingly there are a number of suburbs where renters have not faced comparable rises and there are even some suburbs where rents have actually dropped. Three of the four suburbs where rents have fallen are growth suburbs; Doreen, Mernda and Sandhurst. These suburbs are unique cases as the supply of homes is very strong resulting in distortion in the data compared to more established areas. In this case it has resulted in reductions in the advertised rent. Advertised rents in Doreen have dropped by 6.4 per cent over 5 years, similar to nearby Mernda which recorded a fall of 5.9 per cent. Sandhurst rents dropped by 2.6 per cent. Rents have also fallen in Ormond and barely changed in Toorak; both suburbs have comparatively expensive houses and this highlights a trend of poor growth in rents in expensive suburbs. With very low yields in the more expensive suburbs investors are more motivated by the strong capital growth that can be found and renters in this price bracket are clearly in a very different market to the majority of renters in Melbourne. Other similar suburbs in the top 20 for low rental growth are Canterbury, Wonga Park, Caulfield, Ashburton and Hawthorn East. This highlights that by targeting certain areas renters can find homes where rents do not continually rise. Robert Larocca RP Data Victoria Housing Market Specialist

a wrap of the weekend auction markets: Week ending 27 April 2014

On the back of low auction volumes, the preliminary auction clearance rate fell to the lowest reading so far this year. Because of the ANZAC day long weekend, for the second week in a row, auction volumes across the combined capital cities were low. A total of 859 auctions were held across the capital cities, compared to 642 the previous week and the preliminary auction clearance rate fell from 65.5 per cent the previous week to 64.0 per cent last week. This is the lowest clearance rate seen so far this year and the lowest clearance rate since June last year. Volumes are expected to ramp up again over the coming week, with RP Data expecting 1,927 auctions to be held across the capital cities. Much like last week, because auction volumes were much lower than usual, we will just provide some key stats to give a wrap up of the auction markets over the week:

Week ending 27 April, 2014

There are 349 auctions scheduled this week in Melbourne. Whilst higher than last weekend volumes are lower than usual due to Anzac Day. RP Data captured 43 auction results across Melbourne last week with 25 successful sales recorded; however, due to the very low volume a clearance rate would not be statistically reliable. The number of active buyers and sellers is clearly higher than it was over the past three years however as first home buyers are at record lows the improved demand is coming from other segments. Data shows that there are a proportionally higher numbers of ‘upgraders’ and ‘investors’ that was the case in the last rising market in 2009. This highlights a fundamental difference to the last few cycles in the market as not only is this one shallower so far but there is a different mix of buyers. Key data Clearance rate week ending 20 April: NA due to low volumes Melbourne auctions expected week ending 27 April: 349 Melbourne private sales time on market week ending 20 April: 33 days houses Melbourne vendor discounting market week ending 20 April: -5.6 per cent houses Listings being prepared for market are 19.4 per cent higher in month ending 20 April seasonally adjusted Robert Larocca RP Data Victoria Housing Market Specialist

Inflation remains contained within the RBAs target range

The Australian Bureau of Statistics ABS released Consumer Price Index figures for the March 2014 quarter earlier today. The data showed that over the first quarter of the year inflation was recorded at 0.6%, down from 0.8% over the final quarter of last year. Over the past year, inflation has been recorded at 2.9%. The Reserve Bank RBA has an annual inflation target of between 2% to 3% over the medium term and although the reading is at the higher end of that band it is still within the range. Interestingly, non-tradable or domestic inflation was outside of the target range at 3.1% but has fallen from 4.2% a year ago. On the other hand, tradable or imported inflation was recorded at 2.6% up from -0.2% a year ago. Turning the focus specifically to housing, the housing component of CPI has increased by 3.6% over the 12 months to March 2014, its lowest annual reading since June 2012. Across the housing sub-categories, new dwelling purchases by owner occupiers rose by 2.4% over the year with relatively tame growth also recorded for: maintenance and repair of the dwelling 2.5% , rents 2.9% and other housing 4.7% . Water and sewerage recorded the greatest annual rise at 10.8% followed by: property rates and charges 7.9% , gas and other household fuels 6.9% , utilities 6.8% and electricity 5.2% . The 2.9% annual increase in rents was the lowest reading since June 2006. Similarly, the 5.2% annual increase in electricity was the lowest annual rise since June 2007. On the other hand, the 10.8% annual increase in water and sewerage was the greatest rise since the 12 months to June 2011. Another important consideration is the impact of inflation on home values. Calculating ‘real’ home values by adjusting the RP Data-Rismark Home value Index for inflation provides valuable insight. As the above chart highlights, once you adjust for the impact of inflation the level of capital growth over the longer term is much lower. In fact, when you adjust for inflation, combined capital city home values peaked in the September 2010 quarter and are still -1.8% lower than that level. Over the 12 months to March 2014, combined capital city home values have increased by 10.6% however, when you adjust for inflation the rise has been a lower 7.5%. Across each city the rate of capital growth over the year is somewhat lower when you adjust for inflation and markets such as Hobart and Canberra which have recorded low levels of value growth have actually recorded value falls. Home values across the combined capital cities are currently 7.2% higher than their previous peak according to the RP Data-Rismark Home Value Index. However, as mentioned above, when values are adjusted for inflation the story is quite different with values -1.8% lower. Across every capital city except for Sydney home values are lower than their previous peak in inflation adjusted terms. Looking at the compound annual rate of value growth over the past five, ten and 15 years in inflation adjusted terms you can see some interesting trends. Sydney home values have increased at an annual rate of 3.6% over the past 5 years, but earlier soft market conditions have resulted in value growth of just 0.4% pa over the past decade. Brisbane home values have fallen at a rate of -2.3% pa over the past five years and over the same period Adelaide home values are -1.0% lower pa, Perth values have fallen by -0.2% pa and Hobart values have declined by -3.1% each year. Over the past decade, Darwin has been the standout performer with values rising by 5.9% pa and the weakest market has been Hobart where values have fallen at a rate of -0.1% each year. With mortgage rates at such low levels and the 10 years of no ‘real’ growth in Sydney home values it goes some way to explaining the rising demand and surging home values. Melbourne is also seeing strong capital growth but when compared to Sydney has been a much stronger capital growth performer over the past decade. Despite a weak five years in terms of capital growth we are yet to really see the housing market heat up in Brisbane and Adelaide. In Perth the housing market was strong early in this growth phase however; capital growth is now fading despite the fact that values are still lower in real terms than they were 5 years ago.

a wrap of the weekend auction markets: Week ending 20 April 2014

Long weekend and a rest across the auction markets. Auction volumes fell by over 80 per cent over the week which had been predicted in advance given that over the past five years we have consistently seen a sharp drop in auction volumes over the Easter weekend, this only being heightened by Anzac day falling on the following Friday. There were 625 auctions held across the capital cities last week and currently, RP Data is only expecting 799 over the coming week. Based on this week’s low volumes, we won’t look at each of the capital city auction markets in the same way that we usually do, but here are some key stats from last week that provide a good summary.

RP Data Pain and Gain Report has lessons for property investment

The recently released RP Data Pain and Gain report shows some of the keys to gaining a good return on residential property by analysing the sales outcomes from thousands of resales; the sale price is compared with the original purchase price and the profit or lack of made by the seller is then calculated and takes into account the time taken to achieve a result.. Sellers and buyers of property also face transactional costs such as taxes that need to be taken into account when this information is applied to a single property. The most important factor here is the time the property is held. Short-term property ownership – flicking as it is sometimes known – is clearly a high risk strategy. The report shows that even in a year where we’ve seen price rises, 12.8 per cent of all owners who purchased and sold in the same year made a loss. Australia-wide, 55.1 per cent of those owned for between 10 and 15 years sold for at least double the original purchase price. Within Melbourne, the results across Council areas make this clearer. Only 6 per cent of homes resold in the December quarter returned a loss. As an example,this was higher in growth suburbs such as in the City of Whittlesea where 14.2 per cent of resales recorded a loss and the average hold period was a mere 3 years. In contrast the average hold periods to return a profit were between 8 and 13 years; for instance in the City of Monash 97.3 per cent of resales returned an average profit of $394,250 with an average hold period of 12.9 years. Another strong point of interest in the report is the importance of timing;the property market is cyclical so those who buy at the peak of the market must ensure they are not selling at the following trough as shown by the fact that homes purchased after January 1st, 2008, had a higher propensity to return a loss. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 20 April, 2014

There are 49 auctions scheduled this week in Melbourne; the total volume of auctions is affected by the upcoming Easter and Anzac Day public holidays. The lower volume of auctions does not reflect the broader level of supply with overall volumes continuing to rise. The high level of supply is having an impact on prices with a slight depreciation being recorded so far this month in the Melbourne Home Price Index. The key issue for the Melbourne property market after Anzac Day will be the supply of homes. The RP Data Mortgage market activity shows that so far, the number of buyers has risen to match the higher levels of supply with mortgage activity events higher than a month ago in Victoria. As activity is generally reduced over winter the high level of supply will be a challenge for the market. Key data Clearance rate week ending 13 April: 64.4 per cent Melbourne auctions expected week ending 20 April: 49 Melbourne private sales time on market week ending 13 April: 34 days houses Melbourne vendor discounting market week ending 13 April: -5.6 per cent houses Listings being prepared for market are 3.5 per cent higher in month ending 13 April Robert Larocca RP Data Victoria Housing Market Specialist

First home buyers in Victoria the lowest in 23 years

From a first home buyer perspective, there is something very wrong with the housing market in Victoria. In February, the most recent data available from the Australian Bureau of Statistics ABS showed that the total number of dwellings financed for first home buyers had sunk to a 23 year low. In February there were 1,402 dwellings financed for first home buyers which represented a mere 11.76 per cent of the entire number financed. This was lower than in January when first home buyers represented 12.7 per cent of the market and the lowest in raw terms since July 1991 when the population of Victoria was 31 per cent less than it is today. The reasons behind this result are debatable. Some will say that the causes are high property prices, but this alone is not borne out by the data. When home values last peaked, in October of 2010, the proportion of first home buyers was 18.2 per cent. In real terms, prices are not significantly different at this point which suggests that the problem is not entirely the price. Others point to the fact that rents are not rising and suggest that intending first home buyers prefer to rent. Another perspective is that the change to financial assistance for first home buyers has caused many to not enter the market. At the same time as the large step down in the proportion of first home buyers occurred in the middle of last year, the $7,000 First Home Buyer Grant for established homes came to an end. This alone cannot be the only issue as at the same time stamp duty was being progressively lowered for first home buyers. The reasoning for this change in the market is probably a combination of all issues mentioned and if the market remains this way, it will represent a significant structural change in the local housing market. Robert Larocca RP Data Victoria Housing Market Specialist

Our capital city population is booming but the supply side not so much

The Australian Bureau of Statistics has recently released demographic data at a capital city level to June 2013. We have previously covered the population data on this blog however, when the data is paired with dwelling approvals data over the same period there are some very interesting findings. Over the 12 months to June 2013, the population of the combined capital cities increased by a total of 313,387 persons. At the same time, there were 114,825 capital city dwelling approvals over the period. Based purely on the ratio of population growth to dwelling approvals, there was 1 dwelling approved for construction for every 2.73 residents added to the capital cities. At a national level, the 2011 Census reported that average people per household at that time was 2.6 persons. Based on that figure you can see that population growth has exceeded dwelling approvals over the past year. Of course measuring demand for housing is not quite so simple. Although it is a bit old now, the former Deputy Governor of the Reserve Bank RBA gave a speech entitled ‘Housing and the Economy’ to the National Housing Conference in November 2009 which is available here. In the speech he posed the question, ‘Are we building enough dwellings?’ Two of the most interesting revelations from the speech were: A higher proportion of the new dwellings built are simply replacing existing homes that have been demolished. The RBA estimated that between 2001 and 2006, around 15% of new dwellings built replaced those that had been demolished; 10-15 years earlier that figure was less than 10%. A significant proportion of dwelling investment appears to have gone into holiday homes or second homes. Census data 2006 Census shows that the number of dwellings built has exceeded the increase in the number of households by a large margin. As a result, the ratio of the number of dwellings to the number of households has been rising over time; as at 2006, there were 8% more dwellings in Australia than there were households. Presumably, most of this surplus reflects holiday houses and second houses. So at a national level, the Former Deputy Governor’s speech suggested that in order to cater to dwelling replacements and secondary homes we need to construct 23% more dwellings than the previous simplistic analysis of measuring the rate of population growth compared to approvals. Also keep in mind here that we are looking at approvals, they won’t necessarily all go on to become commencements and ultimately completions. An assumption we could make here is that, holiday and second homes are generally more likely to be situated outside rather than inside a capital city. As a result, the second revelation detailed above is probably not going to have as much of an impact at a capital city level. Nevertheless we still have to allow for the 15% of homes which have been demolished when looking at the approvals data. Across individual capital cities, the 2011 Census reported that on average; Sydney, Brisbane and Darwin had 2.7 persons per household, Melbourne, Perth and the Australian Capital Territory had 2.6 persons per household and Adelaide and Hobart had 2.4 persons per household. Returning to the original findings, over the year to June 2013, the capital city population increased by 313,387 persons and 114,825 dwellings were approved for construction. If we adjust for average household sizes as per the 2011 Census, to match population growth there would have ideally been a slightly higher 119,135 approvals over the year. If we then further adjust for the assumption that we should approve 15% more homes to replace demolitions, there should have been 137,005 dwellings approved for construction last year, a shortfall of 22,180 capital city approvals. As the above chart shows, the supply of new dwelling approvals was generally quite sufficient through the 1990s however, throughout the 2000’s new dwelling approvals have been insufficient in relation to the level of population growth. We are now seeing rising dwelling approvals on the back of escalating housing demand and rising home values which is encouraging however, it will have to continue for many years to make up for the insufficient supply response over the past decade or so. In Sydney and Melbourne, there was one home approved for every 2.72 and 2.48 new residents respectively indicating a level of supply closer to equilibrium with demand over the most recent year. New supply remains very much insufficient in Brisbane and Perth where 1 new home was approved for every 3.26 new residents in Brisbane and 3.45 new residents in Perth. The following charts track the annual population growth and the annual number of dwelling approvals across each capital city. As the above charts show, the disconnect between the level of population growth and dwelling approvals over the past decade have been greatest within our largest capital cities. It is no coincidence that these cities are also the regions that have been recording the greatest increase in population over this period. A further important consideration when looking at the relationship between population growth and dwelling approvals is the type of product that is being developed for the market. While the city-wide analysis is valuable new housing typically comes in the form of new houses on the outskirts of the city or medium to high density product within the inner city areas. Over time, we are seeing a shift away from greenfield housing development in most capital cities towards infill higher density development. Over the year to June 1991, 29.9% of all new dwelling approvals across the combined capital cities were for units as opposed to houses. In June 2013, 49.7% of all dwelling approvals over the year were for units. Over the year, there were more units than houses approved for construction in Sydney 66.1% , Melbourne 52.7% , Brisbane 50.1% , Darwin 64.5% and Canberra 54.9% . The unit category type includes townhouses and semi-detached homes as well as units. The 2011 Census reported that across the separate house category, the most prevalent number of bedrooms is 3 bedrooms 49.6% and 4 bedrooms 32.4% . When you combine the results for semi-detached and units the most prevalent number of bedrooms is 2 bedrooms 50.1% and three bedrooms 28.6% . To look at it another way, 88.8% of detached houses have three bedrooms or more compared to 66.9% of units having 2 bedrooms or fewer. The point here is that if you are going to deliver more units to the market, they typically have fewer bedrooms and therefore are likely to have a smaller average household size than a detached house would. As a result, it is likely that as the delivery of units increases there actually needs to be a greater number of units constructed in order to cater for population growth than there would have been if houses were exclusively built. It is clear for the analysis that particularly within the four largest capital cities there has been a growing deficiency of dwellings approved for construction over recent years when compared to population growth. Over the past 12 to 18 months there has been a noticeable rise in dwelling approvals however they will have to continue to rise over coming years to make up for the deficiency over recent years. Particularly in Sydney, Melbourne and Brisbane we are seeing a push to greater density in the inner city areas. So how do we fix the supply side problems? There are many solutions but I think in the main we need to approve new developments faster, increase developable land both in the inner city and within greenfield areas and reduce the costs of new development to the developer because these costs are ultimately passed on to consumers. Remember that developers are commercial entities looking to make the best possible returns for shareholders. Maybe it is time to look at ways that we can incentivise developers to bring vacant land to the market quicker rather than land banking land and drip-feeding it to the market. Whether that be an additional tax on undeveloped land or some sort of financial incentive to bring stock to the market I am not sure but it is clear that particularly within the major capital cities the current conditions are not working and finding a way to increase the supply of new dwellings is imperative.

a wrap of the weekend auction markets: Week ending 13 April 2014

Auction volumes high across the capital cities, with Sydney breaking all time record. There were a total of 3,491 capital city auctions held across Australia last week, up from 2,692 over the previous week. With auction volumes at the highest levels seen so far this year, clearance rates increased from 66.2 per cent over the previous week to 68.9 per cent last week with Sydney driving the strong clearance rate. As mentioned a couple of weeks ago, we had expected auction volumes to peak before the Easter break as the next couple of weeks are likely to be pretty quiet on the auction front. At the same time last year, the final auction clearance rate was recorded at 61.8% with 1,410 capital city properties having been taken to auction. There were 1,471 auctions held across Sydney last week, which means auction volumes have risen by nearly 30 per cent when compared to the previous week when there were 1,137 Sydney auctions. Despite this jump in auction volumes, the total number of auctions in Sydney was slightly less than in Melbourne over the week; however it was a record high for the city. Sydney’s preliminary clearance rate was resilient last week, despite the increased volumes, recorded at a sturdy 78.5 per cent, compared to 73.2 per cent over the previous week and just 67.2 per cent at the same time last year, when there were 529 auctions held across the city. At this stage, we expect just 392 Sydney auctions to be held over the coming week, with most of these occurring prior to Friday. A preliminary clearance rate of 64.2 per cent was recorded last week in Melbourne from 1,143 auction results compared to 63.6 per cent recorded the previous week and 66.5 per cent at the same time last year. This weekend brings to a close the busiest first quarter for auctions in the city’s history. Compared to this time last year there have been 58 per cent more auctions held. For the next two weeks the market will see significantly reduced volumes with Easter and Anzac Day causing many vendors to have already had their auctions or wait. In terms of an increase in auction volumes over the week, Brisbane was the stand out last week, with auction volumes almost doubling. There were 236 residential properties taken to auction in Brisbane last week and the preliminary auction clearance rate was recorded at 45.7 per cent, compared to a final auction clearance rate of 52.8 per cent over the previous week when there were 123 Brisbane auctions. At the same time last year, just fewer than 100 auctions were held across the city and the clearance rate for the week was recorded at a 36.4 per cent. Last week was the second week so far this year where there have been more than 230 Brisbane auctions over the week. To put that into perspective, the average number of weekly auctions held over 2013 was 137, while so far this year, there has been an average of just under 150 auctions per week. Adelaide’s preliminary clearance rate for last week was recorded at a strong 73.8 per cent, up from 62.1 per cent over the previous week. Much like most of the other concentrated auction markets, Adelaide saw volumes increase over the week from 98 to 144. At the same time last year, Adelaide’s clearance rate was a lower 47.4 per cent across the 63 properties that were taken to auction. Despite the overall increase in auction volumes over the week, there were three cities Canberra, Darwin and Hobart where the number of properties taken to auction last week was actually lower than the preceding week. Taking a quick look around the cities, Perth’s clearance rate was almost unchanged last week at 33.3 per cent across 55 auctions, Hobart saw a clearance rate of 50.0 per cent with 16 auctions held across the city, Canberra had 50 auctions and a preliminary clearance rate of 65.5 per cent and so far, one Darwin property has been reported as having successfully sold at auction. RP Data is tracking just 590 auctions over the coming week with many of these auctions just over 500 scheduled prior to the Easter weekend. *Melbourne auction commentary provided by Robert Larocca, RP Data’s Victorian Housing Market Specialist

Week ending 13 April, 2014

There are 1,412 auctions scheduled this week in Melbourne compared to 626 this time last year. With 1,400 also scheduled in Sydney this weekend will provide a rare opportunity to compare the two capital city auction markets. The unprecedented increase in the number of auctions is part of a wider rise in homes on the market over the last month. There are now 22 per cent more new listings compared to last year across Victoria which ensures a high level of choice for buyers. This high level of volumes should also keep the clearance rate in the mid 60′s. In the month ending 6 April, there were 60,820 homes on the market in Victoria of which 33,209 were in Melbourne. The total number of homes on the market is reducing due to the higher number of buyers compared to a year ago. This is also evident in the level of vendor discounting recorded for homes for private sale. Vendor discounting for houses was 6.1 per cent compared to 6.7 per cent in February a year ago. Key data Clearance rate week ending 6 April: 63.6 per cent Melbourne auctions expected week ending 13 April: 1412 Melbourne private sales time on market week ending 6 April: 34 days houses Melbourne vendor discounting market week ending 6 April: -5.5 per cent houses Robert Larocca RP Data Victoria Housing Market Specialist

Housing finance data for February 2014

Housing finance data for February 2014 was released early today by the Australian Bureau of Statistics ABS . The data showed that over the month there were 52,460 owner occupier housing finance commitments. The number of owner occupier housing finance commitments was at its highest level since October 2009 over the month. Owner occupier housing finance commitments increased by 2.3% over the month and 13.8% year-on-year. Owner occupier housing finance commitments are split into refinance commitments and non-refinance commitments. Refinance commitments have increased by 6.0% over the month and 15.8% higher over the year. Non-refinance commitments rose by 0.6% over the month and by 12.9% over the year. Refinance commitments are currently at their highest level since April 2008. Looking at the value of housing finance commitments, owner occupier non-refinance commitments are up 0.3% over the month, owner occupier refinance commitments are 6.0% higher and refinance commitments are 4.4% higher. On a year-on-year basis, owner occupier non-refinance commitments have increased by 17.5%, owner occupier refinance commitments are 27.9% higher and investment finance commitments are 32.3% higher. As a proportion of all housing finance commitments over the month, owner occupier non-refinance commitments accounted for 43.4% of lending, investment commitments accounted for 38.8% of lending and owner occupier refinance commitments accounted for 17.8%. As the chart shows, the proportion of lending to investors is high on an historical basis and remains at their highest levels since late 2003. As a proportion of all lending to owner occupiers, first home buyers continue to show a relatively small level of market participation. In February 2014, first home buyers accounted for 12.5% of all lending to owner occupiers. The 12.5% was down from 13.2% in January 2014 and also down from 14.4% at the same time in 2013. Although the proportion of lending to first home buyers is lower, the number of first home buyer loans was 0.6% higher over the month but -1.5% lower year-on-year. The RP Data Mortgage Index RMI shows a strong correlation with the ABS owner occupier housing finance commitments data. The benefit of the RMI is that it is a more timely indicator of finance commitments produced each week. At the end of March 2014 the index had recorded a further increase in activity indicating that the housing finance data results for March 2014 when released in a month’s time are likely to show a further rise in owner occupier housing finance commitments.

Private sale market in Melbourne continues to tighten

The weekly auction market may capture the attention of many but just under 70 per cent of all homes in Melbourne are sold at private sale. While this market segment may not have a convenient weekly statistic that summarises the level of demand and supply, other data in RP Data’s suite of information supports a similar role. RP Data calculates the time on market for homes for sale at private sale and also the level of vendor discounting. These statistics are available at a metropolitan, council and suburb level. For the purposes of a broad market indicator, the metropolitan wide numbers are the most stable and reliable in a statistical sense. The most recent time on market data is for the month of February. It showed that the average time between advertising and the contract of sale being signed was 57 days for houses and 65 for units in Melbourne. For the housing market, this is considerably stronger than last year when it was 72 days, however, the unit market is showing the impact of high levels of new supply as it is now longer than a twelve months when it appeared as 60 days. As new listings are almost one third higher than this time last year, the current numbers paint a picture of a remarkably healthy market. It also reflects the fact that vendor discounting is also lower at -6.1 per cent for houses compared to -6.7 per cent a year ago and -5.8 per cent compared to -6.5 per cent for units. This data shows that conditions present in the auction market are also apparent in the private sale across Melbourne. Robert Larocca RP Data Victoria Housing Market Specialist

a wrap of the weekend auction markets: Week ending 6 April 2014

Melbourne’s preliminary clearance rate falls to the lowest reading so far this year. There were 2,669 auctions held across the combined capital cities last week, having fallen from 3,039 over the previous week. While volumes were down when compared to the previous week, it is expected that this coming week will change that with auction volumes set to rise by 23 per cent. Last week the preliminary auction clearance rate was recorded at 67.3 per cent across the capital cities, compared to a final auction clearance rate of 67.7 per cent the previous week. At the same time last year, there were 1,308 capital city auctions and the final auction clearance rate was recorded at 61.7 per cent. In similar fashion to previous weeks, Sydney has recorded the strongest capital city auction clearance rate at 75.4 per cent based on preliminary collection. There were 1,124 auctions held across the city last week, compared to 1,163 the previous week when the final auction clearance rate was recorded at 75.9 per cent. It is probably a good time to make mention of the fact that we have noticed over the past few weeks that we are seeing some downward revision each week when Sydney’s final results are being calculated. This is more than likely due to the reporting culture of auctions, where agents hold off on reporting their successful auction until they can confirm that no after auction result has been obtained. Over the same week last year, there were 528 Sydney properties taken to auction with 66.4 per cent of these recording a successful result. While Sydney’s auction market showed significant strength over the first quarter of 2014, it is interesting to see that this aligned with overall market performance. According to the RP Data-Rismark Daily Home Value Index, Sydney dwelling values increased by 4.4 per cent over the March 2014 quarter. Based on the most recent weekly update, across the private treaty market, Sydney homes are currently selling at the fastest rate of any capital city. For Melbourne there were 1,204 auctions across the city last week with a preliminary clearance rate of 63.4 per cent recorded from 960 auction results compared to 66.9 per cent recorded last weekend and 63.2 per cent this weekend last year. Over March 2014 the clearance rate was 69.9 per cent from 5,322 auctions. House and unit values are definitely rising but the high auction volumes are continuing to provide buyers with increased opportunity which is also likely contributing to a lower clearance rates as buyers have a greater number of auction properties to choose from. Last week across the Brisbane auction market we saw conditions improve with the preliminary auction clearance rate recorded at 57.9 per cent, with 122 Brisbane auctions held over the week. Despite the strengthening clearance rate, last week was a sharp fall in Brisbane auction volumes after the busy week prior when there were 238 auctions held and a clearance rate of 47.1 per cent, however, over the coming week volumes are set to ramp up again, with 218 Brisbane auction scheduled so far. When we look at the Brisbane auction market at the same time last year, there were significantly less auctions 92 while the clearance rate was recorded at 49.3 per cent, which is generally on par with the current market performance. There were 98 Adelaide properties taken to auction last week, with the preliminary clearance rate coming in at 67.3 per cent, compared to the previous week when the final clearance rate was recorded at 55.6 per cent across 107 auctions. At the same time last year, there were 54 Adelaide properties auctioned over the week, with half of the properties recording a successful result at the time of reporting. Once again, auction activity across the other capital cities was much more subdued and again, results were mixed. There were 33 auctions held in Perth last week and the preliminary clearance rate was recorded at 26.7 per cent. Across Hobart, 22 properties went to auction with a clearance rate of 50.0 per cent and a 43.8 per cent clearance rate in Canberra across 66 auctions. There were 8 auctions held in Darwin last week and so far RP Data has captured a result for 5 of these auctions. At this point, no successful results have been recorded. There are currently 3,271 auctions being tracked by RP Data over the coming week, in what is set to be a busy week leading up to Easter. *Melbourne auction commentary provided by Robert Larocca, RP Data’s Victorian Housing Market Specialist

Week ending 6 April, 2014

There are twice as many auctions this week as there was this time last year. This week RP Data is expecting 1,120 auctions in Melbourne compared to only 554 this time last year. Last weeks result showed that increased stock numbers at auction and in the market generally are having an impact with a comparatively low clearance rate recorded. The increased stock numbers should be welcomed by buyers as it acts to moderate price growth in what is an otherwise tight market. Key data Preliminary clearance rate week ending 30 March: 66.9 per cent Melbourne auctions expected week ending 6 April: 1,120 Melbourne private sales time on market week ending 30 March: 35 days houses Melbourne vendor discounting market week ending 30 March: -5.5 per cent houses Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne home value growth tops the nation

Melbourne property values have increased in March as demand strengthened leading to the largest rise of all capital cities over the first quarter of 2014. The Melbourne property market has now moved from recovery into a growth phase. This has been welcomed by the increasing number of vendors who are now more likely to see reserves at auction surpassed and lower level of discounting in private sales. The March release of the RP Data-Rismark Home Value Index showed that house values in Melbourne rose by 2.3 per cent over the month and unit prices increased by 1.9 per cent. Over the first quarter of the year house value growth outstripped units rising 5.8 per cent compared to 2.5 per cent. Total listings of residential property are falling whilst new listings are rising strongly – 32 per cent in last month, highlighting the strong levels of demand. This is also evident in the more expensive auction segment. In raw terms the Melbourne has seen record volumes of residential auctions this March with around 5,300 being held. This surpassed the previous high in the past five years of 3,600 in 2012. Comparing this month in previous years is difficult due to Easter and some months having 5 weekends. After taking all the various and moveable holidays over March into account there is no doubt the Melbourne market has seen a surge in the number of auctions, surpassing last year by 28 per cent. This is less of a change in volume than between 2009 and 2010 but is still highly significant. The preliminary clearance rate for March was 69.5 per cent, a healthy result in light of the stock levels. This is consistent that recorded in December last year. Robert Larocca RP Data Victoria Housing Market Specialist

Housing market is absorbing new supply faster than it is being added

The number of unique residential properties advertised for sale across the country over the four weeks to 30 March 2014 was recorded at 243,941. This figure consists of 47,805 newly listed properties over the four weeks and 196,136 re-listed properties. As highlighted by the RP Data listings index, there has been a surge in the number of new properties listed for sale and they are 18.9% higher than they were at the same time a year ago. Although new listings have surged, total properties advertised for sale are -3.8% lower than they were a year ago which is reflective of the rapid rate of sale we are seeing nationally. Although new listings are way up on a year ago, the rate of sale is much faster and total listings are falling. To put it simply, properties are being absorbed by the market faster than they are being listed for sale. Looking at the different residential property types; new listings for houses are 20.2% higher than they were a year ago however, total house listings are -4.5% lower. New unit listings are also significantly higher, up 22.6% while total unit listings are -5.1% lower. New vacant land listings are -5.4% lower than they were a year ago however, total listings are 2.1% higher. Looking across the individual capital cities, each region except for Canberra -12.0% is recording a higher number of new properties listed for sale than they were a year ago. Sydney and Melbourne, which are also recording the strongest capital growth conditions, have recorded the largest rise in new listings over the year, up 49.7% and 32.0% respectively compared with a year ago. Clearly new properties are coming to the market in both cities however, evidence suggests that most are selling quite shortly after the listing. Although new capital city property listings are generally higher than they were a year ago, total listings are generally much lower than they were a year ago. Across the combined capital cities total listings are -8.3% lower than they were a year ago and each city except Hobart 3.3% and Darwin 25.2% is recording fewer total listings. Although both Sydney and Melbourne are each recording fewer total properties advertised for sale than a year ago, it is interesting to note that total listings in Melbourne 33,144 are significantly higher than in Sydney 22,423 . It is encouraging to see that a greater number of new residential properties are coming to the market than at the same time last year however, it is important to remember that in most regions sales transactions are much higher than they were a year ago. Clearly buyer demand has escalated and quality properties are not staying on the market for a long period of time which is highlighted by the fact that total listings both at a national and capital city level are lower than they were a year ago.

a wrap of the weekend auction markets: Week ending 30 March 2014

Clearance rates slip while the capital cities see the highest auction volumes so far this year. Last week was the busiest week so far this year for capital city auctions, with 3,009 properties taken to auction, increasing from 2,466 over the previous week. Although auction volumes increased across the capital cities last week, the same cannot be said for the auction clearance rate, which fell slightly over the week, down from a final clearance rate of 69.4 per cent the previous week to a preliminary 68.8 per cent. It is expected that the next two weeks will be busy across each of the major capital city auction markets in preparation for a slow down around Easter and Anzac Day, with two consecutive long weekends in a row. To put the ‘slow down’ into perspective, over Easter weekend last year, there were only 547 capital city auctions, down from 2,649 the previous week, and the clearance rate fell from 64.1 per cent the week prior to 58.7 per cent over the Easter weekend. So far this year, Sydney has consistently been the strongest performing auction market in terms of clearance rates. This week was no different, with the preliminary auction clearance rate for Sydney recorded at 79.5 per cent, up from 76.1 per cent over the previous week. There were 1,151 auctions held in Sydney this week, the third time this year where auction volumes have been above 1,000 across the city. At the end of last year, Sydney was consistently recording 1,000 plus auctions on a week-to-week basis throughout November and leading up to Christmas. With the RP Data-Rismark end of month figures out tomorrow, it is fair to say that it has been a strong month across the Sydney property market. A preliminary clearance rate of 65.9 per cent was recorded across Melbourne this weekend from 1,121 auction results compared to 69.4 per cent recorded last weekend. This is the lowest clearance rate this year, but is consistent with the middle of December last year when there were 1,616 auctions. Last weekend’s result reflects the high volumes where this month, there has been an average of around 1,060 auctions per week. This is a record high for auction volumes in March and has provided buyers with a very high level of choice. For this year, there has been 5 weeks so far where more than 1,000 properties have been taken to auction, compared to just 2 weeks at the same time last year. Brisbane recorded a rise in auction clearance rates this week, with the preliminary clearance recorded at 45.5 per cent, compared to 37.3 per cent over the previous week. The number of residential Brisbane properties taken to auction last week was much higher than the previous week and much higher than anything we have seen so far this year. There were 237 auctions across Brisbane last week, compared to 130 the previous week. So far this year, the average number of properties being taken to auction in Brisbane is around 16 per cent higher than in 2013. There were 107 Adelaide properties taken to auction last week, with a preliminary auction clearance rate of 62.9 per cent. Over the previous week, Adelaide’s final auction clearance rate was recorded at 58.8 per cent, with 80 properties taken to auction over the week. For the smaller auction markets of Perth, Hobart, Canberra and Darwin, results were mixed over the week. There were 54 auctions held in Perth, with a preliminary clearance rate of 45.0 per cent, 11 auctions held across Hobart with a clearance rate of 25 per cent, 50 Canberra auction with a clearance rate of 60.0 per cent and finally, Darwin had a preliminary clearance rate of 40 per cent, with just 9 auctions held across the city. RP Data is currently tracking 2,491 capital city properties going to auction for the coming week. *Melbourne auction commentary provided by Robert Larocca, RP Data’s Victorian Housing Market Specialist

Analysis of the ABS Demographic Data release for September 2013

Today the Australian Bureau of Statistics ABS released its quarterly demographic statistics for September 2013. Unfortunately this data set has a significant reporting lag nevertheless it is still a valuable regular release. Over the September 2013 quarter, the national population increased by 100,556 persons or by 0.4%. Throughout the 12 months to September 2013, the national population has increased by 1.8% from 22.8 million persons to 23.2 million persons 405,446 new residents . Looking at the components of national population growth, natural increase or births minus deaths was recorded at 164,428 persons over the past year and was 2.9% higher compared to September 2012. In fact, the rate of natural increase is now at a record high level. The other component of population growth at a national level is net overseas migration. Over the 12 months to September 2013, there were 241,018 net overseas migrants; the figure was 1.0% higher than over the previous year. Although net overseas migration was higher over the year, it actually fell compared to June 2013. Looking across the individual states, population growth over the 12 months to September 2013 was greatest in Victoria 110,537 , New South Wales 108,067 , Queensland 83,737 and Western Australia 76,346 . These four states accounted for 93.4% of total population growth over the year. Annual population growth for New South Wales was at its highest level since June 2009 110,294 , in Victoria growth was at its highest level since September 2009 while in Queensland and Western Australia population growth was lower than in June 2013 88,598 and 81,327 respectively . Looking at the rate of population growth over the year, it was fastest in Western Australia 3.1% , Victoria 2.0% and Queensland and the Northern Territory both 1.8% . At 1.5%, New South Wales’ rate of population growth was at its highest level since September 2009 and in Victoria population growth was at its highest level since December 2009. While the rate of population growth is accelerating in New South Wales and Victoria it is slowing or stable across all other states. Most notably, the rate of population growth in Queensland is at its slowest pace since September 2011 and in Western Australia it is at its slowest pace since December 2011. The Australian Capital Territory has also been recording strong population growth recently however, the 1.6% growth over the past year is the slowest rate of growth since December 2006. The data indicates that population growth is escalating into the two most populous states, New South Wales and Victoria, which, perhaps not so incidentally, are also showing the strongest housing market conditions. In each other state and territory the rate of population growth is generally waning. Overseas migration may have also peaked which is no surprise given that the mining investment peak may have already or is expected to shortly pass. We believe that population growth will remain at high levels on an historic basis however, it would not surprise us to see the rate of growth slow further over the coming quarters.

Week ending 30 March, 2014

This week RP Data is expecting 1,320 auctions in Melbourne. This weekend last year was during Easter so does not provide a useful comparison. This is the third week in a row with over 1,000 auctions and that is unprecedented in Melbourne. The highest volume of auctions is in Reservoir with 26 followed by St Kilda with 23 and Armadale with 21. All current indicators show signs of a market that is picking up strength with volumes increasing, days on market is falling and vendor discounting reducing. Over the last week the measure of days on market for a house to sell at private sale has dropped from 37 to 35 days in Melbourne. Strengthening demand also leads to vendors at private sale discounting from their advertised price to a lessor degree – this has dropped from -5.5 to -5.4 per cent over the last week. These market indicators can prove to be volatile on a weekly basis but the trend is clear and is likely to be confirmed in increased values when the RP Data home price index is released in the next week. Key data Clearance rate week ending 23 March: 69.4 per cent Melbourne auctions expected week ending 30 March: 1,320 Melbourne private sales time on market week ending 23 March: 35 days houses Melbourne vendor discounting market week ending 23 March: -5.4 per cent houses Listings being prepared for market are 13.1 per cent higher in month ending 23 March Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne’s highest gross rental yields by distance from the city

Investors are always seeking locations and property types that can deliver the highest returns on their investment. In this analysis RP Data highlights some interesting outcomes in Melbourne. Those suburbs within a 10kms radius of the Melbourne CBD with the highest yield for houses were Brunswick East and St Kilda East. Both suburbs returned a gross rental yield of 4 per cent. This compares favourably to the citywide yield for houses of 3.4 per cent in February. In the middle ring of suburbs, from 10 to 20kms from the CBD the highest yields were recorded in Dallas of 5.6 per cent. In the outer suburbs Melton South recorded a yield of 5.6 per cent. It is interesting to note that similar yields are available in the middle and outer suburbs and they are much higher than is found in the inner city. Investors looking for yield are really faced with a choice between the inner city and the rest of Melbourne. There is much greater disparity in the unit market. The highest yield within 10kms of the CBD was in the suburb of Melbourne at 5.8 per cent. In the middle suburbs Macleod was well ahead of all others at 7.3 per cent. In the outer suburbs Melton recorded the highest yield of 6.3 per cent. The rule of thumb for investors in the detached houses segment does not hold in the unit market where higher yields can be found in a wider diversity of locations. Robert Larocca RP Data Victoria Housing Market Specialist

a wrap of the weekend auction markets: Week ending 23 March 2014

National auction clearance rates recorded above the 70 per cent mark for the sixth week in a row. Over the week, auction volumes remained relatively steady, with 2,431 capital city properties taken to auction, increasing only slightly from 2,293 the previous week. Meanwhile, the weighted auction clearance rate across the combined capital cities improved slightly over the week, up from 70.8 per cent the week prior to 71.2 per cent last week. Unlike the previous week, the performance across Melbourne and Sydney was more aligned last week, with both cities recording a strong clearance rate. At the same time last year, auction volumes were at elevated levels as it was the week prior to the Easter long weekend. Traditionally, the number of auctions that take place over this week each year increases by around 25 per cent when compared to the week prior, last year however, volumes increased by over 40 per cent leading up to the Easter weekend. Despite the high volume of auctions held the week before Easter last year 2,649 , the auction clearance rate was recorded at 64.1 per cent, which is much lower than we are currently seeing. There were 963 residential Sydney properties taken to auction over the week and the preliminary auction clearance rate was recorded at 77.9 per cent, compared to a 79.8 per cent clearance rate across 868 auctions over the previous week. When we look at the Sydney auction market at the same time last year, auction volumes were lower 912 and a lower proportion of homes were selling successfully under auction conditions 68.6 per cent . These results highlight just how strong current conditions are across the city. In line with the strong auction performance, Sydney home values over the past year have increased by 14.9 per cent, reinstating the strong performance of the Sydney housing market. Across Melbourne, a preliminary clearance rate of 71.7 per cent was recorded last week from 895 auction results compared to 67.0 per cent recorded both last weekend and this time last year. At the same time last year, there were slightly more auctions held across Melbourne 1,294 compared to the 1,149 held this week, and a marginally lower clearance rate. Currently, Melbourne home values are 12.2 per cent higher than they were at the same time last year and with one week to go this month, early indications show Melbourne home values are on track to record solid growth through March despite the increasing levels of homes on offer for sale. Because Brisbane is a much smaller auction market than both Melbourne and Sydney, auction clearance rates across the city have the tendency to vary substantially from week to week. Last week, Brisbane’s preliminary auction clearance rate was recorded at 37.3 per cent, down from 54.5 per cent the week prior. Last week, 127 residential properties were taken to auction across the city, compared to 138 over the previous week. Brisbane auction volumes are set to jump substantially over the coming week, with 214 properties across Brisbane set to go under the hammer, so it will be interesting to see if auction clearance rates improve over the coming week. Compared to the previous week, Adelaide’s clearance rate was recorded at a much lower level, with the preliminary clearance rate for the city coming in at 59.3 per cent, compared to a final clearance rate of 70.0 per cent over the preceding week. The number of auctions that took place across the city also dropped over the week, from 95 the week prior to 80 last week. While this is the lowest clearance rate recorded across the city so far this year, at the same time last year, the auction clearance rate 53.3 per cent was lower, while there were more auctions held across the capital 110 . Auction markets across the remaining capital cities Perth, Hobart, Canberra and Darwin tend to be very small with only a small number of auctions held each week. Last week we saw 30 auctions across Perth with a clearance rate of 57.1 per cent, 25 auctions across Hobart with a clearance rate of 54.5 per cent and 57 auctions in Canberra with a clearance rate of 53.3 per cent. There were only three auctions recorded in Darwin last week, with no successful results. Currently, RP Data is tracking 2,845 capital city properties that are scheduled to be taken to auction over the coming week, making this the busiest week for auctions so far this year. *Melbourne auction commentary provided by Robert Larocca, RP Data’s Victorian Housing Market Specialist

Fewer homes selling at a loss as dwelling values continue to rise

RP Data has today released our latest Pain & Gain Report for the December 2013 quarter. The report found that of those residential properties re-sold throughout the final quarter of 2013, 9.7% were sold for less than their previous purchase price compared to 31.8% of re-sold homes transacting for more than double their previous purchase price. The proportion of loss making sales was down from 12.6% at the same time in 2012 and was at its lowest level since the three months to July 2011. Across the combined capital cities the proportion of loss making re-sales was even lower. Over the quarter, just 6.5% of homes sold at a loss compared to 9.8% at the same time in 2012. The proportion of loss making re-sales was at its lowest level since the three months to May 2011. Across each individual capital city, the proportion of homes selling at a loss is now trending lower. Given the consistently low mortgage rate environment and the rise in home values over the past year this is not an unexpected occurrence. With values rising and as we move beyond the financial crisis, the likelihood of homes re-selling at a loss is likely to continue to reduce throughout 2013. A key feature of the Pain and Gain analysis over recent years has been the consistently high proportion of loss making re-sales across some of the most high profile coastal markets. Conversely, key regions linked to the resources sector have consistently recorded a relatively low proportion of loss making sales. More recently conditions have started to change. High profile coastal markets such as Richmond-Tweed in New South Wales, as well as Far North, Gold Coast and Sunshine Coast in Queensland and the South West region of Western Australia have generally seen a high proportion of loss making re-sales over recent years. As the above chart highlights, the proportion of loss-making re-sales is now trending lower across each region. At the end of the December 2013 quarter, 23.8% of re-sales in Richmond-Tweed were at a loss down from a peak of 29.1% over the three months to October 2012. Across the Queensland regions, the proportion of loss making re-sales peaked at 41.7% in the Far North Jun-12 , 39.1% on the Gold Coast Dec-12 and 35.7% on the Sunshine Coast Dec-12 . At the end of last year, the proportion of loss-making re-sales were recorded at: 28.8% in the Far North, 26.9% on the Gold Coast and 25.8% on the Sunshine Coast. South West Western Australia recorded a peak in loss making re-sales of 23.3% in May-12 and at the end of 2013 the proportion had fallen to 19.6%. As the high profile coastal markets have started to show improving market conditions, resource areas have seen property values and demand begin to fall resulting in a lift in the proportion of loss making resales. The above chart highlights the proportion of loss making re-sales over time across the major mining regions of Fitzroy and Mackay in Queensland and the Pilbara and South Eastern in Western Australia. In Fitzroy, the proportion loss-making re-sales have risen from 9.5% at the end of 2012 to 19.5% at the end of 2013. At the end of 2012, 10.4% of Mackay homes re-sold transacted at a loss compared to a much higher 23.6% at the end of the December 2013 quarter. The Pilbara region recorded 13.3% of all re-sales at a loss over the final quarter of 2013 up from 2.0% a year earlier. 18.1% of re-sold homes in the South Eastern region transacted for less than their previous purchase price over the final three months of 2013, up from 11.8% over the same period in 2012. The impact of the peak in mining investment on local housing markets is clearly the primary cause of the upswing in realised loss. With demand for mine workers lower in the operation phase compared to the construction phase, local housing markets are often experiencing falling demand both from a rental and an ownership perspective. As a result it is no surprise that a greater proportion of sellers are realising a loss on the sale of their home in these areas. The analysis suggests that low mortgage rates are resulting in housing market conditions that are generally improving. Across the country the proportion of loss making re-sales is trending lower as home values rise. Coastal markets have seen a relatively high proportion of loss making re-sales and although, as a proportion, loss making sales remain high they are also trending lower. This reflects the low levels of capital growth returning to these markets. On the other hand the slowdown in mining investment is already having an impact on regions heavily linked to the resources sector. The economies in these areas tend to not be overly diversified and it would be no surprise to see a further rise in the proportion of loss making re-sales in these areas throughout 2014.

Week ending 23 March, 2014

Auction volumes remain strong this week with 1,076 expected in Melbourne and 1,154 across Victoria. This is the first time there has been consecutive weekends with over 1,000 auctions in March. The healthy demand that is present in the auction market is also apparent in the private sales market. Days on market for houses in Melbourne dropped again this week to 37 from 42 last week. This is consistent with last year’s trend which saw days on market contract from the mid 40’s to 39 in December. Vendor discounting also dropped again to -5.5 per cent last week. Time on market and vendor discounting metrics are important as they provide a measure of demand in the private sale market. Buyers will find increased choice over the next few weeks as the listings being prepared for sale were 10 per cent higher in seasonally adjusted terms compared to last year. As this is common to both private and auction property market segments, it will provide a greater test for the market than a weekend of 1,000 auctions. The highest volume of auctions is in Reservoir where 26 are listed followed by 23 in Brighton and 20 in Richmond. Key data Clearance rate week ending 16 March: 67 per cent Melbourne auctions expected week ending 23 March: 1,076 Melbourne private sales time on market week ending 16 March: 37 days houses Melbourne vendor discounting market week ending 16 March: -5.5 per cent houses Listings being prepared for market are 10 per cent higher in month ending 16 March Robert Larocca RP Data Victoria Housing Market Specialist

Over $10 Million spent on real estate every day in Boroondara during 2013

It takes a few months after the end of the calendar year for a vast majority of property transactions to settle and be finalised. With final numbers for 2013 now available, a comparison with previous years can now be undertaken. In 2013 there were 81,590 residential sales in Melbourne and 107,845 in Victoria. Looking at the Melbourne market over the medium term this is a comparatively low level of sales. Since the year 2000, nine years have seen a higher level of sales with a peak in 2007 with 105,194 sales. Thankfully, a combination of more confident consumers and record low interest rates has been the catalyst for the level of sales in 2013 rising above the two preceding years of 77,867, and 73,459 respectively. It is important to note that the volume of transactions has a direct impact on the health of the Victorian Government budget as a significant portion of its income is derived from stamp duty as well as the industries that supply and support the housing sector, real estate, building and ancillary services. On a more local basis, the highest number of sales took place in the city’s growth areas with the highest levels of the spending taking place in the inner east. Across the state’s municipalities, the highest number of total transactions took place in Casey where 4,130 sales were recorded equating to around 11 sales every day. Similar numbers were recorded in the Mornington Peninsula with inner city locations, Melbourne and Boroondara following. The largest volume of sales in financial terms was recorded in Boroondara where $3.97B was spent on residential real estate, or just over $10M every day. At the other end of the scale, Nillumbik recorded the lowest number of sales, at 946 and the lowest in financial terms at $507M. Robert Larocca RP Data Victoria Housing Market Specialist

a wrap of the weekend auction markets: Week ending 16 March 2014

Auction volumes bounce back, but performance is varied across the major auction markets. After a quiet week for auctions the previous week, auction volumes across each capital city market increased last week with 2,289 auctions held across the combined capital cities, compared to just 1,520 over the previous week. Last week, the preliminary auction clearance rate increased to 72.4 per cent, from 70.2 per cent the previous week, meaning that current auction clearance rates remain much stronger than they were one year ago 64.4 per cent . While overall, clearance rates increased over the week, it is interesting to note that across Australia’s two largest auction markets, Melbourne and Sydney, there was more than a 10 percentage point difference between the weekly results. Last week, Sydney’s preliminary auction clearance rate was recorded at 82.7 per cent, the second strongest result for the year so far. There were 857 Sydney properties taken to auction last week, with volumes remaining virtually unchanged when compared to the previous week when there were 859 Sydney auctions, but a lower clearance rate of 78.8 per cent. Currently, Sydney’s auction market continues to track at a much higher level when compared to one year ago. Over the same week last year, 650 Sydney properties were taken to auction with 70.4 per cent clearing. In Melbourne, the preliminary clearance rate of 67.9 per cent was recorded this weekend from 885 auctions compared to 67.3 per cent last weekend and 66.4 per cent this time last year. Listing volumes are now surging in both private and auction sale segments with 11 per cent more new residential listings over the last month compared to this time last year. Prospective vendors are clearly being encouraged by market activity in the first quarter of the year. If this listing activity is matched by sales over the rest of the year we are likely to reach a level of transactions that both exceeds last year and the average over the previous decade. Final numbers for last year saw 81,590 sales in Melbourne. This was 11 per cent higher than 2012 but 5 per cent lower than the average over the previous decade. Brisbane recorded a much stronger preliminary clearance rate last week 56.2 per cent when compared to the previous week 45.0 per cent , however auction volumes have remained steady over the two week period, with 139 auctions held in the city last week, compared to 138 the previous week. Over the same week last year, 37.5 per cent of the 109 Brisbane properties taken to auction recorded a successful result. Both auction clearance rates and the number of properties taken to auction in Adelaide increased last week, when the preliminary auction clearance rate was recorded at 69.6 per cent, compared to 63.2 per cent over the previous week and there were 94 auctions held in the city, up from 80 auctions the week prior. So far this year, there has only been one week where Adelaide’s auction clearance rate has fallen below the 60 per cent mark, while one year ago, just 48.7 per cent of the 82 properties taken to auction sold. The number of auctions expected to be held across the capital cities this week will remain fairly steady, with RP Data currently tracking 2,297 auctions for the week. *Melbourne auction commentary provided by Robert Larocca, RP Data’s Victorian Housing Market Specialist

Week ending 16 March, 2014

Auction volumes continue to exceed this time last year with 1035 expected in Melbourne this week. This weekend last year saw 929 auctions held. The healthy results recorded last year and again this year is encouraging more vendors into the market as they are confident of a good sale outcome. This trend of increasing listings is confirmed by the most recent data that shows that over the past month listings being prepared for sale are now higher by 9 per cent, the number of active new listings is 2 per cent higher and auction volumes are also at record levels. Vendors at private sale are now seeing a tightening of market conditions with selling days down to 42, and vendor discounting at -5.6 per cent. The highest volume of auctions this week is in Reservoir and St Kilda, each of which has 19 listed. Key data Clearance rate week ending 9 March: 67.3 per cent Melbourne auctions expected week ending 16 March: 1035 Melbourne private sales time on market week ending 9 March: 42 days houses Melbourne vendor discounting market week ending 9 March: -5.6 per cent houses Listings being prepared for market are 9 per cent higher in month ending 9 March Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 16 March, 2014

Auction volumes continue to exceed this time last year with 1035 expected in Melbourne this week. This weekend last year saw 929 auctions held. The healthy results recorded last year and again this year is encouraging more vendors into the market as they are confident of a good sale outcome. This trend of increasing listings is confirmed by the most recent data that shows that over the past month listings being prepared for sale are now higher by 9 per cent, the number of active new listings is 2 per cent higher and auction volumes are also at record levels. Vendors at private sale are now seeing a tightening of market conditions with selling days down to 42, and vendor discounting at -5.6 per cent. The highest volume of auctions this week is in Reservoir and St Kilda, each of which has 19 listed. Key data Clearance rate week ending 9 March: 67.3 per cent Melbourne auctions expected week ending 16 March: 1035 Melbourne private sales time on market week ending 9 March: 42 days houses Melbourne vendor discounting market week ending 9 March: -5.6 per cent houses Listings being prepared for market are 9 per cent higher in month ending 9 March Robert Larocca RP Data Victoria Housing Market Specialist

Lower consumer confidence will dampen the housing market

The latest consumer sentiment data arrived yesterday from Westpac and the Melbourne Institute. The reading of consumer confidence fell for the fourth consecutive month and moved below the 100 mark where optimists and pessimists are equally balanced. With a reading of 99.5, the index is virtually at a neutral setting but more than 10 index points below the recent peak of 110.6 recorded in September last year. The index moves around a lot from month to month, so the trend is generally more important than the monthly reading, however we have seen the index move lower over five of the past six months which indicates a softening consumer mind set. Consumer confidence and housing market conditions are highly correlated. No surprises there… if a consumer is lacking confidence in their household finances they aren’t going to be as prepared to make a high commitment decision such as purchasing a property. If the consumer confidence index continues to trend around the 100 mark or lower we can probably expect the exuberant housing market conditions to taper off, despite the low interest rate environment. The two graphs below demonstrate the correlation; when consumers are confident market demand rises, pushing values higher and vice versa. Even though confidence levels have eased, consumers are still viewing the housing market as a ‘wise’ place for their savings. One of the questions asked in the Consumer Sentiment survey is ‘where is the wisest place for savings’. Just over a quarter of respondents think that real estate is the wisest place for savings, the second most popular option after ‘financial institution’ 33.9% . There are a few factors that are likely denting confidence at the moment. The early declines in the index were potentially a natural comedown after the post-election improvement, however more recently the lower level of sentiment is probably more attributable to the weaker jobs market. The unemployment rate is rising, hitting its highest level since 2003 in January at 6.0%. The pain in the automotive sector is likely causing further discomfort, as are other high profile job shedding situations such as Qantas. As demonstrated by the Westpac-Melbourne Institute Index of Unemployment expectations, consumers haven’t been this worried about job security since the depths of the GFC. Consumer confidence can be fickle, and we may see the consumer mind set bounce back to a more optimistic position if the jobless rate stabilises and economic data flows improve, but if the current levels of low confidence persist it may be the case the housing transaction numbers start to trend lower as consumers batten down the hatches.

Two million is the new one million

The luxury or prestige segment of the residential market is better defined by sales over $2 million as opposed to the old measure of $1 million, after all that covers nine per cent of all sales in Melbourne. Analysis of the sales in Melbourne over the past three years shows the prestige market has not recovered to 2010 levels yet. In the 12 months ending in November 2010 there were 1,436 dwelling sales for $2 million or more and this represented 1.54 per cent of all sales. Looking separately at the sales of units and houses there were 34 suburbs that recorded ten or more sales for $2 million or more. Of those four saw ten or more of both units and houses, they were East Melbourne, Brighton, Toorak and South Yarra. The highest volume of individual sales was in Brighton with 131 compared to 122 in Toorak and 93 in Kew. Over the same period in 2012 the overall number had plummeted to 1,046. This will have been in part due to the price falls recorded over the two years from the peak to the trough and it will also have been due to the overall reduced number of transactions. Even accounting for the lower volume the proportion of sales was down to 1.44 per cent. The number of suburbs with ten sales $2 million or more dropped to 26. Last year values rose in the overall market by 8.5 per cent but the prestige segment did not record similar growth. There were fewer suburbs with more than ten $2 million dollar sales with only 23 meeting that measure and whilst the total number of sales rose to 1161 it was only 1.43 per cent of the market. The top 3 suburbs for prestige sales were the same as in 2010 but the volumes lower with 122 in Brighton, 81 in Toorak and 68 in Kew. In the unit market there are currently three suburbs that have recorded ten or more $2 million sales over the past 12 months, Docklands which had 16 sales, Toorak also recorded 16 and South Yarra recorded 13. This shows that in the unit and apartment market the newer suburbs of Docklands, South Yarra and Southbank are attracting buyers who could choose to live almost anywhere they wanted to in Melbourne. These choices underscore the desirability of these inner city locations. Robert Larocca RP Data Victoria Housing Market Specialist

a wrap of the weekend auction markets – Week ending 9 March 2014

Public holidays drive down auction volumes, while Sydney’s preliminary auction clearance rate breaks the 80 per cent mark for the third time this year. RP Data recorded a preliminary auction clearance rate of 70.4 per cent this week, with 1,506 auctions held across the capital cities. Auction volumes are down substantially when compared to the previous week, when there were 2,712 capital city auctions, with public holidays being held on Monday in Victoria, South Australia, the Australian Capital Territory and Tasmania. Over the previous week, the final auction clearance rate was recorded at 74.2 per cent, revised up slightly from the preliminary figures released earlier in the week. Over the same week last year, there were 996 capital city properties taken to auction with a clearance rate of 61.6 per cent. Since August last year, Sydney has consistently been recording the strongest clearance rate of all Australian capital cities. This week was no different, with a preliminary clearance rate of 80.2 per cent and 844 auctions held in the city. Over the previous week, 1,035 residential properties were taken to auction with a clearance rate of 77.6 per cent. Strong auction market conditions are highlighted by the fact that over the same week last year, there were 533 Sydney auctions with a clearance rate over 10 percentage points lower than the most recent week, recorded at 67.6 per cent. On a year to date basis, auction volumes across the city are around 60 per cent higher than they were last year, meaning that with stronger clearance rates, a higher number of properties are selling successfully under auction conditions. For Melbourne, the preliminary clearance rate of 63.3 per cent was recorded this weekend compared to 76.6 per cent last weekend. The lower clearance rate does not indicate a change in market conditions as the volume was low due to the long weekend. With the first phase of the real estate year now concluded it is clear that this is the best start for the Melbourne market recorded since 2010. Property values rose in January and remained unaffected by the record auction volumes in February providing proof of the solid demand underpinning the market right now. There were 140 auctions held in Brisbane over the most recent week and the clearance rate was recorded at 49.4 per cent, increasing from 46.2 per cent over the previous week when there were 149 auctions held across the city. As shown in the below graph, Brisbane’s auction clearance rate has generally been trending upwards since early 2011. At the same time last year, there were 99 Brisbane auctions held over the week with a clearance rate of 39.0 per cent. Across Adelaide, 80 auctions were held last week and the preliminary auction clearance rate was recorded at 66.0 per cent, remaining almost unchanged from 66.2 per cent over the previous week when there were 97 auctions. In comparison, over the same week last year, 71 Adelaide properties were taken to auction and the clearance rate was 62.3 per cent. At the end of last year, Adelaide was experiencing some of the strongest clearance rates seen in the city since 2009 and 2010. This week, we expect auction volumes to increase again with 2,161 capital city auctions currently scheduled. 1,035 of these are set to take place in Melbourne, with the city clocking up another busy week of auction activity. *Melbourne auction commentary provided by Robert Larocca, RP Data’s Victorian Housing Market Specialist

Low effective supply levels likely to be a key factor in housing market conditions

Working out effective supply levels across housing markets around Australia is pretty straight forward. You just need to know how many homes are currently listed for sale as well as an understanding of the typical ‘run rate’ of sale. RP Data tracks listing numbers nationally via real estate portals and print media as well as sourcing listings data directly from many of the major real estate groups. This data is de-duplicated and counted providing a decent estimated of how many homes currently being advertised for sale we call this effective supply . We also track the number of properties that have sold nationally, ultimately acquiring 100% of property sales directly from individual state government departments. There is a lag in obtaining the full set of this data, which is why we also collect transaction data directly from the industry, which is a much quicker way to get an understanding of what is being sold prior to the official data arriving. To work out the sales ‘run rate’ or typical number of homes being transacted each month, we use a rolling three month average. To account for the lag in receiving the full complement of transaction data we have carried the sales rate forward from the December quarter last year to January and February as our best estimate of a current run rate. Dividing the number of advertised properties by the run rate of sales provides an estimate about how many months of effective supply is available within particular markets. Another way to explain this is how many months it would take for the market, at the current rate of buying, to purchase all the homes that are currently advertised for sale. Across the capital cites effective supply levels are generally very low. For detached houses, all capital cities apart from Hobart and Brisbane are showing effective supply levels that are well below 3 months. The lowest effective supply level can be found in Sydney, which not so coincidentally, has been the strongest performing capital city with values more than 18% higher over the current growth phase. Conversely, Hobart and Brisbane have seen much softer housing market conditions which can partly be attributed to the higher effective supply readings. It’s a similar scenario across the unit market where Sydney, Darwin and Perth are recording the lowest effective supply readings while Hobart stands out as having a much higher supply reading at 5.6 moths. Looking across the major regions of Australia, the effective supply trend highlights both opportunities and challenges within particular markets. From the graph below it is clear that the capital cities are generally showing the lowest effective supply levels, while key regional areas are showing comparatively high level of effective supply. The trend in effective supply levels is also important to monitor. As effective supply moves higher it suggests stock levels are outweighing market demand and vice versa. The capital city graphs below show that effective supply levels are typically moving lower across most capital cities as transaction numbers rise on high buyer demand. Some markets where effective supply levels were previously very high are showing an improvement in their dynamic. The high profile Gold Coast housing market is a good example of a region where high effective supply levels weighed down the market during the correction phases of 2008 and 20011/12 reaching almost 13 months in 2011. Effective supply levels are showing consistent improvements across the Gold Coast now with the current measure indicating about 3.8 months of effective supply. There has been a renewed trend of price growth on the back of the lower effective supply levels. The Kimberley region is a different example of a housing market where effective supply levels have shown a substantial rise, up from around 1.5 months of supply in 2009 to a recent high of just over 14 months of supply at the end of last year as the market tapers in line with the mining sector. Similar trends can be seen in other mining intensive areas such as WA’s Pilbara and Queensland’s Fitzroy and Mackay.

Week ending 9 March, 2014

There will be an appreciable drop in auctions over the weekend due to the Labour Day long weekend. RP Data is expecting 291 auctions this coming week in Melbourne. Whilst the market is going very well – the last fortnight has been remarkably strong – the missing component at this stage is first home buyers. If this sector became active again, sales volumes would rise to historical averages. Those intending to buy over the next month will welcome the largely stable nature of dwelling values over February. After the new peak was reached in January, house values dropped by 0.3 per cent in February and units rose by 0.4 per cent. This points to a market in a moderate growth phase and shows that the value rise in January has been locked in. Key data Clearance rate week ending 2 March: 76.6 per cent Melbourne auctions expected week ending 9 March: 291 Melbourne private sales time on market week ending 2 March: 56 days houses Melbourne vendor discounting market week ending 2 March: -5.7 per cent houses Listings being prepared for market are 7.1 per cent higher in month ending 2 March Robert Larocca RP Data Victoria Housing Market Specialist

February auction market review, Melbourne

The Melbourne residential auction market over February was the strongest in the past five years from the perspective of listing volumes but ranked second in terms of the number of homes sold. RP Data recorded a total of 2,623 auctions over the month with a clearance rate of 71.5 per cent. Over the previous 5 years the average listings were 2,161, from a low of 1,912 in 2012 to this year’s high. Only in 2010 were more homes sold at auction. That year saw slightly fewer auctions but as the clearance rate was higher at 79 per cent, there were more homes actually sold. The comparison with 2010 will be a useful measure for the performance of the market this year as that is when the market last peaked. In nominal terms, both unit and house values are now slightly ahead of the peaks from 2010, but that still means the value eroded by inflation over 3 years has to be made up. For that to occur, the Melbourne residential market would have to see a rise of around 10 per cent in sales volumes. This is certainly present in the auction market but not yet in the private sale market. Robert Larocca RP Data Victoria Housing Market Specialist The February auction market Volume Sold Clearance rate 2009 1922 1344 69.9% 2010 2571 2032 79.0% 2011 2404 1444 60.0% 2012 1912 1076 56.3% 2013 1997 1343 67.3% 2014 2623 1875 71.5%

a wrap of the weekend auction markets – Week ending 2 March 2014

Auction volumes and clearance rates much higher than at the same time last year This week, a preliminary auction clearance rate of 72.8 per cent was recorded across 1,494 auction results, with a total of 2,680 auctions held across the capital cities. Both auction clearance rates and auction volumes decreased last week, from 76.2 per cent the previous week across 2,905 capital city auctions. Currently, auction conditions are a lot stronger than they were at the same time last year. Over the corresponding week last year there were 1,983 properties taken to auction within the capital cities and RP Data recorded a clearance rate of 61.0 per cent. It will be interesting to see if continuing high clearance rates encourage a further increase in the number of capital city properties taken to auction, given that current volumes are already so much higher than at the same time last year. Last week was Sydney’s second week this year where the number of auctions held in the city was more than 1,000. So far this year, Sydney’s auction clearance rate has been consistently recorded at or above 75 per cent, which is much stronger than conditions seen at the start of last year. Last week, the preliminary auction clearance rate was recorded at 77.9 per cent, with 1,019 properties taken to auction in the city. Over the previous week, there were 1,101 Sydney auctions and the final auction clearance rate was recorded at a strong 84.2 per cent, the highest auction clearance rate seen in the city since September last year. One year ago, there were only 751 Sydney auctions held over the week and the clearance rate was much lower, recorded at 61.1 per cent. The increase in the number of properties taken to auction across the city demonstrates that vendors are becoming increasingly confident of a successful sale and are more willing to market their property under auction conditions. A preliminary auction clearance rate of 73.9 per cent was reached from 1,319 auctions this week in Melbourne. This compares to 65.6 per cent for the same time last year from fewer auctions. This represents a substantial lift on the results a year ago and is a very strong result for the Melbourne market as it follows the highest volume of auctions for February on record. Last month there were 2,623 auctions with a clearance rate of 71.5 per cent. This was higher than the 2,571 recorded in 2010 although the clearance rate in February that year was 79.0 per cent. In Brisbane, less than half of all properties where RP Data recorded an auction result this week sold 42.4 per cent , however, much like the other cities, there were more auctions held in the city this week 148 compared to the same week last year 111 , when the clearance rate was recorded at a lower 37.7 per cent. Over the previous week, Brisbane’s auction clearance rate was recorded at 63.6 per cent with 161 properties taken to auction. Although conditions across the Brisbane auction market are currently much weaker than across the larger auction markets of Sydney and Melbourne, it is important to remember than unlike Sydney and Melbourne, auctions account for a much smaller proportion of the overall Brisbane market. Last week, Adelaide recorded a strong clearance rate of 75.0 per cent with 97 auctions held in the city. Over the previous week, 118 Adelaide properties were taken to auction and RP Data recorded a final auction clearance rate of 59.8 per cent. So far this year, Adelaide’s clearance rate has been recorded above the 70 per cent mark, however prior to this, the clearance rate in Adelaide had not exceeded the 70 per cent mark since back in September last year. The number of auctions held across the city over the same week last year was 70, with a clearance rate of 38.9 per cent. Auction volumes across the capital cities will be lower over the coming week due to multiple public holidays around the country. Currently, RP Data is expecting 1,402 auctions to be held across the capital city markets over the coming week. *Melbourne auction commentary provided by Robert Larocca, RP Data’s Victorian Housing Market Specialist

Week ending 2 March, 2014

Buyers will need to take last weekend’s very strong result into account at the 1228 auctions scheduled this week. A clearance rate in the mid 70’s indicates that they will face more competition when bidding for the homes at auction and this may translate into higher prices being paid. That result came after a new peak house price was recorded in January suggesting many buyers still see a lot of value in the Melbourne residential market. The February RP Data–Rismark Home Value index will be released on Monday and it will indicate if the new peak was maintained. In a continuation of the trend this year the number of homes listed for auction this week is 25 per cent higher than the 984 this time last year. It is also the highest for this weekend on record. The highest volume of auctions is in South Yarra with 21. There are 19 scheduled in Port Melbourne, Reservoir and Richmond. Key data Clearance rate week ending 23 February: 73.5 per cent Melbourne auctions expected week ending 2 March: 1228 Melbourne private sales time on market week ending 23 February: 64 days houses Melbourne vendor discounting market week ending 23 February: -5.6 per cent houses Listings being prepared for market are 4.5 per cent higher in month ending 23 February Robert Larocca RP Data Victoria Housing Market Specialist

APRA’s domestic ADIs property exposure data for the December 2013 quarter

Each quarter the Australian Prudential Regulation Authority APRA publishes data on the exposure of Australian Authorised Deposit-taking Institutions ADI . The data is extremely useful as it provides highlights of all outstanding exposures mortgages and also some information about those written over the quarter. The data indicates that across all ADIs, 66.7% of the value of outstanding loans is to owner-occupiers with the remaining 33.3% to investors. Over time there has been little change to these proportions indicating pretty much a two thirds owner occupier to one third investor split. Looking at the type of loans mortgagees have is also interesting. At the end of 2013 a record high 34.6% of all mortgagees had a loan with an offset facility. The figure was up from 34.2% over the September 2013 quarter and 33.38% at the same time in 2013. The rising proportion of loans with an offset facility indicates to me that many mortgagees are utilising these facilities to reduce their mortgage liability whilst still having access to those funds. This is supported by recent RBA data which indicates the typical mortgagee is around 21 months ahead in their mortgage repayments. Housing finance data has told us that the level of investor lending is at its highest point since late 2003 and not far off all-time highs. Many investors choose to use interest-only mortgages mainly due to the taxation benefits they afford. The APRA data shows that a record high 35.0% of all outstanding loans are interest-only mortgages. This figure is up from 34.6% at the end of the September 2013 quarter and 33.8% in December 2012. The average amount outstanding for a residential loan was recorded at $233,500 at the end of December 2013. The figure is also a record high, up from $231,700 at the end of September 2013 and $228,300 at the end of December 2013. When you consider that at the end of 2013 the median dwelling price across the combined capital cities was $540,000, the level of debt compared to the typical home price is relatively low however, this is unlikely to be the case for more recent purchasers and those with only a small deposit we will touch on this shortly . Perhaps more concerning is the fact that the typical amount outstanding for interest-only mortgages is $295,300, up from $294,300 at the end of the previous quarter and $294,100 at the end of 2012. Those mortgagees that are not reducing their principal have much higher overall debt levels than those who are. The data also highlights some information on those residential loans written over each quarter. Over the final quarter of 2013, a record high 35.7% of new loans were for investment purposes, up from 34.4% in September 2013 and 32.8% in December 2012. It is important to remember when I say record high the data is only available from March 2008 and housing finance data from the Australian Bureau of Statistics ABS suggests that investor activity was higher than current levels back in late 2003. Over the quarter, the proportion of interest-only mortgages hit a record high of 38.8%, up from 37.2% the previous quarter and 35.0% at the same time the previous year. Of course, the risks are that these buyers stretch themselves too far and when mortgage rates begin to be normalised they have an increased risk of default. Perhaps most intriguing out of all the data is the fact that more than one third of all loans have a loan to value ratio LVR of greater than 80%. What this means is that the mortgagee has less than a 20% deposit when purchasing and obviously these loans are inherently more risky. As a result most ADIs will require the mortgagee to pay mortgage insurance on these loans. The high proportion of loans with an LVR of more than 80% is extremely topical at the moment given that New Zealand has recently introduced macroprudential tools to their lending environment. What the Reserve Bank of New Zealand RBNZ have done is reduce the amount that NZ banks can lend to higher risk mortgages greater than 80% LVR only 10% of total lending can be for loans with an LVR of more than 80%. Over the quarter, 34.4% of all new loans had an LVR of more than 80% which was down slightly from 34.6% over the September 2013 quarter and the same proportion as in the December 2012 quarter. Although there has been a slight reduction, the proportion of higher LVR lending remains quite high. Interestingly, only 13.6% of total lending was for a LVR of more than 90% compared to 20.8% on an LBVR of between 80% and 90%. The data indicates that most new mortgages are less risky less than 80% however, the higher risk lending still accounts for a large proportion of the overall market. Overall the data provides a useful snapshot of the current lending environment. The data indicates that the prevalence of investors and subsequently interest-only mortgages within the market is rising. As we have highlighted previously, this is not without risks particularly if housing market conditions or monetary policy settings shift rapidly. Should interest rates rise rapidly in the future, the interest proportion of mortgage repayments would also quickly rise with most mortgagees on variable rate mortgages. From an investors perspective this may make ownership of an investment property less attractive and from a high LVR purchasers perspective it could make meeting the mortgage repayments more difficult. A high proportion of loans are still being written at an LVR of more than 80%. As mentioned these mortgages are typically insured so the risk to the ADI itself is lessened however it doesn’t necessarily reduce the overall market risk if we see arrears and default levels climb in the future.

Where to find a house in Melbourne for less than $400,000

Currently, Melbourne’s median house price was $610,000 based on sales in the December quarter. Naturally, this captures a lot of attention, however, it’s worth remembering that there are lot of houses that sell for a lot more affordable prices. Over the past year, just under 30 per cent of all houses in Melbourne sold for less than $400,000. The suburbs which recorded the highest of these affordable sales were in the growth areas; Pakenham, Frankston, Craigieburn Hoppers Crossing, Werribee, Sunbury and Carrum Downs. Land is less valuable in these areas due to the distance from the CBD and its availability. These factors allow developers to bring houses onto the market at more affordable prices. It is interesting to note that there are a number of suburbs within 15km radius of the CBD where more than 50 per cent of sales were below $400,000. These are: Sunshine West, Sunshine North, Broadmeadows, Ardeer and Tullamarine. Glenroy, Reservoir, Fawkner and Sunshine also has reasonable proportions of sales for under $400,000. Surprisingly, around one in ten sales are in Pascoe Vale, Box Hill and Footscray are under $400,000. While that may not be the predominate sales price, this result does show that with some dedicated house hunting it is possible to buy a house at an affordable price within 15km of the CBD. It would be rare to find a house under $400,000 and within 10km radius of the CBD. Footscray has the highest at 10 per cent. Most other suburbs within 10km of the CBD have less than 5 per cent such as Coburg where there were only 12 sales were under $400,000. Robert Larocca RP Data Victoria Housing Specialist

Week ending 23 February, 2014

A preliminary auction clearance rate of 79 per cent was reached from 1147 auctions this week in Melbourne. This compares to 69.5 per cent for the same time last year when there were around 19 per cent fewer auctions. If the final result is similar to the preliminary one it will be the highest clearance rate since May 2010, a time when the market was also rising. The strong demand recorded at auctions is not yet resulting in rising dwelling values over the month but the trend of the last year has not changed. The comparison with this time last year is illustrative and provides evidence of ongoing improvement in the market. More vendors have taken the chance to sell and they have largely been rewarded with a lift in the clearance rate. It is interesting to note that the rise in auction volumes is not representative of the overall level of activity with new listings at the same level as last year and suggests an increased use of auctions. Vendor discounting was higher for houses, at -5.6 per cent compared to units at -5.3 per cent. Robert Larocca RP Data Victoria Housing Market Specialist

Where are the highest volume of homes for rent in Melbourne?

Based on rental advertisements*, the easiest place to find a rental home in Melbourne is in the inner city or inner southeast. Melbourne, St Kilda, South Yarra, Southbank and Docklands have each seen well over 1,000 units advertised for rent in the past year. The central suburb of Melbourne recorded just over 4,000. The high prevalence of medium and high-rise units for rent in the inner city is a reflection of the role investors have played in supporting the growth of these markets. It is quite remarkable to think that only twenty years ago the inner suburbs or Melbourne, Docklands and Southbank either did not exist or had very few houses for rent. It is also interesting that in those suburbs the median advertised rent is well above the median for Melbourne which was $392 per week. In the suburb of Melbourne the median rent was $450 per week, in Southbank it was $530 and $540 in Docklands. The suburb with the highest volume of houses advertised for rent was Frankston where the median advertised rent was $310 per week. This is well below the comparable number for the metropolitan area of $438. Many other suburbs with high numbers of rental houses are also affordable, excluding Richmond which is ranked 4th by number of houses for rent but has a very high median advertised rent of $580 per week. This market will be driven by the demand for houses close to the CBD. Robert Larocca RP Data Victoria Housing Market Specialist Data for table on blog Top 5 suburbs ranked by number of houses advertised for rent FRANKSTON PAKENHAM RESERVOIR RICHMOND POINT COOK Top 5 suburbs ranked by number of units advertised for rent MELBOURNE ST KILDA SOUTH YARRA SOUTHBANK DOCKLANDS * Rental observations are based on rental advertisements. These counts have been de-duplicated and rental advertisements are only counted when they can be physically matched to a property in our database.

Week ending 23 February, 2014

The first two weeks of auctions for the year suggest that the improvements recorded over the course of 2013 will be lasting. This will be the first weekend with more than 1,000 auctions this year. Last year there was a record 11 weekends with in excess of 1,000 auctions. The next two weeks are significant, as they will see a return to auction volumes last seen in the 4th quarter of 2013 and the next update of the RP Data Rismark Home Value Index. The index will show if the new peak house value reached in January will be affected by the rise in volumes in February. In the private sale market vendor discounting tightened from -5.6 to -5.2 per cent in the last completed week indicating that the good start to this year is not confined to the more inner and middle city auction market. Key data Clearance rate week ending 16 February: 69.2 per cent Melbourne auctions expected week ending 23 February: 1,275 Melbourne private sales time on market week ending 16 February: 67 days houses Melbourne vendor discounting market week ending 16 February: -5.2 per cent houses Listings being prepared for market are 9.4 per cent lower in month ending 16 February Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 16 February, 2014

A preliminary auction clearance rate of 70.9 per cent was reached from 650 auctions this week in Melbourne. This compares to 64.4 per cent for the same time last year when there were around 30 per cent fewer auctions. The market is easily absorbing the increased volume of homes being offered for auction. This result suggests the upcoming weekends, each with very high numbers of auction, will see the current performance continued. There may be a higher number of auctions compared to this time a year ago but there are not a larger number of homes on the market. New listings are only -0.7 per cent lower than a year ago and the overall stock on market is -7.0 per cent lower. Significantly there are just over 11,000 more homes on offer in Melbourne than Sydney right now. Many parts of the Melbourne dominated by private sales are seeing sales campaigns as short as those for an auction with the citywide time on market for houses at 38 days. Many of the city’s quickest selling suburbs are in the outer east; Kilsyth South, Upper Ferntree Gully, Bayswater North, Tecoma, Croydon Hills, Croydon South and the Basin. Robert Larocca RP Data Victoria Housing Market Specialist

Real estate agent activity gathers pace in 2014

One of RP Data’s core services is supplying real estate agents with timely property data to assist them with undertaking comparative analysis of their local market place amongst other things , which they in turn use to determine the appropriate listing price of a property. Our services are used by approximately 70% of all real estate agencies nationally. One of the important bi-products of our market share is monitoring the level of agent activity across our data platforms. As a simple example, counting the number of Comparative Market Analysis CMA reports as well as monitoring other platform activity such as the number of logins and searches provides a unique insight around the number of homes which are likely being prepared for sale. We use this metadata to provide a lead indicator for new listings about to enter the market. RP Data’s Listing Index RLI is currently at record levels after the seasonal slump in real estate agent activity. It’s normal for the market to slow down over the last week of December and throughout most of January; the slump is typically followed by a surge in real estate agent activity as industry participants emerge from the festive period. The graph below tracks the national RLI. We recorded more than 65,000 activity events from real estate agents over the 28 days ending February 9th, which is a record number across the series which extends back to January 2009. The activity occurring across the RP Data platforms correlates well with the number of new listings entering the market over the coming weeks so we are expecting more properties to hit the market for sale as we approach the autumn season. Prospective vendors are likely to be confident considering the current housing market conditions are mostly favouring sellers rather than buyers – putting it simply, it’s a great time to be selling a property. There is some variability in the amount of activity we are seeing from region to region. Sydney’s RLI has returned to a level slightly higher than last year which is normal for this time of the season. The index was elevated over the second half of 2013 in line with the strong housing market conditions and we expect listing numbers to track at roughly the same rate as what was recorded over the past six months which has been about 7,500 new listings each month. Considering the run rate of sales across Sydney is tracking at about 8,860 per month we expect effective supply levels to remain tight across the Sydney market. In Melbourne the RLI is at record levels; the second half of 2013 saw a consistent ramp up in agent activity in line with the strong housing market conditions that were very much evident over the same period of time. The post festive season surge will settle around the first week of March, so we would expect agent activity to return to approximately the same level we were recording at the end of 2013. New listing numbers across Melbourne were tracking at around 7,800 per month compared with a run rate of sales of about 7,400 per month so we are potentially going to see an increase in total effective supply levels across Melbourne over the coming months. Brisbane agent activity is absolutely surging at the moment with the RLI for Brisbane moving about 20% higher than what was recorded during mid-December. It is likely the Brisbane housing market is right on the cusp of accelerated market activity as attention moves away from Sydney and Melbourne to Brisbane where capital gains to date have been modest, yields are substantially higher and affordability isn’t as much of a concern as the other major capitals. We have been seeing an average of about 3,900 new listings enter the market across Brisbane each month compared with a run rate of sales at 3,950 per month; so demand and effective supply levels look broadly in line currently. We anticipate there will be a ramp up in market activity over the first half of 2014 which is likely to be accompanied by an increase in new listing numbers as well. Agent activity has been on an upwards trend across Adelaide over the past twelve months, with the RLI currently at similar levels as what was recorded late last year. Confidence in the local SA economy has been dented by the weakness in the manufacturing sector, however the housing market has been slowly improving despite the weaker economic conditions. We have been tracking about 1,880 new listings being added to the local market each month compared with a sales rate of about 2,240 each month. Transaction numbers are outweighing listing numbers, keeping effective supply levels tight. Perth has seen a rise in agent activity over the first month of the New Year, however current activity levels are slightly below record levels but higher than late 2013. It’s likely that agent activity levels will settle back to around the same pace as what was recorded late last year; not quite as exuberant as what was recorded during early 2013, but still above the long term trend. The average number of new listings has been tracking at about 4,000 per month while transaction numbers are showing a run rate of 3,690 per month which indicated a growing level of effective supply overall. Agent activity across Hobart has held relatively steady over the past year after a solid increase during the second half of 2012. The local Hobart market was the only capital city where dwelling values posted a fall over the past twelve months and conditions overall remain sluggish. We have been tracking about 410 new listings being added to the market each month and about 350 home sales which suggests plenty of choice for prospective buyers and not a great deal of urgency in their purchase decision. The agent activity trend shows more volatility than other markets across Darwin, partly due to the small size of the market. Activity levels are currently well below the highs recorded back in early 2013, but similar to what was recorded in October/November last year. We are tracking about 250 new listings entering the Darwin market each month compared with a rate of sale at 289 per month, so effective supply looks relatively tight across this market. The Canberra housing market has slowed substantially over 2013, however listings activity showed a consistent increase over the last four months of 2013. The bounce back in agent activity hasn’t been as strong in 2014 which may indicate new effective supply levels are starting to ease. Over the past six months we have seen an average of 580 new listings being added to the market compared with 610 sales per month on average suggesting that effective supply additions to the market are being absorbed sufficiently.

Week ending 16 February

The Melbourne auction market continues to build this week with 719 auctions expected as part of 838 across Victoria. This represents a 30 per cent rise in volume compared to the same time last year. As volumes rise a more accurate picture of the current level of demand will emerge and allow for an assessment about the performance of the market until Anzac Day. Overall, residential transactions in Melbourne for 2013 are expected to be around 80-82,000 based on the final numbers until November. This is slightly below the average over the last five years and if first home buyers rise from their current record lows, it would boost volumes to more healthy levels. In the private sale market vendor discounting tightened from -5.7 to -5.6 per cent in the last completed week. Key data Clearance rate week ending 9 February: 67.5 per cent Melbourne auctions expected week ending 15 February: 719 Melbourne private sales time on market week ending 9 February: 66 days houses Melbourne vendor discounting market week ending 9 February: -5.6 per cent houses Listings being prepared for market are 3.6 per cent lower in month ending 9 February Robert Larocca RP Data Victoria Housing Market Specialist

Tightly held million dollar suburbs

While most people are not buying homes in the city’s million dollar suburbs, if you were, which would be the easiest to purchase in? Based on the latest housing market information from RP Data, Melbourne has 45 suburbs with a median house value in excess of one million dollars. Toorak had the highest value at $2.756M and Ormond the lowest at $1.005M. Values may range between Toorak and Ormond, however, if you are a buyer it will be numerically easier to purchase in a suburb with a larger number of houses on the market. For instance the 5 million dollar suburbs with the highest number of houses on the market were; Portsea, Brighton, Toorak, Balwyn and Canterbury. In these cases between 7.2 and 6.1 per cent of houses were on the market over the 12 months ending in November. That is well above the citywide number of 5.2 per cent. At the other end of the spectrum were some very tightly held but geographically diverse suburbs; Kangaroo Ground, Caulfield, Ivanhoe, Parkville and Kew East. With between 2.3 and 3.1 per cent of houses on the market buyers had a much harder task buying. Interestingly, there is little correlation between how tightly these suburbs are held and other property data such as changes in sale prices, value or even geography. This is an interesting fact for buyers and shows that sometimes if you are fixed on a certain suburb for your home it may take a lot longer than elsewhere. Robert Larocca RP Data Victoria Housing Market Specialist

A summary of housing finance for 2013

The Australian Bureau of Statistics ABS released housing finance data for December 2013 earlier today. The data provides a good summary of the mortgage lending environment throughout 2013. The data shows that 2013 was clearly a year where there was a strong rebound in demand for mortgages. The total number of owner occupier housing finance commitments in December 2013 was 14.1% higher than in December 2012. This figure is split into refinances of established dwellings and non-refinances or new loans. The number of refinance commitments is 12.5% higher over the year and the number of new loan commitments is 14.8% higher. The data shows that demand for mortgages has increased measurably throughout 2013. This is also reflected in home values data, the RP Data-Rismark Home Value Index showed that capital city home values rose by 9.8% in 2013. The number of owner occupier finance commitments for the construction of new dwellings was 14.5% higher over the year, commitments for the purchase of new dwellings were 13.2% higher and non-refinanced commitments for the purchase of established dwellings were 15.1% higher over the year. It is important to note that non-refinanced purchases of established dwellings accounted for 75.8% of all owner occupier new loan commitments in December 2013. Over the 12 months of 2013 there were 598,364 total owner occupier housing finance commitment, up 9.5% from a year ago. Refinance commitments accounted for 32.4% of all housing finance commitments in 2013 and the remaining 67.5% was for new loan commitments. In December 2013, the total value of housing finance commitments the amount borrowed was $27 billion. From a banking perspective, the money lent is much more important than the number of loans and the total value of finance commitments was 27.0% higher over the year. Looking at the value of commitments, commitments to owner occupiers for refinances were 20.4% higher year-on-year, owner occupier new loan ex-refi commitments were 19.0% higher while investment loan commitments increased by 40.7%. The total value of housing finance commitments, excluding refinanced loans increased by 28.5% year-on-year. Looking at the proportion of housing finance commitments provides further insight into how much is being lent to different cohorts of the market. As a whole, 60.2% of lending over the month was to owner occupiers made up of 43.4% for new loan commitments and 16.8% for refinances. The rest 39.8% was lending for investment purposes. The 43.4% of lending to owner occupiers for new loans was the lowest proportion since January 2004. The 16.8% of lending for refinances by owner occupiers was the lowest proportion for that segment since September 2010. The 39.8% of lending for investment purposes was the greatest since October 2003 41.2% . The 41.2% of total lending for investment in October 2013 was also the highest proportion of investment lending on record. In my opinion the level of investment lending is a concern from the market given it is currently at near record levels. Obviously with mortgage rates low and returns on relatively risk-free asset classes so low investors are moving into other, slightly more risky asset classes such as residential property. This is what the RBA was hoping for however, the high level of lending to investors is not without potential risks in the future. The move to residential property investment seems to be purely a move chasing capital growth. In strong investment driven markets such as Sydney and Melbourne home values increased by 14.5% and 8.5% respectively in 2013. Gross rental returns on residential property in these cities is extremely low at 4.0% and 3.5% respectively at the end of last year. If these investors are not necessarily committed to the housing market long-term then we could potentially see an influx of investment-grade properties come to the market in the future as these investors look to exit the housing market and place their investment dollars elsewhere. Despite the fact that we have near record low mortgage rates and home values had been falling through 2011 and the early part of 2012 the level of activity by first home buyers has been extremely low. In December 2013, the number of first home buyer finance commitments was actually 1.9% higher than the previous December note these figures are not seasonally adjusted . Throughout 2013 there were 82,599 first home buyer housing finance commitments indicating that they accounted for just 13.8% of all owner occupier finance commitments over the year. The number of first home buyer finance commitments in 2013 was a record low for a calendar year period. Overall the data highlights that 2013 was a strong year for mortgage lenders with escalating demand for mortgages. The increase in demand has largely been driven by subsequent purchasers upgraders or downgraders and investors. The rising level of demand for mortgages has subsequently resulted in an increase in property sales and fuelled the 9.8% annual increase in capital city home values. As noted the heightened level of activity by investors in the market is potentially a cause for concern and no doubt one that the RBA and APRA will be keeping a close eye on. Keep in mind that in many instances investors are using interest-only loans these are obviously attractive when interest rates are at record low levels but potentially not as attractive when/if interest rates are normalised. With mortgage rates still at low levels and the market expectation that there will be no increase in the cash rate until 2015 it is difficult to see how there won’t be a further lift in housing finance commitments throughout 2014. It will be interesting to see if we see a further lift in investment activity in the market and whether or not we see a rebound in first home buyer volumes throughout the year.

Week ending 9 February 2014

A preliminary auction clearance rate of 68.8 per cent was reached from 285 auctions this week in Melbourne. This compares to 65.7 per cent for the same time last year. Base on this week’s result, the auction market has picked up from where it ended last year. Volumes are still low and the clearance rate may change as the number of auctions build over the next few weeks. Buyers face slightly less choice than this time last year with fewer homes on the market. There are 7.6 per cent fewer total listings in Melbourne than a year ago which is a reflection of the faster selling times. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 8 February

This is the first week for 2014 in which there will be sufficient auctions to allow for a clearance rate to be calculated with 309 auctions scheduled. After a hiatus over January listings have begun to rise strongly. Recent house price data showing very strong growth over January will encourage more vendors into the market as they seek to capitalise on recent market movements. Key data Final clearance rate week ending 2 February: 74.7 per cent Melbourne auctions expected week ending 8 February: 309 Melbourne private sales time on market week ending 2 February: 62 days houses Melbourne vendor discounting market week ending 2 February: -5.7 per cent houses Listings being prepared for market are 18.7 per cent higher in month ending 2 February Robert Larocca RP Data Victoria Housing Market Specialist

The average time on market hits record low levels and vendor discounting reduces significantly in 2013

RP Data has been tracking the average number of days properties take to sell and the average vendor discount since the beginning of 2005. Both measures have recorded a significant improvement throughout 2013 and the average number of days on the market is currently at a historically low level. Average vendor discount excludes properties sold at auction and those which have sold above their list price and measures the difference between the first advertised price and the ultimate selling price of a home. The figure is then expressed as a percentage. As at December 2013, the average discount for a capital city house was -5.7% and for a unit it was -5.5%. At the same time in 2012, discounting levels were recorded at a much higher -6.9% for houses and -6.3% for units. The current levels of vendor discounting are the lowest they have been since early 2010 for houses and mid to late 2010 for units. An analysis of sales across the combined capital cities found that over the final quarter of 2013 29.5 per cent of all houses and 37.5 per cent of all units sold, transacted at a price which was at or higher than the original list price. These figures were greatly improved from the 25.3 per cent for houses and 30.8 per cent for units at the end of the September 2013 quarter. Although a relatively high proportion of properties are selling above the list price, the majority of homes continue to experience price negotiation and ultimately sell at a reduction from their original list price. The average time days on market figure excludes properties sold at auction and is measured by looking at the difference between the first advertised date of the property and the contract date once sold. Based on a data series from the beginning of 2005, the average days on market figures for the combined capital cities are at historic lows of 38 days for houses and 35 days for units. At the same time in 2012 the average days on market for capital city houses was recorded at 56 days and for units it was 53 days. With homes seeing lower levels of reductions to the original list price it is no wonder that we are seeing an improvement in the average number of days on market. Lower discounting levels mean that buyers and sellers are generally able to come to an agreement on price quicker. Looking at the level of discounting taking place in the market across the average time on market we see that well priced new stock is selling quickly at a very low discount level. Across house and unit sales, homes that sold in less than 30 days had an average vendor discounting level of -3.3% in December 2013. At the same time, those homes that sold between 30 and 60 days had an average discount of -4.7%, -4.9% was the average discount for homes selling between 60 and 90 days, homes sold between 90 and 120 days on the market had an average vendor discount of -7.2% and homes which sold after more than 120 days had a typical discount of -8.5%. The data highlights the importance of setting an appropriate initial list price, homes which are appropriately priced sell quickly and with a low level of discounting whereas the longer you keep the property on the market it generally results in a larger discount in order to achieve the sale. The improvement in both discounting and time on market is reflective of the broader housing market conditions. Property transactions have increased measurably over the past year and home values have also risen. These conditions are reflective of the increasing level of competition for those properties available for sale and have undoubtedly contributed to the improved discounting and time on market figures. With mortgage rates likely to remain at their current low levels over the coming months and housing market activity likely to rebound from its usual December and January slumber we would anticipate that discount levels will potentially improve further over the first half of 2014 and that the average time on market is likely to remain at current low levels. From a sellers perspective, setting an attractive initial list price will help to ensure that the selling process is a quick one and who knows, you may be one of the circa one third of the market that is selling their homes for more than their initial list price.

Significant shift in use of auctions in 2013

There was a remarkable shift in 2013 towards the use of auctions. Based on all sales until the end of November approximately 30.6 per cent of sales were by auction compared to 21 per cent in 2012. This is an interesting fact for vendors to consider as they face the choice of by what method of sale to sell their home. This is a choice best made in consultation with the real estate agent contracted to sell the home and there is some broader data that helps explain the market trends that can influence the decision. As anyone who has attended an auction will tell you they deliver the best outcome when there is competition between buyers. For that reason auctions work best when there is a unique quality of the property that can drive competition or there is a rising market. This can been seen in two sets of data. Firstly is the overall clearance rate. The clearance rate tends to rise when prices do. For instance in 2013 the house price index for Melbourne rose by 8.5 per cent and the clearance rate was 69 per cent. In 2012 the index fell by 2.9 per cent per cent with a clearance rate of 55.8 per cent. The second set of data is the proportion of sales by auction. Over the years auctions are used to sell between 20 and 30 per cent of homes in Melbourne with the balance sold by private sale. The use of auctions is far more prevalent the closer the suburb is to the CBD. It is important to note that even if you don’t sell at auction the chances are that due to the investment in the marketing you have made should will find a buyer soon after. RP Data tracks the outcome of homes passed in at auction and has found that over the months of September and October last year an additional 11 to 19 per cent sold. For example, for homes auctioned in the week ending 13 October the clearance rate was 70.2 per cent. Once the sale outcomes over the next 30 days were taken into account for those passed in it rose 11.9 points to 82.1 per cent. Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne house values at new peak after nation leading growth in January

The RP Data – Rismark Home Value Index for Melbourne houses reached a new nominal peak in January after a surprisingly strong 3.7 per cent rise. The latest figures surpass the previous peak in October 2010. The unit index recorded a more moderate 0.2 per cent rise and reached an earlier peak in December 2013. Not only was a new peak reached but Melbourne recorded the strongest growth of all capital cities. Read media release here. With first home buyers at all time lows this market is being driven by upgraders and investors in the detached houses market and supported by low interest rates. With very few auctions in January the rise is also a factor of houses sold through private sale, many of which will have been passed in at auction in December. This current growth phase is being strongly supported by record low interest rates. Ongoing growth may however be moderated by lower consumer confidence in Melbourne. It should be noted that the index can show natural volatility on a monthly basis as shown by the rises in September, December and now January against a background of reductions in October and November, however the trend is clear with rises over the quarter and year. Robert Larocca RP Data Victoria Housing Market Specialist

Investors face choice between yield and capital gain

In a recent blog I looked at the relative performance of Melbourne investment property from a rental yields perspective view blog . Examining yields on a suburb basis provides an interesting metric for investors to consider; the best yields are actually found in the most affordable suburbs. Of the 10 suburbs with the highest rental yield none have a median house value of more than $350,000. Dallas and Melton South share an indicative yield of 5.7 per cent, well above the city wide yield of 3.4 per cent. The other suburbs in the top 10 are Meadow Heights, Coolaroo, Frankston North, Carrum Downs, Melton, Warburton, Hampton Park and Cranbourne West. At the other end of the spectrum the ten suburbs with the lowest yields, from 1.8 to 2.5 per cent all have median house values in excess of a million dollars, Portsea, Toorak, Balwyn, Kew, Eaglemont, Elsternwick, Canterbury, Balwyn North, Kew East and Caulfield North. It is interesting to note that while the same rule applies in the unit and apartment market there are a few notable exceptions, such as central Melbourne, which will be examined in a future post. Robert Larocca RP Data Victoria Housing Market Specialist

Are first home buyers willing to sacrifice lifestyle for housing?

Last year according to the RP Data-Rismark Home Value Index , capital city home values rose by 9.8%, creating further affordability pressures for those segments of the market who are most price sensitive; the younger aged cohorts and first time buyers. Our daily index data shows that home values have continued their strong pace of growth through the first month of 2014 with our combined capitals index likely to end the month slightly more than 1% higher. Based on homes sold over the December quarter, the median price of a house across Australia’s capital cities is now $575,000; ranging from $775,000 in Sydney through to $350,000 in Hobart. In the most expensive capital cities the challenge to buy a detached house within close proximity to where they work or socialise is simply out of reach for the vast majority of younger buyers. Housing finance data indicates that as a proportion of the owner occupier market, first home buyers are currently at a record low level, accounting for just 12.3% of all owner occupier finance commitments. If first home buyers aren’t entering the market now, at a time of historically low mortgage rates, one might consider how and when they will ever enter the market. In my opinion it is not always a case of not being able to afford to enter the market, it is often that the sacrifices a potential buyer would have to make in order to enter the market are too great. There are some clear reasons why housing in Australia is expensive, including:: Australian’s have high levels of personal wealth and high incomes relative to most other country’s Australia’s population is heavily centralised with around 55% of the national population residing in either Sydney, Melbourne, Brisbane and Perth Job opportunities and employment availability tend to be most abundant within capital cities The supply of new housing within the capital cities has consistently been insufficient to meet the level of demand over the past decade or so Population growth is strong with relatively high levels of overseas migration and natural increase creating additional demand for housing The cost of vacant land has been driven to unaffordable heights due to the slow release of new residential land supply and the restrictions of urban growth boundaries in most capital cities Negative gearing which is available on all asset classes encourages many to invest in residential property as a way of reducing their tax liability which creates additional housing demand. Although these factors all contribute to a relatively high cost of housing, it does not mean that purchasing a first home is unachievable. An upcoming analysis which will be released by RP Data next month finds that as at the end of 2013, across the capital cities, 28.4% of all homes had a current value of less than $400,000. Even in a market which is considered significantly unaffordable such as Sydney, 17.5% almost one in five homes have a value below $400,000. Of course most of these properties are not located in the desirable areas of the city, but they are available. Many potential first home buyers either still live with their parents or rent within iares close to where they work and socialise. For those living with their parents, it’s likely that the home they are currently residing in was not their parents first home. I’m sure if you asked many of those parent’s they would say that their first home was vastly inferior to their current home ie they upgraded when they could afford to . For those renting in inner city areas, the reason why property prices and rents are so high in these areas is that demand is very strong while supply is quite limited which in-turn results in the high prices you see within these areas. Given this, the prospective first home buyer is, in most instances, going to have to make a sacrifice in order to enter into home ownership. As I see it, first home buyers need to make one of two major sacrifices; either move away from their local area to an area where home values are more affordable in order to enter the market or buy something which is at the lower end of the local market which will often be a unit rather than a house . The strategy for someone buying their first home should rarely be to buy at the suburbs median selling price; it should be to buy an entry level property. Of course varying levels of deposit and income will dictate what the purchaser can reasonably afford to borrow and repay. Over time, the first home buyer should see some capital growth and it would also be reasonable to expect that they should also experience an improvement in their employment conditions more pay/promotion/new role which would eventually help in assisting them to upgrade. Looking at my first home buying experience, the above scenario parallels my own experience. I have to admit, the home was pretty horrible but it was in the inner city location I wanted. My first purchase was a two bedroom, one bathroom unit in Fortitude Valley in Brisbane. The location was great but the unit was not so great. The complex was largely utilised for short term accommodation and although the unit had two bedrooms and one bathroom, outside of those three rooms it had one further room which functioned as a kitchenette, lounge and dining room. I purchased the property for $248k in July 2005 and sold the property in April 2010 for $334k effectively five years later. At the time of purchase, the median unit price within the suburb was $309,240 and by the time of sale the median unit price in the suburb was $400,000. The unit was purchased at a price well below the suburb median and upon sale the price had increased by 35%. In comparison the median sale price across Fortitude Valley had increased by a lower 29%. At the time I was single so I also had a friend come and live with me which assisted in making the mortgage repayments. By the time I sold the property I had purchased a subsequent property which was a house, once again it was purchased at a price below the suburb’s median. I had managed to make a profit on the sale of my first home and purchased a more expensive property, I had also benefitted from an increase in salary over the time which made repayments easier. In my experience the choice to purchase a first home is never an easy one. It is often the case that what you think you should be able to get for your money and what you actually can get are very different. But having an understanding of your budget and doing your research to get a realistic expectation of what properties and in what location you can afford to purchase takes some of the pain out of the house hunting process and purchasing. Undoubtedly some people will not be able or willing to purchase but bemoaning the high cost of housing in the local area is unlikely to change the situation outside of wide-spread changes to Government policy ies .

Moderate increases in rental costs over last year

Melbourne renters have seen only moderate rises in rents over the past year, especially when compared to Sydney. At the same time investors have seen static yields but potentially benefited from improved capital growth. Over the past year the median weekly rent for a house in Melbourne has risen by $10 and by $8 for units.. Currently the median rent for a house is $437 per week and $389 for a unit. This compares to a rise of $23 per week in Sydney to $582 for a house and an $18 rise for units to $509. It is certainly less expensive to rent in Melbourne than in Sydney and renters have been faced with more moderate increases. In part, the lower weekly rent explains why rental yields are lower in Melbourne than in Sydney. The yield for a house in Melbourne was 3.4 per cent in December last year and 4.2 per cent for units. In Sydney, the comparable figure was 3.9 and 4.7 per cent respectively. Over the past two years, yields have not changed substantially for houses in Melbourne with a change from 3.5 per cent 3.4 per cent recorded. Property owners over that time have benefited from capital growth. Units, which have a higher yield, have recorded a similar change, from 4.3 to 4.2 per cent. It is interesting to note that over the longer term, yields for both houses and units in Melbourne have stabilised at a lower level. From 2003 to 2005 investors benefited from yields of around 4.4 per cent for houses and 4.9 per cent for units. Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne housing values rise over 2013

In the December quarter last year the median value of a house in Melbourne rose by 2.6 per cent to $542,053. Over the last year the increase was 10.7 per cent from $489,696. A similar increase was recorded for units. The median value of a unit rose by 2.3 per cent to $442,043. Over the last year the increase was 9.8 per cent from $402,440. This confirms that 2013 was a good year for real estate in Melbourne. Values rose as demand increased and more people bought and sold residential real estate. The market remains below its previous nominal peak underscoring that we are in a recovery phase. In the houses market the strongest growth in values over the year was recorded in Kew East, Balwyn North, Caulfield, Maribyrnong and Balwyn. Value growth was also recorded in the more affordable sub $500,000 segment with the highest growth occurring in Watsonia where values rose by 12.3 per cent and above the city- wide rise. The strongest growth over the quarter was concentrated in the more affordable suburbs of Hastings, Knoxfield, Mitcham, Keilor East along with Camberwell. This suggests that the substantial rise in auction volumes the more prevalent sales method in the inner city acted to moderate price growth. In the unit market the highest growth over the year was recorded in Malvern East, Balwyn, Northcote, Bentleigh East and Balwyn North. Taking a broader view of the Melbourne market the data shows that inner eastern suburbs of Balwyn and Balwyn North recorded the strongest demand across all property types. Looking forward to 2014, it is clear that the market is primed to move from a recovery to growth phase whilst economic conditions, consumer confidence and monetary policy remain favourable. Robert Larocca RP Data Victoria Housing Market Specialist

Inflation is surprisingly strong and home values adjusted for inflation are still below their previous peak

The Australian Bureau of Statistics ABS released the Consumer Price Index results for the December 2013 quarter earlier today. The December results provide a timely summary of consumer price rises up to the end of last year. Headline inflation was recorded at 0.8% over the final quarter of the year and was 2.7% over the year. Perhaps most interesting is the fact that the final two quarters saw inflation of 1.2% and 0.8%, an annualised rate of 4.0%. The current annual inflation of 2.7% sits within the RBA’s target band of 2% to 3% however, the strong level of inflation over the past two quarters lessens the prospect of interest rate cuts for the time being. The RBA prefer to look at underlying measures of inflation; the trimmed mean and weighted median each recorded quarterly rises of 0.9% in December. Both measures have annual inflation recorded at 2.6% which is only slightly below the 2.7% headline figure. From a residential property markets perspective the effects of inflation are also important to consider. Based on the RP Data-Rismark Home Value Index, combined capital city home values increased by 9.8% in 2013 however, when you adjust for inflation the growth was a lower 6.9%. Although home values rose over the year across all capital cities, when the impact of inflation is considered, home values actually fell in Hobart -0.6% and the rate of growth across all other cities was also lower. Over time the impact of inflation on housing markets should also be considered. The raw capital growth figures show that combined capital city home values at the end of 2013 were 3.5% higher than at their previous peak. When these figures are adjusted for inflation, values are still -4.6% lower than their previous peak at the end of the September quarter in 2010. Across each individual capital city market, inflation adjusted home values remain below their previous peak. This includes Sydney and Perth where unadjusted figures show values are 10.9% and 3.6% higher than their previous peak respectively. When adjusted for inflation, values across these two cities are currently -0.1% lower than their previous peak and Perth values are -8.9% lower. If we look at the time of the previous market peak in inflation adjusted terms across each city, it goes some way to explaining why there has been such a pick-up in demand for housing and subsequently an increase in home values. Sydney’s market peaked in the first quarter of 2004 and across other capital cities the market peaks were: Melbourne Q3 2010 , Brisbane Q1 2008 , Adelaide Q2 2010 , Perth Q3 2007 , Hobart Q4 2007 , Darwin Q3 2010 and Canberra Q2 2010 . With the relative costs of other goods rising at a faster pace than home values over recent years it is no surprise with mortgage rates at historic low levels that buyer demand and home values have now been rising. From here, if inflation continues to climb that may result in the need to lift interest rates which would likely dampen investor activity and slow levels of capital growth. The important thing to keep in mind however is that when you consider inflation, dwelling values remain lower than their previous peaks in every city.

Very few sellers in Knox record a loss

The latest version of RP Data’s Pain and Gain report showed that as we get closer to a new peak in dwelling values the proportion of sellers making a profit on sale is increasing. Interestingly some of the best outcomes have been recorded in suburbs around 20 km away from the Melbourne CBD. The report is useful for property investors, small or large, because it looks only at homes that already have an owner and whose sale price is therefore set by the market. Other market data, median prices for instance, mingles the new sales with prices set by the developers and those sold by individuals. The report showed that only 7.7 per cent of Melbourne homes re-sold in the September quarter of 2013 incurred a loss for their owners. This was lower than the 8.2 per cent recorded in the June quarter this year and 8.3 per cent in the 2011 June quarter. Of course the longer the home was owned the more likely the owner was to see a profit on sale. The highest proportion of owners selling for more than double what they paid had owned their homes for between 10 and 15 years. In overall terms the highest overall profit was recorded in more expensive areas with sellers in Boroondara recording $231M in profit in three months. Whitehorse ranked second with $159M in profit and Monash third with $136M. Despite the very high profits recorded in those inner and middle eastern municipalities it was sellers in Knox that probably had the best outcome with only 2 per cent recording a loss. Those losses totalled only $360,000, less than the value of one house. Second on the list was Manningham where 3.9 per cent of sellers recorded a loss and third was Maroondah with 4.3 per cent. Robert Larocca RP Data Victoria Housing Market Specialist

Where have the Victorian first home buyers gone?

One of the most perplexing market trends right now is the substantial drop in first home buyers in Victoria. According to ABS Housing Finance data, only 12.2 per cent of loans were given to first home buyers in November 2013. This compares to a 20 year average of 21.4 per cent and follows October which recorded the lowest proportion of first home buyers in 20 years. From a raw numbers perspective, the last time there were fewer than 1,691 of first home buyers recorded in November was in 1991. It is now 16 consecutive months that the proportion has been lower than the long-term average. The proportion rose in November but only because the number of non-first home buyers fell to a greater extent. The reason this a perplexing issue is because Melbourne dwelling prices are still not at a nominal peak and interest rates are at historical lows. When prices last peaked in October 2010 around 18 per cent of loans were given to first home buyers. At the peak of cycle before that, in 2007, it was around 21 per cent. Prices alone cannot be the reason. One factor may be the cessation of the Victorian Government’s $7,000 First Home Buyers Grant as the proportion dropped 4 points from July to August and has not risen since. It would however be surprising if this alone was the reason as financial assistance is still available for new homes and stamp duty cuts of 40 per cent can still be accessed. The data also supports the argument that first home buyers are being crowed out by investors. Even if this is the case, it is not a healthy outcome for the market as investors are critical to the supply of rental homes. It will be very interesting to watch what impact the increasing stamp duty cuts have over the next ten months as the current 40 per cent discount rises to 50 per cent, hopefully it will encourage more Victorian first home buyers back into the market. Robert Larocca RP Data Victoria Housing Market Specialist

Housing finance data shows demand for mortgages continues to climb

Housing finance data for November 2013 was released by the Australian Bureau of Statistics today. The data indicates that the strong demand for housing finance continued in November however, first home buyer activity slumped to new record lows as they continue to be squeezed out of the market by subsequent purchasers and investors. According to the data, the total number of commitments increased by 1.1% over the month and is now 15.3% higher than they were a year ago. The 52,912 owner occupier commitments were the highest since October 2009. Owner occupier commitments for refinances of existing loans rose by 1.7% over the month and are 13.7% higher year-on-year. In comparison, non-refinance commitments increased by 0.9% in November and are 16.1% higher than they were in November 2012. Year on-year, non-refinanced loans for the construction of new dwellings have increased by 16.9% compared to a 17.8% increase in loans for the purchase of new dwellings and a 15.7% increase in loans for established dwellings. Looking at the total value of housing finance commitments in November 2013, $26.9 billion was lent for housing over the month which was up 1.7% and 24.9% higher than in November 2012. The value of owner occupier non-refinance commitments increased by 1.9% over the month, compared to a 2.8% increase in owner occupier refinance commitments and a 1.5% increase in investment loan commitments. Year-on-year, owner occupier non-refinance commitments are 18.5% higher compared to a 20.7% increase in owner occupier refinance commitments and a 35.2% increase in investment lending. The 35.2% year-on-year increase in investment lending was the largest increase since November 2003. As a proportion of all lending in November 2013, owner occupier non-refinance lending accounted for 43.8% of borrowings, compared to 17.6% for owner occupier refinances and 38.5% for investment purposes. Although the proportion of lending for investment purposes dipped slightly in November it remains at its highest levels since December 2003. The proportion of commitments for owner occupier non-refinances is at its lowest level since March 2004. The housing finance data also provides insight into first home buyer activity. In November 2013 there were 6,887 first home buyer finance commitments which was -1.2% lower than in October but up from the recent low of 6,357 in September. The pick-up in housing finance demand is clearly stronger across the non-first home buyer market and this is highlighted by the fact that as a proportion of all owner occupier lending, first home buyers accounted for a record low 12.3 per cent in November 2013. The average size of loans has also now reached record high levels. As home values increase and median selling prices rise, home buyers need to spend and borrow more in order to mortgage a home. The average first home buyer loan size in November 2013 was $298,000, up 3.5% over the year. The average home loan size for a non-first time buyer in November 2013 was $322,200, another record high and was 3.7% higher over the year. The housing finance data highlights that there was a continuation of improving levels of demand for housing throughout November 2013. In particular, demand is strongest from subsequent purchasers and investors.

Dwelling approvals are rebounding quite nicely thank you very much!

Dwelling approvals data for November released by the Australian Bureau of Statistics ABS earlier today showed that the Reserve Bank RBA are getting their wish. With interest rates low and mining investment topping out, the RBA were looking to the housing sector to pick up some of the slack and that is exactly what it has done. Dwelling approvals data showed that in November 2013, 16,396 approvals were granted which was a fall of -1.5% over the month however, compared to approvals in November 2012, approvals were 22.2% higher this year. Breaking the data down further, house approvals rose by 5.7% in November and are 17.4% higher year-on-year compared to an -8.8% monthly fall in unit approvals and a 28.5% increase in unit approvals year-on-year. The private sector accounts for the majority of dwelling approvals, 98.3% in November 2013. Year-on-year, private sector house approvals have increased by 18.0% and private sector unit approvals have increased by 27.6%. As you can see from the above chart, both private sector house and unit approvals are showing a clear trend towards an increasing number of approvals. The month-to-month data can be notoriously volatile however, if we look at the rolling annual number of dwelling approvals once again we can see that there is a clear trend towards a higher number of approvals. Over the 12 months to November 2013, there have been 173,869 dwellings approved for construction, of which 97.9% were approvals to the private sector. The 173,869 approvals was the highest annual number since March 2011 and were 14.5% higher than at the same time in 2012. It is also interesting to note the rising prevalence of ‘other’ or unit approvals. Looking at a rolling annual proportion, over the 12 months to November 2013, 43.7 per cent of all dwelling approvals were for units. This indicates that the majority of approvals are still granted to houses however, the 43.7% figure was the greatest proportion of unit approvals on record. It is also interesting to see just how quickly they are rising in prominence, five years ago just 32.7% of all approvals were for units and ten years ago the proportion of unit approvals was 33.0%. The sharp rise in unit approvals is most likely a response to the relatively more affordable nature of units as opposed to houses as well as a desire by many Governments to increase densities within cities, particularly within inner city areas where many residents desire to live. The above chart details the pricing differential between houses and units across Australian capital cities as at December 2013. You can see in all cities units are selling at cheaper prices than houses and in Sydney, Darwin, Melbourne and Canberra the differential is in excess of $100,000. The dwelling approvals data breaks approval types down by capital city and you can see that particularly in those cities with a large pricing differential between houses and units the proportion of units approved over the past 12 months is much greater. No doubt this is a trend which is likely to continue given urban growth boundaries and natural geographic boundaries prevalent across most capital cities. Not to mention the fact that outer suburbs may be less desirable despite generally being more affordable due to the generally poor provision of essential infrastructure in these areas. Overall the data indicates that there has been a sharp supply-side response over the past 12 to 18 months which is exactly the sort of response the RBA would have hoped to see. Over the coming months it will be interesting to see whether or not the pick-up continues. Glenn Stevens famously states that the RBA wanted a supply-side response to low interest rates not just higher home prices, at the moment they are getting both. Over the 12 months to November dwelling approvals have increased by 22.2% however over the 12 months to December 2013 home values have increased by 9.8% according to the RP Data-Rismark Home Value Index. From here it will be interesting to see how strong home values growth is in 2014 and if it starts to slow what, if any, impact will it have in the current pick-up in dwelling approvals.

Housing demand increases to highest level since September 2009

Data released by the Australian Bureau of Statistics ABS earlier this week showed that the national population increased by 407,027 persons over the 12 months to June 2013 to reach an estimated 23,130,931 persons. The increase in new residents equates to a growth rate of 1.79% over the year making it the greatest annual increase in raw number terms since September 2009 and the most rapid rate of population growth since December 2009. Looking at the components of national population growth, 40% of the increase over the year has come from ‘natural increase’ ie births minus deaths 162,656 and 60% from net overseas migration 244,371 . Over the year, the rate of natural increase has risen by 2.4% compared to an 8.6% increase in the rate of net overseas migration. The high rate of net overseas migration is interesting, particularly when you consider the lower rate of domestic economic growth and a forecast of unemployment to reach its highest level since late 2002 over the next year. Coupled with this, employment participation is falling, just where and what all these migrants will do for employment remains somewhat of a mystery. Breaking overseas migration down further, the data shows that there were 508,662 total migrant arrivals to Australia over the 12 months to June 2013. On the other hand, there were 264,291 residents who departed from Australia to other countries, resulting in the 244,371 net migration figure over the year. This indicates that we have gained almost double the amount of people we have lost over the past year through migration. In comparison to a year ago, the total migrant arrivals were recorded at 478,763 persons and total migrant departures were recorded at 253,705 persons. Looking at the individual states, the most populous states are the major benefactors of population growth in raw number terms. The speed of population growth over the past year has been strongest in Western Australia by a long margin 3.2% which is then followed by Queensland 2.1% , Australian Capital Territory 2.0% and Victoria and the Northern Territory both 1.8% . The rate of growth only tells part of the story though, when you look at growth in raw number terms the major growth states are: Victoria 106,048 , New South Wales 102,152 , Queensland 89,862 and Western Australia 80,986 . These four states combined accounted for 93.1% of total population growth over the past 12 months. Migration is also an interesting statistic to track at the state level as it is broken down into both net overseas migration and net interstate migration. As previously mentioned, at a national level net overseas migration has ramped up over the past year. If we look across each state the story is somewhat different. New overseas migration is dominated by New South Wales, Victoria, Queensland and Western Australia which account for 92.2% of all net overseas migration nationally. The rate of net overseas migration has risen over the year in each state however, it has begun to fall in recent quarters within Queensland, South Australia and Western Australia. Looking at net interstate migration, there has been a marked slowdown in interstate movements over recent years, most noticeable is the slowing of migration to Queensland away from New South Wales and Victoria in particular. Although the rate of migration has slowed, Queensland still had the greatest number of net interstate migrants with 9,460 over the year followed by: Western Australia 7,992 , Victoria 4,671 and the Australian Capital Territory 1,579 while all other states had a net outflow of residents to other states. Victoria actually recorded its greatest annual inflow of interstate residents since March 2002. The data indicates that the rate of population growth at a national level is strong and based on overseas arrivals and departures data it appears as if net overseas migration will continue to increase next quarter. The vast majority of population growth is taking place in the most populous states of the country and unsurprisingly much of the increase is happening in the capital cities of these states. Most overseas migrants are also choosing to settle in our most populous states. Finally, on an historic basis there seems to be much less of a propensity for residents to move interstate. The propensity has been reducing for a number of years however, ever since the onset of the financial crisis interstate migration has reduced markedly. The repercussions of these trends are that the populations of our most populous states and subsequently their most populous regions are continuing to see rising demand for homes and an increasing need for essential infrastructure. Unlike in the past, Queensland is not seeing the significant influx of residents from interstate. Given the strong growth in home values in Sydney, Melbourne and Perth over the past year and a half, it will be interesting to see if interstate migration to other states begins to rise in other states as buyers look for more affordable housing alternatives.

The numbers that matter in 2013 for the Victoria market…

As we near the year’s end there are a range of key numbers that can help explain the property market this year. This year’s results show that the residential real estate market was certainly healthier than last year, however it still remains below its peak despite being supported by record low interest rates. The high volumes of auctions were, along with moderate rises in value, a highlight but it is concerning that overall transaction volumes are still to recover substantially from 2011 and 2012. Consumers are still acting conservatively and that prevented a new peak in house values being reached this year. Sales volume In the 12 months ending September 13 there were 6 per cent more dwelling sales than the previous 12 months. At the end of 2012 there were72,432 dwelling sales in Melbourne and the comparable number in 2013 is projected to be between 76,000 and 80,000. Clearance rates Melbourne fell short of a 70 per cent clearance rate following a softer market and higher supply in the last few months. It has ended the year with a clearance rate of 69.1 per cent which is 13 points higher than last year and second only to 79.4 per cent recorded in 2009. Listings The overall number of active listings is 35,524 in Melbourne, which is only 1.3 per cent lower than a year ago, indicates that the increase in new listings has been absorbed but has failed to clear the overall backlog. Highest sales In the 12 months ending September, the highest volume of house sales were in all in growth areas, Pakenham, Berwick, Point Cook, Frankston and Craigieburn. In the unit market there were twice as many sales in Melbourne as the second on the list, Southbank. Vendor Discounting The amount that vendors of private sales need to discount from their advertised price was lower this year than a year ago at 6 per cent in October versus 7.2 per cent a year ago. For units the discounting also reduced, from 6.6 per cent to 5.8 per cent. Time on Market Vendors of houses sold at private sale achieved quicker sales at 40 days in October compared to 49 days a year ago. For units it is 38.5 days compared to 43 days a year ago. Values House values in Melbourne still remain below their previous nominal peak despite a 6 per cent rise in house values this year. The house price index in November showed values were 3.2 per cent below the peak of October 2010. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 22 December

This is the last auction weekend for 2014. I expect that after this weekend a majority of activity in the real estate market will be for private sales and the odd auction in a coastal area. By the end of this weekend Melbourne will have seen approximately 36,000 auctions compared to around 28,000 last year and 30,000 in 2011. This represents a substantial 28.5 per cent rise in volume. As evidenced in the rise in the clearance rate results, there can be no doubt that 2013 was a healthy year for auctions in Melbourne with more vendors selling their home. The clearance rate for 2013 will be 69 per cent compared to 56 per cent last year. This is the highest recorded in Melbourne since 79 per cent in 2009. There was also a rise in private sale transactions; however, it was not to the same degree. The final results available early next year will confirm this. Key data Clearance rate week ending 15 December: 64.9 per cent Melbourne auctions expected week ending 22 December: 505 Melbourne private sales time on market week ending 15 December: 33 days houses Melbourne vendor discounting market week ending 15 December: -5.8 per cent houses Listings being prepared for market are 0.6 per cent higher in month ending 15 December Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 15 December 2013

A preliminary auction clearance rate of 66.6 per cent was reached from 1,244 auctions this week in Melbourne. This is a solid outcome after the busiest six weeks in Melbourne’s auction market history. Over this time there has been an average of 1,380 auctions each week; a record for any single week in any other year which underscores just how remarkable the spring and summer selling seasons have been. Buyers who are still in the market will find good opportunities over next month as vendors of homes passed in auction look for a buyer. Prices appear to have stabilised over the past week after the falls of November with a 0.5 per cent rise in the home value index over the last week. Time on market for houses sold by private sale remain tightened from 34 days to 33 days of the last week. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 15 December

Last weeks clearance rate of 63.3 per cent was both on trend and the lowest since April this year. The weekly clearance rate is now more than 10 points lower than the high of 76.2 per cent in late August and shows that high stock numbers are having an impact on the market. This week we expect 1757 auctions in Victoria with 1543 in Melbourne. This would make it the third largest ever after the 1619 at the end of October and 1598 at the end of November and start of December. This week will be an interesting challenge for the market in light of the trend. It is the sixth in a row above 1,000 and the last of this year’s record run of large weekends. Analysis of the last month suggests that buyers will have the upper hand. Listing of homes being prepared for market is now reducing as the year ends. The private sale market remains stable with a small increase in vendor discounting for houses but stable time on market. From value perspective the falls recorded in November have not continued over the last week suggesting that the key reason for the drop last month was related to volume. Key data Clearance rate week ending 8 December: 63.3 per cent Melbourne auctions expected week ending 15 December: 1543 Melbourne private sales time on market week ending 8 December: 34 days houses Melbourne vendor discounting market week ending 8 December: -5.7 per cent houses Listings being prepared for market are -1.6 per cent lower in month ending 8 December Robert Larocca RP Data Victoria Housing Market Specialist

Is the reduction of clearance rates in Melbourne expected?

Over the course of the past two months the weekly clearance rate in Melbourne has dropped from the mid 70 range to the mid 60 range; the reasons for this are many and varied and have been discussed and debated. There is no doubt that the record volumes of homes for sale at auction have had an impact during 2013, however due to the mismatch between what individual buyers are looking for and what is on offer, there is no linear relationship between stock levels and the clearance rates. Fundamentally, high stock levels don’t cause a commensurate fall in the clearance rate. Analysis of RP Data’s auction results show that the reducing clearance rate in Melbourne in late spring and in December is a trend which has occurred in four of the past five years. In 2012 clearance rates in the high 50’s fell to the low 50’s by the end of December. In 2010 there was a very similar pattern to this year with low 60’s falling to low 50’s, and in 2009 there was a smaller fall from the low 80’s to the mid 60’s. In 2011 it was a different case as the market was at a low point with activity in the auction market very subdued and a clearance rate persistently in the very low 50’s. Further analysis suggests that from a city wide perspective the highest clearance rates in spring are found in the weeks before the September AFL Grand Final and when market activity lifts out of winter. With this in mind vendors looking to sell in the second half of 2014 should aim to do so early to allow them an opportunity to take advantage of the better buying conditions in December. Robert Larocca RP Data Victoria Housing Market Specialist 20092010 2011 2012 2013 September CR82.9%65.3% 51.3% 57.3% 74.4% Spring CR80%60.7% 49.6% 57.9% 70.85% December CR63.4%55.7% 50.3% 52% 63.3%* *till week ending 8 December

Investors climb to near record high levels of market participation

In last week’s RP Data Research Blog I discussed what I believe are some of the potential pitfalls of such a high level of investment activity in the housing market. The housing finance data for October 2013 was released by the Australian Bureau of Statistics earlier this week and it showed an ongoing escalation in investment activity which is a potentially worrying development and one that APRA and the RBA will have a close eye on. According to the October housing finance data, there was $10.3 billion worth of housing finance commitments for investment purposes over the month, up from $9.5 billion in September. The value of investment loans is at a record high up from its previous high in September. It is important to also keep in mind that housing finance data only looks at finance commitments to local authorised deposit-taking institutions ADIs . We hear a lot of talk about overseas investors and often that money is not sourced locally. Given this, the true amount for all investors could be much higher. The $10.3 billion of commitments to investors is still lower than the $11.6 billion worth of commitments to owner occupiers for non-refinanced loans but is also much larger than the $4.6 billion in owner occupier refinance commitments. As a proportion of the $26.5 billion in housing finance commitments over October, investment loans accounted for 38.9%. Although this amount may not sound that substantial, it was the highest proportion of investment finance commitments since December 2003 39.3% and not all that far from the record high proportion of 41.2% in October 2003. If we look back to the peak in investor activity in October 2003, the annual rate of capital growth across the combined capital cities was recorded at 17.7% at that time. From there on, the annual rate of capital growth started to decelerate. This may suggest that as investment activity peaks whenever that may be it could be a precursor to a slowdown in overall capital growth conditions. It looks as if much of the investor activity currently taking place is pure speculation on capital growth. Home values across the combined capital cities are 8.0% higher over the year which has significantly outperformed the 2.9% growth in rental rates. As the above chart shows, both the annual rate of rental growth and rental yields are falling which will result in a lower rental return. This is highlighted by the fact that we have seen capital city gross rental yields fall from 4.3% a year ago to 4.1% currently, which is not particularly attractive from an investment return perspective without the capital growth. Of course this heightened level of investment activity with little focus on rental returns is likely to result in an even greater number of negatively geared owners of investment properties. The latest data from the Australian Tax Office ATO based on the 2010-11 financial year showed that 1,811,175 individuals claimed rental income and two thirds of which claimed rental losses of $13.285 billion. With investment activity currently so high and investors seemingly focused on capital growth it seems inevitable that the number and value of losses on residential investment properties is set to increase. This heightened level of investment activity is also coming at the expense of first home buyers. Based on the number of owner occupier finance commitments, first home buyers accounted for just 12.6% of all owner occupier finance commitments in October, slightly higher than the record low of 12.5% the previous month. As the above chart shows on both a volume and percentage basis, first home buyer participation in the market is at near record low levels. We know that the trend has been towards a greater proportion of the population renting however, there must be a sense that the high level of investment activity is to some degree locking potential first home buyers out of the market. The latest housing finance data shows that first home buyers and owner occupiers who are non-first time buyers have both recently started to increase their borrowing amounts. Obviously value escalation is partly responsible however, values were rising in 2009 and 2010 without any significant lift in borrowings. The data potentially indicates that investors are driving values higher and both first home buyers and non-first home buyers have a fear of missing out and are increasing their borrowings in order to enter the market. If this trend continues it could be quite worrisome as it may lead to both increasing levels of household leverage along with increasing demand for loans with a higher loan to value ratios LVR meaning that buyers are using smaller deposits in order to enter the market. The heightened level of investment activity and the potential long-term repercussions for the housing market must surely now call for close scrutiny by both the RBA and APRA.

The very long run of the Melbourne housing market

RP Data’s median house and unit prices in Melbourne extend over nearly 40 years from 1974 till now. It clearly shows that the last decade has been the most volatile proceeded by much more moderate cycles in house prices. The first comparatively rapid rise in prices was in 1988 through to 1989 when median prices of houses rose by 42 per cent in two years. After this median prices fell and otherwise stagnated before once again reaching their previous peak eight years later in 1997. Another period of reasonably strong and rapid appreciation occurred through 2007 and into early 2008 when the median house prices rose 20 per cent. Nearly half that rise was lost in 2008 as prices fell. Unlike previous cycles there was little to no gap until the next growth phase when over 2009 and 2010 median prices rose by 37 per cent. Until the last decade sharp falls in prices where not common but they have been a recent feature of the market and are a sign of its volatility. One reason for this difference was the shock of the financial crisis, which resulted in not only confidence sharp fall in consumer confidence but also a matching boost to the market through the stimulus program. The ongoing hangover from the financial crisis, a significant fall in the rate of housing credit growth and lower levels of consumer sentiment have led to more volatile times for the housing market. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 8 December 2013

A preliminary auction clearance rate of 64.1 per cent was reached from 1,315 auctions this week in Melbourne. After an unprecedented five consecutive 1,000 plus auction weekends it is not a surprise that the clearance rate has continued to cool. Especially once you consider that the current rise in auction listings is outstripping the broader rise in transactions across the residential housing market. The high volume of auction listings is also having an impact on values with the more expensive segment of the market now recording lower levels of capital growth than the most affordable segment in contrast to the equal levels of growth over the past year. There are only two weekends for auctions left this year and buyers will continue to have the upper hand. Time on market for houses sold by private sale remain stable at 34 days compared to 34 days last week. Robert Larocca RP Data Victoria Housing Market Specialist

Value growth more moderate in current growth phase, however the potential downside risks may be greater

The current value growth phase across Australia’s combined capital cities is nowhere near as strong as other growth phases over recent times. Although home values are rising, they are doing so at a much more moderate pace than during previous growth phases. Home values are higher now than they have been in the past however, a different market characteristic now is that investors represent a much greater portion of the market. This could potentially heighten the risks associated with a downturn in the current growth phase. Nineteen months ago, the combined capital city housing market reached a low point following a -7.7% fall in home values. Since that time, capital city home values have recorded total value growth 10.3% to November 2013. In comparison, over the 19 months from the beginning of 2001 home values rose by 31.3%. From the start of 2007, home values were 13.7% higher 19 months later from the beginning of 2009 home values were 19.8% higher 19 months later. So as you can see, home value growth in this phase has been much more moderate, however, home values are also higher. Interestingly, values were still growing after 19 months in 2001/02 however, values had begun to fall by this point in 2007/08 and 2009/10. In 2007/08 the market was beginning to plunge into the financial crisis and aggressive interest rate cuts were not yet enough to stimulate higher demand and subsequent higher home values. In 2009/10 low interest rates and the First Home Owners Grant Boost FHOGB stimulated the growth in the housing market however, once the stimulus was removed and interest rates started to rise we saw the rate of value growth fall and eventually turn negative. In the current growth phase we have not as yet seen interest rates rise and there has been no other external stimulus such as the FHOGB, and values are still rising after 19 months. A feature of the market in this growth phase compared to the previous three growth phases highlighted is that a greater proportion of demand is being made up by investors; of course investors were a part of the market in the previous growth phases however, owner occupiers held greater prominence than they do currently. So is this market being fuelled purely on investment speculation? Not quite. Currently, there is a comparatively higher proportion of investment activity in the market when compared to the previous growth phases. Over the 19 months from January 2001, investors accounted for a month-to-month average of 32.2% of the value of total housing finance commitments. From January 2007 investors accounted for a month-to-month average of 34.8% of all housing finance commitments and from January 2009 they accounted for a month-to-month average of 32.7%. From May 2012 to September 2013 latest data available investors have accounted for a month-to-month average of 35.9% of all housing finance commitments. The level of investor activity throughout the current growth phase is not abnormally high but it is certainly elevated compared to the previous three growth phases analysed. Across this growth phase investment levels are not abnormally high they are escalating. In September 2013, investment finance commitments made up 37.3% of all housing finance commitments which were the highest proportion since May 2004 37.5% . As I see it there are two potential pitfall of the current heightened level of investment in this market growth phase. Firstly, data suggests that investment activity is highest within New South Wales, Northern Territory and the Australian Capital Territory. Anecdotal evidence suggests that off-shore investment activity is particularly strong in Victoria. If we assume that the state-wide data is a proxy for the capital city markets, we gain some valuable insight into the characteristics of investors. In Sydney, home values have already risen by 15.9% from their May 2012 low. In Melbourne home values are now 8.6% higher than their low in May 2012. Darwin values are 15.9% higher than their low in January 2012, while in Canberra, values have increased by just 3.1% from their January 2012 low. Values are still trending higher in Sydney and Melbourne. In Darwin value growth has moderated while in Canberra values are falling. My point is that if investors are chasing capital growth, in all likelihood and based on timing, they have already missed the best opportunity. If investors are focused on rental return, yields have trended lower across each of these cities over the past year. Secondly, a potential future weakness for the market is that some investors may not necessarily be ‘committed’ to the asset class. Meaning that if value growth was to slow or start to fall are these investors invested in residential property for the long haul, or will they choose to exit the asset class just as quickly as they have entered? My opinion is that if they aren’t committed then there is potential risk associated in the future where a significant supply of investment grade units may come to market when investors may be looking to exit poor performing assets. One final risk of course is a rise in the unemployment rate. Official government forecasts are calling for unemployment rates to peak at 6.25% by the middle of next year. To-date the unemployment rate has been trending higher at a fairly moderate pace and was recorded at 5.7% in October. If this rate was to rise to 6.25%, it would be the highest unemployment rate since September 2002 higher than any time during the financial crisis . If we were to see investors look to exit their investment properties such as they did in 2008 in line with an escalation in mortgage arrears, we could see weakening home values much like what occurred in 2008. Overall there are always risks associated with the housing market, or any market for that fact. We have no doubt that the Australian Prudential Regulation Authority APRA are regularly analysing these risks and liaising with the banking community to ensure these potential risks don’t turn into a reality for the market.

Week ending 8 December

Vendor confidence continues to drive record listings in the Melbourne auction market and this week features again very high listings in historical terms. This is not just confined to Melbourne, last week there were 3,400 auctions nationwide compared to 2,165 last year. In what shapes as a repeat of last weekend we are expecting 1,457 auctions this week against a background of a 2.1 per cent drop in dwelling prices over the past month. The level of supply is proving beneficial for buyers in the lead up to Christmas with improved conditions, less prevalent price growth and more choice in the auction market. Conditions continue to be stable in the private sale market, days on market for houses remain stable and vendor discounting has contracted slightly this week to -5.5 per cent. Key data Final clearance rate week ending 1 December: 67.9 per cent Melbourne auctions expected week ending 8 December: 1,457 Melbourne private sales time on market week ending 1 December: 34 days houses Melbourne vendor discounting market week ending 1 December: -5.5 per cent houses Listings being prepared for market are 7 per cent lower in month ending 1 December Robert Larocca RP Data Victoria Housing Market Specialist

Has it ever been this busy in the Melbourne auction market?

Inclusive of this weekend, over the past ten weeks we have seen around 11,400 auctions in Melbourne – this equates to an incredible average of over 1,000 auctions per week. This is more remarkable when you take into consideration that there were very few auctions on the weekend before the Melbourne Cup. A review of the auction market’s history shows that this is a first for Melbourne and it is not the only one. Other firsts for this year in the auction market include; First time with more than 1,500 auctions in one week, and First time with 10 weeks with more than 1,000 auctions in a year. RP Data’s tracking of the overall volume of sales does not show that the rise in auction listings is representative of transactions in the wider residential market. Our most recent sales data shows that for this year, there have been 7.4 per cent more residential sales in Melbourne than last year. To put this into perspective, the market is still 26 per cent down on the all-time record in 2007. This suggests that an increasing number of properties are being offered for sale by auction as opposed to private sale. In some respects this is not a surprise, the auction share of sales tends to rise in strong markets as vendors take advantage of increased competition. It does seem that this year, the shift is occurring at unprecedented levels. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 1 December 2013

A preliminary clearance rate of 69.2 per cent was reached from 1,385 auctions this week in Melbourne. Over the past four weeks the clearance rate has been below 70 per cent following record levels of supply. A review of the spring market over the past 5 years shows that this year featured the highest levels of supply and the second highest clearance rate. Prior to this weekend the spring clearance rate was 71 per cent, higher than every year since 2008 except the 80 per cent recorded in 2009. However in 2008 there were much lower levels of supply. In addition to the clearance rate and overall listing volume, another important statistic is sales volume. It shows that more homes have been sold at auction than any year since 2008. This underscores the health of the market. Time on market for houses sold by private sale remain stable at 34 days compared to 34 days last week. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 1 December

With just one month to go until the end of 2013, the auction market has started to show the impact of the record run of weekends of over 1,000 auctions. This coming weekend represents the 8th this year, which is double the 4 over the whole of 2012. Interestingly the last time there were 4 successive weeks with over 1,000 auctions, the clearance rate was pushed into the 50’s. This weekend will be the second largest one in the city’s history. The clearance rate may have dipped into the 60’s but due to the very high volume of auctions the actual number of sales is very healthy. In contrast the private sale market appears to be rather stable with key metrics not changing from 34 days on market for houses and vendor discounting of -5.6 per cent. Key data Clearance rate week ending 24 November: 65.1 per cent Melbourne auctions expected week ending 1 December: 1,494 Melbourne private sales time on market week ending 24 November: 34 days houses Melbourne vendor discounting market week ending 24 November: -5.6 per cent houses Listings being prepared for market are 4.7 per cent lower in month ending 24 November Robert Larocca RP Data Victoria Housing Market Specialis

Australia’s population future?

The Australian Bureau of Statistics ABS released national population projections earlier this week. The data looks at the projected growth in the national population from 2012 through to 2101 and the data provides a fascinating insight into the potential future of Australia over the coming years and decades. The projections look at three different scenarios which can be read about here. For the purposes of this blog post we are utilising ‘Series B’ or the medium level projections. Based on this series, Australia’s population was estimated to be 22,721,995 persons in 2012, by 2101 the population is projected to be 136% higher at 53,564,333 persons. Under this scenario we would see the national population from 2012 having doubled by 2071. Keep in mind Australia was first settled by Europeans in 1788 so it took 224 years to get to the 2012 population and it projected to double in just 59 years. Projections are also provided at a state and capital city level from 2012 through to 2061, at which time the national population is projected to be 41,513,375. The above table details the estimated population as at June 2012 and the percentage of the national population across each state and compares it to the same projected data for 2061 as well as showing the average annual growth rate over the period. At a state level, the proportion of the national population is projected to fall in New South Wales, South Australia, Tasmania and Northern Territory. The proportion is projected to remain static in Victoria and rise across Queensland, Western Australia and the Australian Capital Territory. Western Australia 2.0% , Queensland 1.5% and the Australian Capital Territory 1.4% are projected to record the greatest average annual rate of population growth while Tasmania 0.2% , South Australia 0.7% and New South Wales 0.9% are projected to record the lowest growth rate. Of course these are just population projections and are no way set in stone however, it does seem inevitable that the population of the country will expand substantially even based on the low series of assumptions over time. The big question remains where and how will we house all of these additional citizens? Based on the data provided in the release it seems that a significant majority of the population will continue to live within our capital cities. The above table details the estimated population as at June 2012 and the percentage of each state’s population across each capital city and compares it to the same projected data for 2061 as well as showing the average annual growth rate over the period. There are quite a few interesting points to take from these long-term projections. Firstly, by 2061 Sydney will no longer be the nation’s most populous city and Brisbane will no longer be the nation’s third most populous city. Melbourne will overtake Sydney as the most populous city in 2053 and Perth will overtake Brisbane as the third most populous city in 2028. The proportion of Australian’s living within a capital city is already quite high at 66.1% however, this is projected to increase to 73.4% by 2061. Think about that, out of a projected population of 41.5 million, almost three out of every four Australians will live in a capital city. If we focus on the four most populous capital cities, 57.3% of Australians currently live in Sydney, Melbourne, Brisbane or Perth. Based on the population projections, by 2061 65.8% of the total national population will live in Sydney, Melbourne, Brisbane and Perth. Should this scenario actually come to fruition it will create significant challenges for each of these cities. Obviously housing is a challenge which immediately comes to mind, how and where these people can be housed and what it would mean for property values. Over time the capital city areas do expand however, for a city such as Sydney that is surrounded by water and national parks the scope to expand is quite limited. No wonder the inner city areas are undergoing such rapid densification. Elsewhere you can continue to grow the urban sprawl but there must be a consideration around how people travel around the city and commute to their jobs. Transport infrastructure is typically already insufficient, without appropriate investment levels how much worse would it be by 2061? Of course, for some, purchasing a home in a capital city is already out of reach; how do Governments ensure that a greater number and proportion of capital city residents doesn’t just lead to further escalation of property values? Of course these figures are in no way set in stone however, it does appear that the country’s population will continue to grow which will pose myriad challenges. In my opinion the greatest concern is the projection of a greater centralisation of the population to our capital cities and more pointedly the four most populous cities. As mentioned, in each of these cities there are already affordability barriers for certain home buyer cohorts and investment in transport infrastructure has not been sufficient. In my opinion we should be looking to a decentralisation of the population rather than encouraging more and more people to the capital city. Not only do regional markets tend to have lower house values, in many instances they offer a superior lifestyle than that which is available within our major capital cities. The biggest challenge of course is employment in regional areas however, with the advent of high speed internet and major infrastructure projects such as the National Broadband Network NBN we will hopefully see the nature of work change with more telecommuting taking place and less focus on physically being located within an office. Alternatively, many businesses do not necessarily need to be located within a major capital city. Perhaps Governments could incentivise major businesses to locate their headquarters or major offices outside of Sydney, Melbourne, Brisbane or Perth. Let me know what you think is this the population future you want and how should our population look by 2061?

Week ending 24 November 2013

A preliminary clearance rate of 66.7 per cent was reached from 996 auctions this week in Melbourne. For three consecutive weeks the clearance rate has been below 70 per cent highlighting the cooling of conditions in the residential auction market. With a few more weekends of over 1,000 auctions – including around 1,500 next week – buyers will be able to drive a better bargain. The growth cycle over the past year has stopped according to the dwelling price index. The index has dropped again this week and is also down, by 0.7 per cent, over the last month. Time on market for houses sold by private sale remains stable at 34 days, which is the same as last week. Robert Larocca RP Data Victoria Housing Market Specialist

Homes are selling in Melbourne, just not as fast as in Sydney

RP Data compares the number of new residential listings and total listings on a weekly basis as they help to provide a rounded view of the market. From the perspective of many, the volume of sales can be more important than the price of those sales. The past two years saw a very low volume of residential sales in Melbourne which is a reflection of conservative decision-making by consumers who, as the saying goes, ‘preferred to save rather than spend.’ There is no doubt that this year, the market has picked up but there is a long way to go. The most recent data shows that there are 16.7 per cent fewer overall homes for sale in Melbourne than 12 months ago. Given that the volume of new listings is up by 1 per cent, this is a sign that older stock is being cleared and the property market is improving, but only moderately. Victoria-wide, the picture is not as strong with overall listings only being lower by 10 per cent and new listings down by 1.7 per cent. It is often the case that the regional market moves more slowly and is less volatile that the metropolitan and that is the current case. In stark contrast, the residential market in Sydney is moving homes very rapidly with total listings down 26.3 per cent and new listings up only 4 per cent. Demand is clearly very strong in the Sydney market right now. Robert Larocca RP Data Victoria Housing Market Specialist

Where would you buy if you were a first home buyer looking for a house?

The other day someone asked me if I was a first home buyer where would I choose to buy? It’s a tough question, particularly if I was looking to buy my first home in Sydney where the median house price is now just over $700,000. Casting my mind back to 2002 when my wife and I bought our first home in Brisbane, here are the key things we were looking for: Top of our list was something that we could afford – we had a stretch budget of about $250,000. The second priority was to buy a home we thought would appreciate in value – we would eventually want to upgrade and viewed our first home as a stepping stone to something ‘more comfortable’. Third was that we wanted a detached home with a backyard. There were a few other considerations: we wanted a location that wouldn’t take too long to get into the city where we both worked by public transport, ideally the home would have at least three bedrooms; I wanted a man cave/shed while my wife was keen for some entertaining space such as a back deck. Here’s the house we settled on – an original and unrenovated post-war home with three bedrooms in Moorooka on 607sqm of land. Moorooka is about 10km south of the Brisbane CBD and at the time wasn’t high on the desirability scale for most buyers. The kitchen was an original and in typical 50’s style. We did a lot of our own renovations over time like ripping up the carpet to expose the wooden floors, painting and some basic landscaping. While the home was rough around the edges and not all that comfortable, it was well connected to transport option of train or bus , had decent arterial road connections M1 Motorway / Ipswich Road / Beaudesert Road , I had a shed downstairs that was almost high enough to walk under without stooping and we could entertain in the back yard as long as it didn’t rain . We paid $245,000 and sold the property for $350,000 four years later. It’s hard to draw parallels between market conditions back in 2002 and now; the median house price at Moorooka has risen to $500,000 which is more than double what it was back in 2002. I think if I was a first home buyer today I would probably have fairly similar expectations – stick to a budget that doesn’t stretch the finances and entertainment fund too much, look for an area that is likely to appreciate in value – ideally a detached home but I appreciate that is becoming more difficult due to pricing in many locations . I think I would be we willing to sacrifice a bedroom, opt for a smaller backyard and lose the man cave if that meant buying closer to where I worked and played. Interestingly, a survey recently commissioned by Aussie and undertaken by RP Data showed the top five considerations for first home buyers were: Rank Factor 1 Affordability 2 Number of bedrooms 3 Garage / off street parking 4 Capital Growth 5 Proximity to – Public transport So… based on the average first home buyer loan size across each state and allowing for a 20% deposit, here are my personal picks for buying a detached home as a first home buyer. Please note that I am not providing any advice here. Readers should undertake their own research and determine the suburbs that are best for them based on their own due diligence, budgets and preferences. At the end of my blog I have provided tables that outline the full list of suburbs that suit the selection criteria ie a median house value that is equal to or less than the average first home buyer loan size plus 20% . I would be very interested in reader views on where they would be seeking to buy based on these suburbs or areas outside of the list. Sydney: Being a first home buyer in Sydney is tough. The median house price is the highest of any capital city at $705,000; for this reason many first home buyers are either blocked from the market financially or they choose more affordable locations located far from the city centre which are often not as well serviced by transport options and other necessities such as schools, health care, retail and social options. Alternatively, more first home buyers are sacrificing the back yard and opting for higher density living such as a town home or apartment. Personally, I think Sydney is the only city where I would be seeking an apartment over a house so I could buy closer to the city and social precincts but I have stuck to the theme and selected a suburb for detached housing The average first home buyer loan size in NSW, based on the September housing finance data from the ABS was $298,500. Adding a 20% deposit we can assume the typical first home buyer in NSW is spending around $360,000 on their first dwelling. There are 71 suburbs across the Greater Sydney metro area with a median house value of $360,000 or less. Most detached houses with a median value at or under $360,000 are located a long distance from the city, mostly around the Central Coast, Campbelltown and Blacktown. My pick for a house within this price range is the suburb of Cambridge Park, located in the Penrith council region. The suburb is located about 45km from the Sydney CBD and is reasonably well serviced by transport options; the Western Motorway is in close proximity, as is the Kingswood and Penrith train station. The median house value at Cambridge Park is $350,570 and last year there were 101 house sales of which 85% sold under $400,000. The average block size at Cambridge Park is 696sqm, so most detached homes have large yards. Melbourne: Melbourne dwelling values have risen by almost 55% since the beginning of 2007 which has created some affordability barriers for first home buyers in the local market place. The median house price for Melbourne is now $595,000 which is still a lot less than Sydney’s $705,000 but much higher than it was before the three cycles of growth the market has been through over the past six years. The average first home buyer loan size in Victoria, based on the September housing finance data from the ABS was $280,300. Adding a 20% deposit we can assume the typical first home buyer in Vic is spending around $340,000 on their first dwelling. There are 39 suburbs across the Melbourne metropolitan area where the median house value is less than or equal to $340,000. Most detached houses with a median value at or under $340,000 are located around the city fringe in the council regions of Casey, Melton, Brimbank and Hume. My pick for a suburb to buy a first house within this price range is Hoppers Crossing which is located in the Wyndham council region about 23km west of the Melbourne CBD. The suburb is serviced by its own train station and has efficient access to the Princes Freeway. The median house value at Hoppers Crossing $334,600 and last year there were 492 houses sold, of which 88% were priced under $400,000. The average land area at Hoppers Crossing is 625sqm, highlighting that this suburb typically shows large block sizes for detached housing. Brisbane: Brisbane’s housing market has been much more sedate when it comes to capital growth over the past five years. From January 2009 through to October 2013 Brisbane dwelling values have risen by just 1% compared with a 36% rise in Melbourne values and a 35% rise in Sydney values. The lack of capital gains across the Brisbane market has provided a substantial improvement in housing affordability compared with the other major capital cities. In fact, the median house price for Brisbane, at $453,000, is 36% lower than Sydney’s median house price and 24% lower than Melbourne’s. For first home buyers this means housing options closer to the city tend to be more diverse and available. The average first home buyer loan size in Qld, based on the September housing finance data from the ABS was $273,500. Adding a 20% deposit we can assume the typical first home buyer in Qld is spending around $330,000 on their first dwelling. There are 79 suburbs across Greater Brisbane with a median house value equal to or lower than $340,000, with most of these suburbs located around the city fringe in the council regions of Ipswich, Logan and Moreton Bay. My pick for a first home buyers suburb within this price range for houses is Strathpine which is located within the Moreton Bay council region about 19km north of the Brisbane CBD. The suburb of Strathpine is serviced by a train station and has efficient access to the Gateway Motorway, Bruce Highway and Gympie arterial road. The median house value at Strathpine is about $333,000 and over the past year there have been 127 houses sold of which 91% had a sale price of $400,000 or less. The average land area is 698sqm suggesting most houses are positioned on a large block of land. Adelaide: Adelaide’s housing market has been relatively quiet over the current growth cycle with dwelling values rising by just 1.9% over the twelve months to October 2013. Since the beginning of 2009 Adelaide dwelling values have increased by 27% compared with 38% in Sydney, 54% in Melbourne, 21% in Brisbane and 8.5% in Perth. Adelaide is the most affordable mainland capital city with a median house price of $390,000. Such an affordable market potentially provides first home buyers with an easier entry point to the housing market and more diversity in their options. The average first home buyer loan size in SA, based on the September housing finance data from the ABS was $229,900. Adding a 20% deposit we can assume the typical first home buyer in SA is spending around $276,000 on their first dwelling. There are 36 suburbs across Greater Adelaide with a median house value equal to or lower than $276,000, with most of these suburbs located to the north of Adelaide in the Playford and Salisbury council regions. My pick for a first home buyer seeking a house in Adelaide would be O’Sullivan Beach, located in the Onkaparinga council region about 25km south of the Adelaide CBD. The suburb used to be one to be avoided due to the oil refinery, however the refinery is long gone and there is a large amount of capital works underway in the Onkaparinga area including an extension of the railway line and upgrade of the expressway linking to Adelaide which will substantially boost accessibility to the area. The median house value at O’Sullivan Beach is $248,450 and there have been 35 house sales over the past 12 months with 89% of these sales under $400,000. Block sizes are large, averaging 672sqm. Perth: Perth’s housing market has had a strong run in values through early 2013 however the market is now slowing down. In fact Perth values fell by 0.6% over the three months ending October 2013 but are 6.9% higher over the year. The longer term growth rate has been quite sedate in Perth with dwelling values rising by 8.5% since the beginning of 2009. Over the same period Melbourne values rose 54%, Sydney values were 38% higher and Brisbane values were 21% higher. With a lower rate of growth over the past five or so years, the relative affordability of Perth houses has improved compared with Sydney and Melbourne. With a median house price of $508,000, Perth houses are on average about 28% lower than Sydney’s and 15% lower than Melbourne’s The average first home buyer loan size in WA, based on the September housing finance data from the ABS was $315,300. Adding a 20% deposit we can assume the typical first home buyer in WA is spending around $380,000 on their first dwelling. There are 29 suburbs across Greater Perth with a median house value equal to or lower than $380,000, with most of these suburbs located in the council regions of Swan, Armadale and Kwinana. My pick for a first home buyer seeking a detached house in Perth is Lockridge, located in the Swan council region. Situated just 11.6km from the Perth CBD, Lockridge is the most affordable suburb within 12km of the Perth CBD and is strategically located with relatively efficient road access via the Tonkin Highway and Guildford Road and the Great Eastern Highway. Additionally, Guildford train station is close by for public transport. The suburb’s close position to the city and transport is likely to see housing stock improve over the coming years as more buyers looking for affordable properties that are well serviced choose to live in this area. The median house value at Lockridge is $353,700 and there have been 59 house sales over the past twelve months, 78% of which were sold at a price under $400,000. TABLES: Suburbs with a median house value which is equal to or lower than the typical first home buyer loan amount plus 20% deposit Sydney suburbs with a median house value of $360,000 or less Suburb LGA Distance from CBD Median Value Number Sold % sales under $400k AMBARVALE Campbelltown 45.7 $338,023 67 88.1% BERKELEY VALE Wyong 62.1 $341,748 173 78.0% BIDWILL Blacktown 38.2 $277,618 32 100.0% BLACKETT Blacktown 38.3 $266,549 46 100.0% BLACKHEATH Blue Mountains 86.7 $343,757 151 62.3% BLUE HAVEN Wyong 77.0 $307,670 143 94.4% BRADBURY Campbelltown 43.6 $347,157 158 84.8% BUDGEWOI Wyong 76.8 $304,240 76 82.9% BUFF POINT Wyong 76.5 $313,828 81 90.1% BULLABURRA Blue Mountains 73.9 $314,576 27 66.7% BUSBY Liverpool 30.4 $355,138 54 92.6% BUXTON Wollondilly 75.6 $335,022 47 78.7% CAMBRIDGE PARK Penrith 45.7 $350,570 101 85.1% CAMPBELLTOWN Campbelltown 43.3 $339,664 155 73.5% CANTON BEACH Wyong 71.7 $279,385 19 94.7% CARTWRIGHT Liverpool 30.2 $336,181 34 94.1% CHAIN VALLEY BAY Wyong 84.4 $331,983 31 83.9% CHARMHAVEN Wyong 75.2 $281,410 44 93.2% COLYTON Penrith 38.5 $348,272 123 85.4% DHARRUK Blacktown 37.9 $310,164 43 95.3% EAGLE VALE Campbelltown 41.4 $334,148 71 77.5% EMERTON Blacktown 39.0 $268,439 32 100.0% ESCHOL PARK Campbelltown 41.8 $332,032 49 98.0% GOROKAN Wyong 72.8 $275,644 189 91.0% GWANDALAN Wyong 87.2 $297,245 89 71.9% HALEKULANI Wyong 78.1 $304,863 51 92.2% HAZELBROOK Blue Mountains 70.5 $343,221 100 76.0% HEBERSHAM Blacktown 37.3 $306,377 80 98.8% HECKENBERG Liverpool 29.4 $357,687 35 74.3% KANWAL Wyong 71.2 $310,148 53 92.5% KATOOMBA Blue Mountains 84.7 $334,336 210 74.3% KILLARNEY VALE Wyong 59.6 $341,805 148 79.7% LAKE HAVEN Wyong 73.6 $312,268 72 90.3% LAKE MUNMORAH Wyong 81.4 $324,575 107 81.3% LAWSON Blue Mountains 72.8 $339,161 52 71.2% LETHBRIDGE PARK Blacktown 39.6 $262,236 73 98.6% LEUMEAH Campbelltown 40.1 $350,115 113 79.6% MACQUARIE FIELDS Campbelltown 32.4 $355,842 130 84.6% MANNERING PARK Wyong 83.2 $285,851 56 83.9% MEDLOW BATH Blue Mountains 86.8 $321,948 23 82.6% MILLER Liverpool 30.7 $347,712 28 89.3% MINTO Campbelltown 38.0 $336,234 126 81.7% MOUNT VICTORIA Blue Mountains 94.4 $310,480 32 87.5% NARARA Gosford 52.9 $351,153 119 70.6% NIAGARA PARK Gosford 54.9 $333,785 40 90.0% NORAVILLE Wyong 73.0 $316,379 76 82.9% NORTH GOSFORD Gosford 50.8 $331,417 48 85.4% NORTH ST MARYS Penrith 40.3 $310,416 67 95.5% ROSEMEADOW Campbelltown 47.0 $329,540 97 83.5% SAN REMO Wyong 77.4 $268,725 100 100.0% SHALVEY Blacktown 39.5 $290,787 55 94.5% SPENCER Gosford 46.6 $235,878 17 100.0% SPRINGFIELD Gosford 50.3 $354,148 79 54.4% ST HELENS PARK Campbelltown 45.3 $346,425 99 76.8% ST MARYS Penrith 41.7 $351,880 151 70.9% SUMMERLAND POINT Wyong 86.4 $318,573 71 76.1% TACOMA Wyong 67.6 $355,765 12 75.0% TAHMOOR Wollondilly 70.0 $340,242 104 64.4% TOUKLEY Wyong 73.7 $306,687 109 78.9% TREGEAR Blacktown 40.0 $254,283 42 100.0% TUGGERAH Wyong 64.6 $320,471 17 94.1% TUGGERAWONG Wyong 69.3 $309,341 22 81.8% VINEYARD Hawkesbury 40.5 $187,058 11 27.3% WARRAGAMBA Wollondilly 56.0 $296,459 22 95.5% WATANOBBI Wyong 68.7 $286,550 86 94.2% WHALAN Blacktown 38.7 $267,535 86 98.8% WILLMOT Blacktown 40.9 $250,875 45 100.0% WYOMING Gosford 52.4 $337,104 172 88.4% WYONG Wyong 67.7 $324,348 79 75.9% WYONGAH Wyong 70.3 $314,537 28 92.9% YANDERRA Wollondilly 77.6 $321,750 15 93.3% Melbourne suburbs with a median house value of $340,000 or less Suburb LGA Distance from CBD Median Value Number Sold % sales under $400k ALBANVALE Brimbank 18.4 $300,276 66 95.5% ARDEER Brimbank 14.3 $328,198 42 95.2% BADGER CREEK Yarra Ranges 53.4 $316,733 22 100.0% BAXTER Mornington Peninsula 45.7 $310,250 39 94.9% BROADMEADOWS Hume 15.5 $314,371 127 93.7% CARRUM DOWNS Frankston 36.6 $316,872 343 94.2% COOLAROO Hume 18.3 $273,953 32 100.0% CRANBOURNE Casey 42.3 $301,431 267 86.1% CRANBOURNE NORTH Casey 41.6 $330,417 313 71.6% CRANBOURNE WEST Casey 40.7 $312,681 202 82.2% CRIB POINT Mornington Peninsula 63.8 $328,106 54 87.0% DALLAS Hume 16.3 $272,798 67 97.0% DEER PARK Brimbank 17.0 $333,900 222 83.8% DIGGERS REST Melton 31.9 $293,165 21 90.5% DOVETON Casey 31.0 $296,635 129 96.1% EUMEMMERRING Casey 32.2 $321,447 17 94.1% FRANKSTON NORTH Frankston 38.8 $259,090 101 99.0% HAMPTON PARK Casey 37.0 $317,883 296 93.9% HASTINGS Mornington Peninsula 57.1 $330,628 122 74.6% HOPPERS CROSSING Wyndham 23.3 $334,637 492 87.8% JACANA Hume 15.0 $307,054 24 95.8% JUNCTION VILLAGE Casey 46.0 $303,794 16 93.8% KINGS PARK Brimbank 18.7 $314,811 82 98.8% KOO WEE RUP Cardinia 62.6 $314,965 39 84.6% KURUNJANG Melton 36.5 $295,150 127 96.1% LANG LANG Cardinia 76.2 $305,872 19 94.7% LAVERTON Wyndham 17.3 $310,746 72 95.8% MEADOW HEIGHTS Hume 18.8 $304,873 115 92.2% MELTON Melton 34.6 $255,962 114 96.5% MELTON SOUTH Melton 34.8 $257,471 148 97.3% MELTON WEST Melton 40.2 $307,087 263 88.6% MILLGROVE Yarra Ranges 61.2 $241,452 41 100.0% ROCKBANK Melton 27.4 $291,074 10 100.0% ST ALBANS Brimbank 15.4 $338,663 334 87.1% WARBURTON Yarra Ranges 66.6 $317,048 52 90.4% WARNEET Casey 55.6 $335,079 12 100.0% WERRIBEE Wyndham 28.9 $313,498 492 82.1% WOORI YALLOCK Yarra Ranges 51.5 $325,934 55 92.7% WYNDHAM VALE Wyndham 31.5 $305,842 351 93.7% Brisbane suburbs with a median house value of $330,000 or less Suburb LGA Distance from CBD Median Value Number Sold % sales under $400k ACACIA RIDGE Brisbane 12.8 $311,024 85 91.8% BASIN POCKET Ipswich 29.3 $229,697 16 100.0% BEACHMERE Moreton Bay 39.6 $315,598 39 79.5% BEENLEIGH Logan 31.6 $283,773 76 97.4% BELLARA Moreton Bay 46.9 $305,679 52 86.5% BELLBIRD PARK Ipswich 24.1 $301,586 87 74.7% BELLMERE Moreton Bay 45.7 $313,671 73 79.5% BETHANIA Logan 27.1 $273,587 46 91.3% BLACKSTONE Ipswich 28.2 $268,620 15 93.3% BOOVAL Ipswich 28.2 $266,741 37 97.3% BORONIA HEIGHTS Logan 24.2 $302,893 112 95.5% BRASSALL Ipswich 31.8 $288,194 132 84.8% BROWNS PLAINS Logan 21.7 $294,457 79 93.7% BUNDAMBA Ipswich 26.2 $254,016 79 100.0% CABOOLTURE Moreton Bay 45.5 $270,524 276 77.9% CABOOLTURE SOUTH Moreton Bay 42.7 $257,865 85 96.5% CAMIRA Ipswich 21.1 $335,268 93 80.6% CHURCHILL Ipswich 32.8 $254,568 26 84.6% COALFALLS Ipswich 31.9 $283,849 15 100.0% COLLINGWOOD PARK Ipswich 23.9 $282,252 107 91.6% COOCHIEMUDLO ISLAND Redland 31.6 $277,687 22 95.5% CRESTMEAD Logan 24.4 $268,773 143 99.3% DARRA Brisbane 13.1 $332,396 42 85.7% DECEPTION BAY Moreton Bay 32.2 $286,382 265 89.8% DINMORE Ipswich 23.7 $219,381 12 100.0% DONNYBROOK Moreton Bay 52.4 $308,570 18 72.2% DURACK Brisbane 13.9 $321,094 64 82.8% EAGLEBY Logan 32.0 $247,595 98 91.8% EAST IPSWICH Ipswich 29.1 $254,703 45 88.9% EASTERN HEIGHTS Ipswich 30.4 $259,047 68 88.2% EBBW VALE Ipswich 25.1 $224,392 16 100.0% EDENS LANDING Logan 29.3 $323,143 81 88.9% FLINDERS VIEW Ipswich 31.7 $319,243 80 71.3% GAILES Ipswich 19.7 $225,952 22 100.0% GOODNA Ipswich 20.1 $251,557 74 98.6% HILLCREST Logan 22.0 $312,926 83 91.6% HOLMVIEW Logan #N/A $291,303 26 65.4% INALA Brisbane 14.4 $282,549 138 94.9% IPSWICH Ipswich 31.4 $308,874 53 81.1% KALLANGUR Moreton Bay 24.7 $317,563 294 93.5% KINGSTON Logan 22.7 $250,408 113 98.2% LAMB ISLAND Redland 38.7 $197,495 11 100.0% LAWNTON Moreton Bay 21.5 $324,917 94 63.8% LEICHHARDT Ipswich 33.6 $215,920 48 100.0% LOGAN CENTRAL Logan 20.8 $245,532 53 98.1% LOGANLEA Logan 24.9 $270,646 69 84.1% MACLEAY ISLAND Redland 36.8 $228,236 58 94.8% MARBURG Ipswich 44.5 $291,053 19 89.5% MARSDEN Logan 23.6 $281,066 141 92.9% MORAYFIELD Moreton Bay 38.3 $313,972 252 73.4% MOUNT WARREN PARK Logan 33.8 $329,780 66 86.4% NEWTOWN Ipswich 29.6 $303,529 27 85.2% NORTH BOOVAL Ipswich 27.3 $238,471 26 96.2% NORTH IPSWICH Ipswich 29.7 $258,252 78 97.4% ONE MILE Ipswich 33.9 $224,769 34 97.1% PETRIE Moreton Bay 23.7 $331,641 153 71.2% RACEVIEW Ipswich 30.9 $278,092 146 96.6% REDBANK Ipswich 21.2 $259,070 19 100.0% REDBANK PLAINS Ipswich 26.8 $257,658 189 97.4% REDCLIFFE Moreton Bay 28.3 $338,836 122 68.9% RIVERVIEW Ipswich 22.4 $220,579 18 100.0% ROCKLEA Brisbane 9.2 $298,796 39 87.2% ROSEWOOD Ipswich 46.3 $252,687 42 92.9% RUSSELL ISLAND Redland 42.2 $202,372 58 96.6% SADLIERS CROSSING Ipswich 32.1 $292,475 21 85.7% SILKSTONE Ipswich 28.9 $257,321 56 98.2% SLACKS CREEK Logan 21.1 $278,222 132 90.2% STRATHPINE Moreton Bay 19.2 $332,556 127 91.3% TIVOLI Ipswich 28.1 $251,991 26 100.0% TOORBUL Moreton Bay 48.5 $312,173 18 88.9% WATERFORD Logan 28.7 $323,370 56 83.9% WATERFORD WEST Logan 26.4 $292,118 64 92.2% WILLOWBANK Ipswich 42.1 $286,891 14 78.6% WOODEND Ipswich 30.9 $298,382 24 95.8% WOODFORD Moreton Bay 63.2 $319,701 34 82.4% WOODRIDGE Logan 19.1 $242,138 104 100.0% WULKURAKA Ipswich 33.7 $275,440 12 91.7% YAMANTO Ipswich 34.6 $329,779 88 86.4% Adelaide suburbs with a median house value of $276,000 or less Suburb LGA Distance from CBD Median Value Number Sold % sales under $400k ANDREWS FARM Playford 28.1 257839 158 98.7% BRAHMA LODGE Salisbury 17.2 $245,920 58 98.3% BURTON Salisbury 20.7 $267,198 78 92.3% CHRISTIE DOWNS Onkaparinga 24.7 $241,484 94 98.9% CRAIGMORE Playford 26.7 $264,429 164 94.5% DAVOREN PARK Playford 26.6 $172,236 78 100.0% ELIZABETH Playford 23.6 $206,684 18 100.0% ELIZABETH DOWNS Playford 26.5 $187,622 81 98.8% ELIZABETH EAST Playford 23.0 $203,437 64 100.0% ELIZABETH GROVE Playford 21.9 $194,669 22 100.0% ELIZABETH NORTH Playford 25.8 $173,864 36 100.0% ELIZABETH PARK Playford 24.9 $193,210 51 100.0% ELIZABETH SOUTH Playford 21.0 $185,391 22 100.0% ELIZABETH VALE Playford 20.4 $212,977 52 100.0% EVANSTON Gawler 35.9 251874 25 96.0% EVANSTON GARDENS Gawler 34.5 245690.5 29 93.1% HACKHAM Onkaparinga 26.1 $248,504 63 98.4% HACKHAM WEST Onkaparinga 25.5 $232,986 61 100.0% HUNTFIELD HEIGHTS Onkaparinga 26.9 $249,294 70 97.1% INGLE FARM Salisbury 11.6 $271,172 136 96.3% MORPHETT VALE Onkaparinga 22.9 $264,893 411 97.1% MUNNO PARA Playford 30.1 209081 76 100.0% NOARLUNGA DOWNS Onkaparinga 27.7 $253,958 70 85.7% O’SULLIVAN BEACH Onkaparinga 25.3 248452.5 35 88.6% PARA HILLS Salisbury 13.8 $271,015 130 98.5% PARA HILLS WEST Salisbury 14.0 $269,928 45 97.8% PARAFIELD GARDENS Salisbury 15.6 $267,633 195 94.9% PARALOWIE Salisbury 18.5 $265,107 234 95.3% SALISBURY Salisbury 18.1 $261,538 103 95.1% SALISBURY DOWNS Salisbury 17.0 $262,741 71 100.0% SALISBURY EAST Salisbury 17.5 $264,107 136 97.1% SALISBURY NORTH Salisbury 20.1 $229,214 96 97.9% SALISBURY PARK Salisbury 19.3 $260,844 30 96.7% SMITHFIELD Playford 27.7 218620 32 100.0% SMITHFIELD PLAINS Playford 28.4 175641 35 100.0% WINGFIELD Port Adelaide Enfield 9.9 $232,167 11&l

Week ending 24 November

Melbourne buyers will be spoilt for choice again this weekend with another 1,000 plus weekend. At the conclusion of this weekend Melbourne will be in the remarkable position of having only had two weeks in the past two months with less than 1,000 homes offered at auction. RP Data is expecting 1,089 auctions in Melbourne this week and 1,252 across Victoria. The last fortnight has shown that conditions are very balanced between buyers and sellers in the auction market. After a very strong result from the largest weekend of auctions ever there have been two weeks with more moderate levels of demand. At the same time in the private sale market conditions are tightening with reducing days on market and lower levels of discounting. The market remains susceptible to any negative factors in the broader economy. Key data Clearance rate week ending 17 November: 69 per cent Melbourne auctions expected week ending 24 November: 1,089 Melbourne private sales time on market week ending 17 November: 34 days houses Melbourne vendor discounting market week ending 17 November: -5.6 per cent houses Listings being prepared for market are 4.7 per cent higher in month ending 17 November Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 17 November 2013

A preliminary clearance rate of 70.3 per cent was reached from 1,119 auction results so far this week in Melbourne. This was the third largest auction weekend this year and the seventh with over 1,000 auctions scheduled this year for the city. As the Melbourne market heads to the end of the year it appears that buyers won’t be confronted by price rises of any significance. After a year of ongoing moderate growth, demand seems to have found a new level. Results over the last fortnight and a recent reduction in Melbourne home values of 0.5 per cent over the last month according to the RP Data-Rismark Daily Home Value Index suggests a pause in the current growth cycle. Time on market for houses sold by private sale remain healthy at 34 days up only slightly from last weeks 33 days. Robert Larocca RP Data Victoria Housing Market Specialist

McMansions continue to be built despite the high cost of land, particularly in New South Wales

Data released by the Australian Bureau of Statistics earlier this week showed that the average size of Australian homes has started to trend lower over recent years. We discuss the broad trends in the week’s RP Data Property Pulse available to RP Data subscribers however; there are some surprising results at an individual state level. Sydney is the most expensive capital city in the country and the New South Wales results act as a good proxy for that city. Despite the fact that Sydney is the most expensive city, the average size of a new house in New South Wales over last financial year was 266.20 sqm; the largest average floor area of any state. Despite the fact that New South Wales residential property is typically more expensive than other states, they continue to build the largest new homes. Across the other states, the average floor area of new homes were recorded at: 243.0 sqm in Victoria, 239.6 sqm in Queensland, 203.90 sqm in South Australia, 234.5 sqm in Western Australia and 200.30 sqm in Tasmania. The average floor area in New South Wales is much greater than all other states while the floor area in Victoria, Queensland and Western Australia are quite similar. Typical new home sizes in South Australia and Tasmania are significantly lower than those across the other states. You can’t build a house unless you have a vacant block of land to construct the home on. The median land prices across the states as at June 2013 were recorded at: $204,000 in New South Wales, $189,000 in Victoria, $190,000 in Queensland, $150,000 in South Australia, $229,100 in Western Australia and $100,000 across Tasmania. This data highlights that the cost of vacant land in South Australia and Tasmania is significantly lower than that across the other states. Not only are South Australian and Tasmanian new houses much smaller than those across the other states, the cost of purchasing the vacant land is also significantly lower. Another component to consider is the typical size of the vacant land and how that impacts both the size and type of home that can be built but also the cost of purchasing the land. Across the states, the median land sizes are recorded at: 700 sqm in New South Wales, 570 sqm in Victoria, 696 sqm in Queensland, 496 sqm in South Australia, 480 sqm in Western Australia and 933 sqm in Tasmania. Outside of Tasmania, lot sizes in New South Wales are the greatest of all states. Tasmania which has comparatively cheap land has a much larger typical lot size whereas; South Australia has a comparatively small lot size. Of course there are other factors outside of just the cost and size of land which determines the size of homes. Specifically it is important to consider incomes, according to data released in the 2011 Census, median household incomes in South Australia and Tasmania are much lower than those across the other states. This obviously has an impact on the price at which residents can purchase homes. If we also look at the average number of people per household along with the average number of bedrooms per dwelling we see that there is an excess supply of bed rooms. In all states we have a greater number of bedrooms than we do persons per household, keeping in mind that most couples will share a bed. Given this, we don’t actually need as much space as we have in most homes. Certainly some younger families will buy larger homes than they need to cater for their growing needs but the broader trends show we have an excess supply of units. Builders, developers and price sensitive purchases probably need to consider foregoing an extra bedroom in order to reduce the cost of houses. Overall, it seems somewhat counter-intuitive that the states where housing is most expensive they continue to build much larger new houses while the more affordable states build smaller homes. Smaller homes and potentially smaller lot sizes would help to improve the affordability of homes in the more expensive states. From a potential buyers perspective they probably need to reassess just how much space they need when they are considering their purchase. Of course, a reduction in the cost of land which could be aided by quicker development approvals, greater supply of land and reduced development fees and charges would also help reduce the cost of housing.

Week ending 17 November

RP Data is expecting 1,178 auctions in Melbourne this week and 1,328 across Victoria. This is the seventh week this year with in excess of 1,000 auctions. Bentleigh East has the most with 19 followed by 18 in Brighton and Reservoir. Last week may have seen a small reduction in the clearance rate but at this stage it does not indicate a substantial change in market conditions. There is certainly no reduction in demand in the private sale market with time on market for houses dropping again, this week from 34 to 33 days. There was also a commensurate reduction in vendor discounting to -5.8 per cent suggesting buyers are spending more in this competitive market. This data reflects the overall situation which is seeing new residential listings increase compared to a year ago whilst the overall number of home for sale has reduced. Key data Clearance rate week ending 10 November: 68.1 per cent Melbourne auctions expected week ending 17 November: 1,178 Melbourne private sales time on market week ending 10 November: 33 days houses Melbourne vendor discounting market week ending 10 November: -5.8 per cent houses Listings being prepared for market are 5.1 per cent higher in month ending 10 November Robert Larocca RP Data Victoria Housing Market Specialist

The most expensive suburbs in Melbourne

Melbourne currently has 39 suburbs with a median value in excess of one million dollars with the list predictably topped by Toorak. The list of the city’s most expensive suburbs is very stable due to their sought after location and high quality housing. Using the median value measure Toorak is almost twice as expensive as the second on the list, East Melbourne. The median value of a house in Toorak is $3.5M compared to $1.88 in East Melbourne and $1.82 in Brighton. The top ten is rounded out by Canterbury, Deepdene, Middle Park, Hawthorn East, Kew, Balwyn and Malvern. When viewed from the perspective of the overall value of all house sales in the past year Brighton tops the list with $604M worth of homes sold compared to $473M in Kew and $410M in Toorak. Deepdene is a very small suburb and has only seen $25.5M worth of houses sold in the past year. With the exception of Canterbury and Malvern sales data over the past 12 months shows that either less expensive homes have been offered for sale or the prices being paid are generally below the underlying values. There are six suburbs whose values are nearing a million and if the market continues to appreciate will reach that level soon. Ashburton, Ormond, St Kilda East, McKinnon, Prahran and Park Orchards have values between a million and $950,000. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 10 November 2013

A preliminary clearance rate of 69.2 per cent for Melbourne was reached from 996 auction results for the city so far this week. This was the sixth week where more than 1,000 auctions were scheduled for Melbourne. The market delivered a result that is lower by way of trend for the past few months which suggests that for the remaining few selling weekends we will see balanced conditions for buyers and sellers. RP Data’s latest release provides an update on overall transactions numbers this year and shows that for the Melbourne market the number of sales is 7 per cent higher than last year but 21 per cent below the peak of 2007. These numbers are based on sales that have been settled. Improved conditions this year will clearly result in both higher prices and sales volumes. Robert Larocca RP Data Victoria Housing Market Specialist

How solid is Australia’s jobs market?

Jobs are an important element of the housing market equation…. Without a job it’s hard to keep up mortgage payments or apply for a loan; and the same can be said when the hours worked are too few. A weaker jobs market will generally translate to less wages growth and less upwards pressure on dwelling values. So it’s encouraging to see Australia’s labour market remains fairly tight, at least from an international standpoint. The labour market data for October which was released by the Australian Bureau of Statistics this week showed a headline seasonally adjusted unemployment rate of just 5.7% which is unchanged from September after an upwards revision over the month. As some international comparisons, unemployment in the USA is 7.2%, the Euro area is at 12.2%, United Kingdom has an unemployment rate of 7.7%, New Zealand is at 6.2% and Canada is recording unemployment of 6.9%. There are plenty of counties with a lower rate of unemployment than Australia’s for example, Japan @ 4.0%, Germany @5.2%, China @4.0%, Switzerland @3.0% , however Australia’s jobs market is looking ok at face value. Taking a look below the headlines though shows some aspects of the labour market which are softening. For a start, at a national level there were no full time jobs created over the past twelve months. The total number of jobs created over the twelve months to October 2013 was 89,200 of which there were 59,500 fewer full time jobs and 148,700 more part time jobs. The last time we saw such a divergence in full time versus part time jobs creation was back in 2008. At a state level we can get a clearer idea of where the jobs are being created and lost note that the below data isn’t seasonally adjusted . It’s encouraging to see that Queensland, where the jobs market has been patchy since the onset of the GFC, has recorded the highest level of jobs growth with 53,500 new positions over the past year. That equates to more than half the national total which is a very positive sign for the Queensland economy and housing market. Victoria is showing the second largest number of new jobs at 25,700 followed by Western Australia 18,400 then New South Wales 10,800 . There were 13,600 fewer jobs in South Australia and 5,600 fewer jobs in Tasmania. Analysing the data across full time and part time jobs creation gets a bit more interesting. Just to qualify this data before going into the detail, the Australian Bureau of Statitics classifies a part time job as one where the worker has worked for less than 35 hours over the week. So the definition is quite liberal. The downturn in full time jobs creation was caused almost entirely by a reduction of full time jobs in New South Wales where there were 48,700 fewer full time workers over the year. In balance, the level of part time jobs growth was the highest of any capital city, however the reduction in full time employment is disturbing and potentially is another factor why first time buyers are such a small proportion of the NSW housing market. Queensland, where overall jobs creation has been the strongest over the past year, recorded only 5,100 new full time jobs over the year, or about 9.6% of the total number of new jobs. Victoria created the most new full time jobs 11,400 over the past year and shows the best split between full time and part time jobs creation 44% of new jobs were full time and 56% of new jobs were part time . Part time workers as a proportion of the total number of jobs reached a new record high in October, comprising 30.5% of the jobs pool. Despite the rise in business confidence since the Federal election, the labour force data suggests that tough business conditions are causing employers to remain reluctant to make long term employment commitments at the moment. Another factor that suggests the jobs market isn’t quite as buoyant as what the headline figures would suggest is the participation rate which has been trending lower since November 2010. Participation in the labour force has moved from 66.0% in November 2010 to 64.8% in September and October this year. Clearly we are seeing more eligible members of the labour force ‘opt out’ due to either early retirement the ageing baby boomer cohort is no doubt fuelling the lower participation rate or frustration with an inability to secure a job. Without a lower participation rate the jobless rate would have certainly moved higher. Westpac have suggested that if the participation rate hadn’t slipped lower over the past six months the current rate of unemployment would be 6.5% nationally. An interesting feature of the declining participation rate is that it is being dragged lower primarily by males, rather than females, leaving the work force. The official forecast from Treasury is that the national unemployment rate will peak at 6.25% in June next year. If the participation rate continues to fall the official national jobless rate might not reach this high despite what appears to be softer underlying labour market conditions. It’s worthwhile reminding that unemployment is a lagging indicator; higher unemployment comes after weaker economic conditions. Leading indicators such as dwelling approvals, consumer and business sentiment, share market performance and number of hours worked have shown a much more positive flow over recent months suggesting that labour markets may benefit from these improved business conditions in the future.

Week ending 10 November

RP Data is expecting 1,048 auctions in Melbourne this week and 1,172 across Victoria. With October now ended and with just 6 selling weeks remaining for the year, it is timely to compare the year to date performance of the auction market. So far this year there has been just over 27,500 auctions with a clearance rate of 70 per cent. This compares very favourably to this time last year when there had been fewer – 22,000 in total – auctions and a much lower clearance rate of 56 per cent. The increased demand has caused prices to rise by 8.1 per cent over the year according to the October RP Data-Rismark House Price Index released last week. The rise in values has been welcomed by vendors and it will have also encouraged more vendors into the market which is why listings are higher than this time last year. These factors combine to create a vibrant property market in Melbourne. Key data • Clearance rate week ending 3 November: 70.8 per cent • Melbourne auctions expected week ending 10 November: 1,048 • Melbourne private sales time on market week ending 3 November: 34 days houses • Melbourne vendor discounting market week ending 3 November: -6.1 per cent houses • Listings being prepared for market are 5.2 per cent higher in month ending 3 November Robert Larocca RP Data Victoria Housing Market Specialist

Is it too late to decide to sell this year? Looking at the property market in Victoria

Following the encouraging results from the biggest week in history in the Victoria property market, some intending vendors may be asking if it’s too late to sell at auction this year. With only 7 weekends left in the year when an auction can realistically be held, a decision to list for sale would not leave much time for a marketing campaign to make the most of your homes assets. The most important person for a vendor to consult in making that decision is their real estate agent. After all, they are the experts at marketing and selling property. The key matters a real estate agent will consider will be the length of time needed to prepare a home for sale, the preparation of the marketing campaign including taking high quality photos, the writing, bookings and placement of the advertisement. These factors need to precede the actual sales campaign and be well executed to maximise the sale value. The real estate agent may also consider the volume and types of listings scheduled for the time required to hold the auction. For those considering selling by private sale there is a useful guide of the average time taking to sell a house at the moment which is the RP Data time on market measure. In the month of September houses took an average of 43 days to sell and units took 47 days. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 3 November 2013

A preliminary clearance rate of 71.2 per cent was reached from 146 auction results so far this week. Due to the low volume of auctions it is more important to look at the private sales market. RP Data has recorded a further tightening of the private sale market with the time on market for houses dropping again, this time from 36 days to 34. Conditions in the private sale market have been improving for sellers for the last year with time on market dropping 14 days. The same conditions are not apparent in the unit and apartment market where the time on market has not changed in any consistent manner over the past year. The price expectations of sellers are also being more closely matched by buyers in the market for houses sold at private sale where over the last year the vendor discount has dropped from 7.3 per cent to 6.2 per cent on a monthly basis. Homes sold at auction are not included in the days on market or vendor discounting measures as they are not relevant to fixed period campaigns and reserves are infrequently quoted. Volumes in the local auction market will increase again next week. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 3 November 2013

A preliminary clearance rate of 71.2 per cent was reached from 146 auction results so far this week. Due to the low volume of auctions it is more important to look at the private sales market. RP Data has recorded a further tightening of the private sale market with the time on market for houses dropping again, this time from 36 days to 34. Conditions in the private sale market have been improving for sellers for the last year with time on market dropping 14 days. The same conditions are not apparent in the unit and apartment market where the time on market has not changed in any consistent manner over the past year. The price expectations of sellers are also being more closely matched by buyers in the market for houses sold at private sale where over the last year the vendor discount has dropped from 7.3 per cent to 6.2 per cent on a monthly basis. Homes sold at auction are not included in the days on market or vendor discounting measures as they are not relevant to fixed period campaigns and reserves are infrequently quoted. Volumes in the local auction market will increase again next week. Robert Larocca RP Data Victoria Housing Market Specialist

Is public transport infrastructure into the city as important as we once thought?

For those of us that live and work in the inner city areas of our capital cities, we think that public transport infrastructure is a must across the city. The reason being that it is essential for those of us in suburbia to be able to travel to and from the city in an efficient and timely manner, notwithstanding the fact that so many of us still drive. But in this week’s blog I question whether or not public transport is actually that important. According to data from the end of June 2013 from the Property Council of Australia, the total floor space across the CBD office markets is 17,263,536 sqm. If we were to assume that the typical office has a workspace ratio of say 20 sqm for every one worker, this would mean that if these offices were fully occupied they would house 863,177 workers. If we include the nearby fringe areas, which I have defined as: Brisbane Fringe, North Sydney, St Kilda Road, Southbank, West Perth, Crows Nest/St Leonards, Adelaide Fringe and East Melbourne, there is an additional, 4,396,603 sqm of office space. Again assuming a 1:20 ratio these offices if fully occupied would house 219,830 workers. Between the CBD and fringe office space, if we assume one worker for every 20sqm of floor area, there is enough space for 1,083,007 office workers nationally. At the moment, office vacancy rates are quite high across the country, sitting at 10.1% across the CBDs and 10.2% across these fringe office markets. Based on these figures and our ratio assumptions there are 775,945 workers within our CBD markets and 197,484 workers within the fringe areas. Of course not everybody that works in the CBD or fringe areas works in offices there will be a mixture of retail, services, industry etc that also offer employment in these areas which would also increase the overall working population in these areas. If we look at the labour force data from June 2013 we see that at a national level, there were 8,138,418 persons employed full-time and 3,519,841 persons employed part-time for a total of 11,658,258. Of course the nature of part-time employment is such that jobs are at times shared so given this I will assume that half of the part-time positions are travelled to each day reflective of job sharing resulting in my total employment figure of 9,898,338 persons. Based on this 9,898,338 persons figure and the current occupied CBD and fringe office space, these inner city area offices are providing employment for just 9.8% of the nation’s workforce. Now of course most of those people that live outside of the respective capital cities are not going to travel to the closest CBD for employment yes there are some exceptions so it is beneficial to analyse the proportion of the capital city workforce that travels to the inner city area for employment. Demographic data to June 2012 showed that 15,015,290 persons lived within a capital city which equated to 66.1% of the nation’s population. Now we know that unemployment tends to be slightly higher outside of capital cities however, if we assume simplistically that 66.1% of the 9,898,338 persons are employed within a capital city that provides a capital city employment figure of 6,542,801 persons. Based on this figure, 14.9% of all capital city jobs are situated in a CBD or fringe office markets. As I mentioned, there are other forms of employment in these area other than just that within an office. Given this, let’s assume that a further 5% of the total capital city employment is located within either the CBD or the fringe areas taking the figure to 20%, leaving 4 out of every 5 employed persons not being employed in the inner city area and therefore not having to travel centrally each day. Of course there are those that need to travel centrally that aren’t workers that would rely on public transport, this includes: students, shoppers, tourists and those who require Government services that are located within these areas. We would estimate that overall, this proportion of population is quite small. Outside of this, although users of public transport may not necessarily be travelling all the way into the inner city areas of the capital cities, they do utilise it to travel to other working and retail nodes along the transport system. Despite this, a majority of the population is unlikely to be relying on public transport to reach their destination each day with even fewer using it to tavel to the inner city areas for employment. The implications of this is quite significant, although the roads and public transport are undoubtedly congested, a large proportion of the population are simply not commuting centrally on a day-to-day basis. It also means that public transport is only benefitting a small proportion of the overall community. From a future development perspective this also has some repercussions. It is clear that in our larger capital cities there is a significant focus on densification of the inner city areas and those along transport spines. Although this is the case, demand for these higher density inner city properties is likely to be strongest amongst those who actually work centrally. In fact, it is probably fair to say that for those who do not work centrally that higher density housing in the inner city areas would likely be highly undesirable. The push for higher density in the inner city means that you can squeeze more residents into a smaller area. From Government’s perspective it also means that you can rely on existing infrastructure which tends to be most abundant in inner city areas rather than having to provide new infrastructure such as that which is required when development takes place on the outskirts of the city. Nevertheless, it certainly appears that public transport infrastructure such as rail lines and busways connecting suburbia to the inner city areas only benefits a small overall proportion of the population. Of course, of the estimated 20% of people that travel to central areas of the capital city, you only have to look at the roads of a morning to see that for many the preferred way to commute continues to be via the private car. The other aspects of public transport to consider are the cost and the coverage. The overall cost of public transport is expensive and acts as a deterrent for many to use on a more regular basis. I live in Brisbane and to travel just one zone costs $4.80 if you don’t have a go card. The trip to the city from my house is only two zones which is $5.60 by paper ticket and $3.95 if I use a go card . I live relatively close to the city centre however, if I lived four zones away and purchased a paper ticket the cost is $7.50, if you have a go card the cost reduces to $5.13. In my opinion, those costs are extremely excessive. Yes it is probably slightly cheaper than the cost of running and maintaining a car on a week-to-week basis however, the differential is likely to be minimal. My overall conclusion is that public transport is not as important as many of us believe it to be, particularly for those of us that believe we all need to have public transport to commute to work in the inner city. This analysis shows that the majority of the working population actually don’t work in the central areas which tend to be the areas best serviced by public transport. The main reasons that public transport it is not as important are due to: public transport being over-priced, services are generally irregular and unreliable and the services do not effectively cater to the overall needs of the wider community with the main focus of the service to transport people from the suburbs to the central areas of the city. If the system was expanded, run on a more regular basis and made more affordable, I am sure that it would be more widely used, especially if it was more cost effective and efficient than using a private vehicle. Sadly, at this stage it is generally a long way from delivering these benefits.

Week ending 3 November

RP Data is expecting 162 auctions in Melbourne this week and 243 across Victoria. There is a small hiatus in the auction market this week due to Derby Day and the Melbourne Cup but last weekend’s strong results shows that this won’t negatively impact the results between now and Christmas. There are seven weekends for auctions this year after this weekend and we expect volumes to remain high. Whilst there is less action in the auction market the private sale market continues to record healthy results with a drop in the days on market for houses from 38 to 36 days. Stock being prepared for market is beginning to reduce due to the proximity to the end of the year. Many vendors will be starting to plan for sales campaigns next year. Key data: Clearance rate week ending 27 October: 71.9 per cent Melbourne auctions expected week ending 3 November: 162 Melbourne private sales time on market week ending 27 October: 36 days houses Melbourne vendor discounting market week ending 27 October: -6.4 per cent houses Listings being prepared for market are 3.8 per cent higher in month ending 27 October Robert Larocca RP Data Victoria Housing Market Specialist

Where in Melbourne do most of the houses sell?

Over the past twelve months 4.25 per cent of all houses in Melbourne have been sold. While this result is lower than the very strong years of sales over 2007 and 2010, it still represents almost one in twenty houses. The suburbs featuring the highest number of sales in raw terms are those in the growth areas. Pakenham tops the list, followed by Point Cook, Berwick, Frankston and Craigieburn. Frankston is the wild card in the list as it is not a growth suburb. This is reflected in the fact that less than 5 per cent of Frankston houses sold over the year. The remaining suburbs recorded over 5 per cent. Accounting for suburb size some of the newer suburbs top the list. These include Wollert were over one in eight homes sold followed by Sandhurst, Lyndhurst, Brookfield and Cranbourne East. A more in depth analysis of the list shows that a few suburbs would be considered as ‘established’ but whose high proportion of sales shows they are undergoing substantial change through infill development or significant new estates. The five most significant of these are Mount Martha, Oak Park, Pascoe Vale, Port Melbourne and Aberfedlie. In the city’s north two of these suburbs undergoing a comparatively high degree of change and where large volume of sales are taking place. The small but well priced suburb of Oak Park with only 1,700 houses has seen 100 properties sold while neighbouring Pascoe Vale which is more affordable, has seen 247 of its 4,314 sold. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 27 October 2013

A clearance rate of 72.3 per cent was reached from 1,328 auction results so far this week. This is an exceptional outcome from what was the biggest week of auctions in the cities history. It is notable that despite the increased number of homes on the market the number of buyers rose to ensure a very healthy outcome. There were around 1,600 auctions held meaning more results will be added before the clearance rate is finalised later this week. The clearance rate exceeded the year to date trend and increased compared to last week. This underscores the importance of looking past single week’s results when assessing the state of the market. In the private sale market it is interesting to note that the days on market for houses dropped this week from 38 to 36 suggesting a tightening of the broader Melbourne residential market. Robert Larocca RP Data Victoria Housing Market Specialist

Results from the RP Data – Nine Rewards Survey of housing market sentiment

Is now a good time to buy a property or home? 74% of respondents believe now is a good time to be buying property. While the results show the vast majority of those surveyed think the timing to purchase a home is good, the results are a reduction from our May 2013 results where 80% of respondents thought it was a good time to purchase a home. The result is also slightly lower than a year ago when 76% of respondents thought it was a good time to be purchasing a dwelling. Across the regions the results for this question showed some diversity. Not a single respondent in the Northern Territory thought now was a good time to be buying a dwelling, perhaps reflecting a reduced level of buyer sentiment in the top end housing market. Similarly, a smaller proportion of Sydney respondents 63% thought now was a good time to be purchasing a dwelling. The May results were 10 basis points higher for Sydney at 73%. Dwelling values have moved 12.2% higher across the Sydney housing market since values bottomed out in May 2012. Many prospective Sydney buyers have either been priced out of the market or would be viewing the current level of capital gains as unsustainable. More than 80% of survey respondents thought it was a good time to be buying a home in Adelaide, Regional Western Australia, Regional Queensland and Brisbane. Is now a good time to sell a property or home? Despite the strong housing market conditions only slightly more than half of respondents thought now was a good time to be selling their home. The results are dramatically higher than a year ago when only 29% of those surveyed thought it was a good time to be selling. The strong housing market conditions in Sydney have prompted the largest proportion of respondents to suggest now is a good time to sell. About 74% of Sydney based respondents thought that now was a good time to be selling their home. Based on RP Data’s most recent weekly statistics, the typical Sydney house is selling, on average, in just 27 days, highlighting the strong selling conditions that are prevalent across this market. 65% of respondents in Melbourne thought now was a good time to be selling and 61% of Perth respondents though it was a good time to sell their home. Housing markets where capital gains have been softer, such as South Australia, Queensland and Tasmania, have prompted survey respondents to be less bullish on selling conditions. Only 23% of those surveyed in regional South Australia thought now was a good time to be selling and 29% in regional Queensland. In your opinion is Australia’s housing market vulnerable to a significant correction in values? This is the first time this question has been included in the RP Data – Nine Rewards survey. The results show 60% of survey respondents believe the Australian housing market may be vulnerable to a significant correction in values. The survey didn’t probe further about what level of value decline would be considered ‘significant’, however, it is clear that there is a level of unease about the future of Australian dwelling values. Respondents based in the Australian Capital Territory, Perth and Sydney showed the most significant level of pessimism when it came to their belief that dwelling values are vulnerable to a significant correction. 70% of respondents in the ACT thought the local housing values were vulnerable to a significant fall, as did 68% of Perth respondents and 65% of Sydney respondents. Both Sydney and Perth have seen a greater than average run up in dwelling values over the most recent growth cycle which may be contributing to the perceived threat of a downturn in home values. Conversely, respondents in Tasmania, where the housing market has been the weakest of any state or territory, are much less pessimistic. Only 36% of respondents thought the housing market was vulnerable to a significant correction in dwelling values. The proportion of pessimistic responses was below 60% for respondents based in the Northern Territory, regional NSW, Adelaide, Brisbane and regional Victoria. What is the most important factor when purchasing a property? The vast majority of respondents believe the most important factor to consider when purchasing a property is their personal financial situation at 52%. Slightly more than half of the survey participants felt this to be the most important factor when considering a property purchase. Interestingly, the housing market’s prospects for capital growth also rated quite high, with just under 20% of respondents indicating this was their most important consideration. 15% of respondents thought the interest rate setting was the most important factor, while only 10% of respondents felt that job security was their most important consideration. Do you believe home values will rise, fall or remain stable over the next 6 months? 51% of respondents were expecting home values to rise over the next six months compared with just 33% of respondents in October last year. Only 6% of respondents were expecting values to fall over the coming six months. Of those respondents who are expecting home values to rise over the next six months, their expectations of growth remain relatively measured, with just over half of those respondents that thought values would rise over the next six months indicating that growth would be between 2.5% and 4.9%. The vast majority were expecting growth to be less than 5% over the next half year. According to the 6% of respondents who think values will fall over the next six months, the largest proportion 41% are expecting the fall to be less than 2.5% and almost 75% of respondents think values will fall by less than 5% over the coming half year. Do you believe home values will rise, fall or remain stable over the next 12 months? A larger proportion of respondents believe Australian home values will rise over the next 12 months, with 57% of respondents expecting values to lift. Compared with the survey responses in October last year, only 42% of respondents were expecting home values to rise over the coming year. Of those respondents who are expecting dwelling values to rise over the coming 12 months, the vast majority 78% expect the magnitude of growth to be less than 5%. Do you believe home rental rates will rise, fall or remain stable over the next 12 months? Most respondents 55% to the survey are expecting rental rates to continue rising over the coming year, with only 4% of individuals surveyed expecting a fall in rents. Of those respondents that are expecting a rise in weekly rents over the coming year, 41% are expecting a rise of between 2.5% to 4.9% while the second largest proportion are expecting rents to rise by under 2.5% over the year. Respondents based in Northern Territory are the most bullish on rental markets, with three quarters of the respondents expecting higher rents over the next twelve months. Just under 70% of Adelaide respondents were expecting higher rents and more than 60% of respondents were expecting rents to move higher over the year in Regional NSW, Tasmania and Sydney. Residents of regional South Australia showed the lowest expectation of rental rises over the coming year, with only 38.5% of respondents indicating they were expecting rents to move higher. Fewer than half the respondents in ACT, regional Vic and Perth were expecting higher rents over the coming year.

Victoria market preview for week ending 27 October

RP Data is expecting 1,563 auctions in Melbourne this week and 1,734 across Victoria. There are 1,454 expected in Melbourne on Saturday itself. This is the most significant weekend for the auction market in Melbourne’s history with a record number of homes being offered for sale under the hammer. The very high level of listings is a sign of confidence from vendors, many of whom decided around 6 to 8 weeks ago to list for sale. They would have been influenced by the improved market and reported price rises. A clearance rate for the weekend of 70 per cent or more would be considered a good outcome. Latest housing finance data from the ABS showed that the number of first home buyers in Victoria is 9 per cent below the average over the past two years. Key market facts Clearance rate week ending 20 October: 68.6 per cent Melbourne auctions expected week ending 27 October: 1,563 Melbourne private sales time on market week ending 20 October: 38 days houses Melbourne vendor discounting market week ending 20 October: -6.4 per cent houses Listings being prepared for market are 6 per cent higher in month ending 20 October Robert Larocca RP Data Victoria Housing Market Specialist

Why all units and apartments in Melbourne are not the same

The top 10 list of suburbs ranked by sales of medium and high density homes is understandably dominated by the inner city but does contain two interesting exceptions. The highest number of unit and apartment sales in one suburb over the 12 months ending July according to the RP Data Suburb Scorecard was Melbourne with 1,045 transactions. It was followed by the more expensive suburb of Southbank with 596, then St Kilda, South Yarra and Docklands. Of the top 5 most transacted unit suburbs, Docklands is the most expensive with a median sale price of $590,000 and interestingly it is the only suburb out of the top five where the median unit price has fallen over the past year. The two suburbs that don’t follow the theme of being in the inner city are the much more affordable Frankston and Reservoir. In these suburbs not only are the units more affordable, with a median of $270,000 and $358,000 respectively, but they are a very different type of home compared to what is found in the inner city. They tend to have lower density and in that way are representative of very different unit and apartment market than which is commonly seen in the inner city. For buyers this is important information as it means you can’t simply compare suburbs on unit data alone. There are very divergent styles of homes within the unit and apartment category across Melbourne and they need to be assessed on an individual basis. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 20 October 2013

A clearance rate of 69.9 per cent from 981 auction results so far this week. This week’s clearance rate is broadly in line with year to date of 70 per cent, but below last weeks 74 per cent. This is the first week below 70 per cent in a few months but the variance is not unusual and is not a sign of softening demand at this stage as other weeks have seen 3 to 4 point changes in the clearance rate. In the private sale market the time on market for houses contracted moderately over the last week from 39 to 38 days whilst the vendor discount rose from – 6.0 to -6.4 per cent. Only Sydney, with 27 days and Canberra with 33 days are recording a lower average time on market for houses. Conditions in the unit market were stable with a time of market of 45 days and average vendor discount of 5.0 per cent having improved from -5.4 per cent over the previous week. New listing activity dropped from a monthly rise of 7.1 per cent to 6.0 per cent this week. Robert Larocca RP Data Victoria Housing Market Specialist

Victorian market preview for week ending 20 October

Clearance rate week ending 13 October: 74 per cent Melbourne auctions expected week ending 20 October: 1,046 Melbourne private sales time on market week ending 13 October: 39 days houses Melbourne vendor discounting market week ending 13 October: -6 per cent houses Listings being prepared for market are 7.1 per cent higher in month ending 13 October Last week saw Melbourne record the 11th consecutive weekly clearance rate in excess of 70 per cent. RP Data is expecting 1,046 auctions in Melbourne this week and 1,168 across Victoria. This week will be followed by the largest for auctions in the state’s history with 1,628 expected, 1,500 of those in Melbourne and 1,396 on Saturday alone. These conditions will provide a high level of choice for buyers and will not only provide favorable negotiating conditions but also help with the often difficult task of finding the special home that they have been searching for. It is often forgotten that low stock levels can act to dampen the market as buyers can’t find the home that meets their needs. Robert Larocca RP Data Victoria Housing Market Specialist

Where to find the most affordable housing using RP Data’s Spring Buyer’s Guide

RP Data latest Spring Buyer’s Guide was released this week, providing an overview of key housing market statistics for every suburb that has recorded at least ten house or units sales over the past year nationally. The full report including suburb and council level tables is available for download at www.myrp.com.au/springbuyersguide. One of the interesting statistics that flows from the Guide is the percentage of suburbs across each capital city that might be considered affordable. The maps below highlight the suburbs with a median house or unit value under $300,000 and $500,000. The trends come as no surprise; it is typically the outer fringe suburbs where the most affordable housing can be found. What is a little surprising is the proportion of suburbs across each capital city where the median value of a house is less than $300,000 or $500,000. While Australia’s most affordable capital city, Hobart, shows the highest proportion 41.3% of all suburbs have median house value under $300,000 , it is Brisbane that has the second highest proportion at 15.2% followed by Adelaide at 14.4%. The depth and diversity of Brisbane suburbs for affordable housing is quite remarkable considering this is the nation’s third largest capital city. The vast majority 60% or 30 individual suburbs of these affordable suburbs can be found within the Ipswich council region which is west of the Brisbane local government area. 26% 13 suburbs of the most affordable Brisbane suburbs are located within the Logan council region while only 3 each are in the Redland and Moreton council regions and just one Inala is located within the Brisbane council area. Another surprise is that the Melbourne metro area has a slightly lower proportion of very affordable suburbs ie <$300,000 median house value than Sydney. Only 2.0% of Melbourne suburbs have a median house value below $300,000 while Sydney has recorded 2.5% of suburbs with a median house value lower than $300,000. Perth is even lower at just 1.1% demonstrating a severe lack of depth in the very affordable housing market. There is not a single suburb across Canberra where the median house value is less than $300,000. The maps below show the geography of affordability across the capital cities and of course, the full Spring Buyer’s Guide which is available to download has great deal more detail for every suburb around the nation. >

The best yield in units and apartments in Melbourne

Higher density housing is often viewed as an investment opportunity but like all property the outcome depends heavily on a range of factors. This is apparent when the suburbs of Melbourne are ranked by their indicative gross yield over the past year for units. Using the RP Data Scorecard, the data applies to the year ending September and only includes suburbs with at least 500 dwelling to reduce variability. Inner city Carlton tops the list with a yield of 6.9 per cent. The neighbouring CBD is fourth on the list with a strong 5.9 per cent which underscores why demand from investors is helping to drive the inner city high rise market. Carlton has a lower rent than the CBD with a median asking price of $360 compared to $450. The other three suburbs in the top 5 are at the more affordable end of the market from the perspective of median asking rents but still provide healthy yields. Broadmeadows has a median rent of $310 per week and a yield of 6 per cent, Melton a median rent of $255 and yield of 5.8 per cent. Neighbouring Melton South a median rent of $240 and yield of 5.6 per cent has been recorded. Does this make these suburbs good investment opportunities? That really depends on the actual property on offer and whether you are seeking a high weekly rent or a larger capital gain. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 13 October 2013

Spring continues to deliver good outcomes for vendors with a clearance rate of 73.8 per cent from 883 auctions results so far this week and a 1.3 per cent increase in home values in the last month. This week’s clearance rate is a moderate rise on the 71.3 per cent last week and 70 per cent so far this year. The market is clearly absorbing increased volumes in the auction market with little sign of diminished demand suggesting the record weekend at the end of October, when Melbourne will see 1,500 auctions, will deliver a result on trend. The latest market information from RP Data shows the overall time on market for houses sold at private sale stable at 39 days. The strongest demand in the house market is being recorded around the $500,000 level in the outer east where Croydon Hills, Bayswater North, The Basin, Scoresby, Croydon South, Boronia and Bayswater record the quickest sales in Melbourne. Robert Larocca RP Data Victoria Housing Market Specialist

Housing demand from overseas migration strong but slowing

Population growth is arguably the most important indicator of housing demand. More residents generally translate to a larger requirement for dwellings. Of course there are changes in household formation that need to be taken into account for example, more people under one roof and maximising existing bedrooms in an effort to combat housing affordability , however population growth remains the most important indicator for housing demand. Over the first three months of 2013 the Australian population increased by 114,751 new residents; close to a record high there have only been five previous quarters over the past 30 years where the population has grown by a larger amount . 36% of this population growth was attributable to natural increase ie births minus deaths while the majority of new residents came from net overseas migration. Unfortunately the quarterly demographic updates from the Australian Bureau of Statistics aren’t all that timely; in fact the statistics are about six months in arrears. The most up to date population estimates at a state/territory/national level are current to March 2013 and the June update won’t be available until December 17th. Fortunately we do have interim data on overseas arrivals and departures which is published monthly and provides a useful indicator for where overseas population growth is heading. Focussing on permanent and long term arrivals and departures data from the ABS, it is clear that overseas migration, while remaining historically high, has already passed the peak rate of growth. Over the month of August the ABS reported 53,470 permanent and long term arrivals. In balance there were 30,390 permanent and long term departures resulting in a net increase of 23,080 new permanent and long term movements. An annual summation of the overseas arrivals and departures data shows 680,200 arrival movements and 371,440 departure movements; a net gain of 308,760 permanent and long term residents/visitors who require accommodation of some description. The inflow of migrants remains high; however an examination of the annual trend shows that net migration into Australia has been slowing since commodity prices peaked back in late 2011. The last time we saw the rate of overseas migration falling away like this was in early 2009; a trend which was policy driven in response to a rising rate of unemployment. Currently, despite the improved unemployment reading for August the national rate of unemployment shifted from 5.8% in July to 5.6% in August due to a drop in the participation rate it is widely anticipated that national unemployment will continue to trend higher and is likely to peak around 6.25% according to Federal Treasury. Potentially we will see similar calls for migration policy change if unemployment continues to trend higher. The Department of Immigration and Citizenship, based on their June 2013 update, is still forecasting modest rises in net overseas migration, as can be seen in the table below extracted from their latest immigration update click here . If the Department is correct in their forecasts we should continue to see a strong rate of overseas migration which will continue to fuel the high rate of national population growth. The month to month overseas arrivals and departures data supports the notion that overseas migrants are continuing to grow in numbers, but the rate of growth has moderated since 2011. Without doubt, as unemployment moves higher we can expect more debate about whether this strong rate of migration is the correct policy for our country. Personally, I am very much pro ‘Big Australia’ but it is absolutely essential that any population growth targets run parallel with infrastructure development; something that both federal and state government have struggled with in the past. Additionally, migration targets need to be strategically matched with domestic labour shortages and aimed at sectors that will benefit from the rapid ramp up of human resources that overseas migration can provide.

Melbourne auction preview for week ending 13 October

Clearance rate week ending 6 October: 71.3 per cent Melbourne auctions expected week ending 13 October: 970 Melbourne private sales time on market week ending 6 October: 38 days houses Melbourne vendor discounting market week ending 6 October: -6.2 per cent houses Listings being prepared for market are 3.3 per cent higher in month ending 6 October RP Data is expecting 970 auctions in Melbourne this week and 1,086 across Victoria. With school holidays now concluded auction volumes now lift again. The next few weeks are generally the busiest ones of the real estate year. Bentleigh East features the highest number of auctions with 20 scheduled. There are also 18 in both Glen Waverly and Reservoir. Clearance rates remain higher in Sydney, although the lower volume; 302 auction results compared to 755 in Melbourne can account for some of the difference. Activity in the mortgage market continues to rise moderately with a small 0.5 per cent rise over the past four weeks in trend terms in Victoria. This suggests that whilst the market is improving it is only doing so moderately. Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne’s most tightly held suburbs

The number of homes on the market across Melbourne varies depending on the suburb with some areas providing buyers with plenty of choice while simultaneously, properties in other suburbs are being tightly held. Over the year ending July 2013 the five most tightly held suburbs in Melbourne were Oakleigh East, Glen Huntly, Princes Hill, Heidelberg and Clarinda. The data is based on sales recorded with the Valuer General in suburbs with a minimum of 500 houses. In these suburbs between 2.2 per cent and 2.6 per cent of homes has been on the market over the last twelve months. In Oakleigh East this resulted in a mere 20 homes sold from 1,417. When looking at the list in more detail, two interesting clusters of suburbs are apparent. Not only is Oakleigh East tightly held but neighbouring Oakleigh and Oakleigh South are also in the top 20. In those three suburbs there are nearly 9,000 houses of which only 159 have sold. The other cluster is for houses in Parkville, Princes Hill and Carlton. The most available of those suburbs is Carlton with only 3.1 per cent of homes offered for sale. The reasons for this will vary and it certainly is not price driven as the median prices in the Oakleigh area are between $560,000 and $640,000 whilst in the other cluster the lowest is $881,000 in Carlton. These two areas are surely the hardest places to buy a home in Melbourne. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 6th October 2013

Key metrics in the private sale and auction market are healthy with higher demand from buyers more apparent in the detached houses segment. For instance in the auction market, at this stage in 2011 the clearance rate was 55 per cent and in 2012 it was 56 per cent. This year it is 70 per cent. That trend was repeated in this week’s auction results with a preliminary clearance rate of 71.4 per cent being recorded from 755 results. Time on market for houses at private sale was 43 days in the latest monthly data from August and this was 9 days lower than the 5-year average. The unit market was showing signs of larger supply with its time on market being 48 compared to the 5 year average of 50. If the market continues to perform to trend then October will see a new nominal peak in house prices reached. Robert Larocca RP Data Victoria Housing Market Specialist

Melbourne market preview for week ending 6 October

Preliminary clearance rate week ending 29 September: NA low volume Melbourne auctions expected week ending 5 October: 826 Melbourne private sales time on market week ending 29 September: 39 days houses Melbourne vendor discounting market week ending 29 September: -6.2 per cent houses Listings being prepared for market: 8.6 per cent higher in month ending 29 September RP Data is expecting 826 auctions in Melbourne this week. After this week there are another 11 weekends for auctions to be held before Christmas and by using last year as a guide we can estimate around 10,000 homes will be offered at auction. Of those 10,000 auctions this years trend would suggest around 7,000 will be sold at or before the auction. The majority of those passed in will be negotiated over as the vendor and buyers seek to agree over price and terms. Across the broader market there continues to be very strong listings as Victoria lead the nation for homes being prepared for sale for the second week in a row. Robert Larocca RP Data Victoria Housing Market Specialist

Strong housing market fuels dwelling construction

The Reserve Bank’s monetary policy settings are working. Dwelling values are rising, as should be expected when mortgage rates are at historic lows. But arguably what is more important is that the renewed level of housing market confidence is showing up in improved development activity and demand for new homes. This is exactly what the doctor ordered – a ramp up in the construction sector is one of the essential elements of our new look economy where resources related investment will be lower but housing investment is expected to be higher. Dwelling approvals have been trending higher since about April 2012 which is close to the same time that the housing market bottomed out from a value depreciation perspective. Between April last year and August this year the number of dwelling approvals seasonally adjusted from the private sector has increased by close to 30% and over the past twelve months dwelling approvals are 10.3% higher for detached homes and 3.2% higher for multi-unit dwellings. The lift in development activity has a significant multiplier effect on the economy. For a start, more homes being built means more hours worked in the construction sector and more jobs. Demand for building materials rises as well as home furnishings, bulky goods, appliances and white goods. The improvement in dwelling approvals is likely to be driven by a number of factors. The overall market growth cycle will have a lot to do with it; developers and builders are more inclined to release new supply when consumer demand for housing is higher transaction numbers were about 22% higher than a year ago based on our estimates for July . Another factor would be government grants and stamp duty concession which are firmly aimed at providing incentives to purchase new homes rather than established ones. And finally there is also the strong rate of population growth which is fuelling organic demand for new housing Australia’s population grew by 1.8% over the year to March 2013 which equates to just under 400,000 new residents . The surging demand for new homes shows up clearly in the ABS housing finance commitments data. The graph below plots the number of new mortgage commitments by owner occupiers for newly built homes. Finance demand for new housing hasn’t been this high since 1979 and the number of commitments in July this year were 52% higher than a year ago. Dwelling approvals from state to state are a bit of a mixed bag though. The New South Wales region is the driving force behind the surge in dwelling approvals with the latest August data showing a 48% lift in private sector approvals compared August 2012. In July, New South Wales accounted for 28% of all private sector dwelling approvals nationally. Dwelling approvals have eased in Victoria after a surge of development approval activity in 2009/10. In fact, at their height, Victorian dwelling approvals accounted for 40% of all approvals nationally. Based on the July 2013 data, Victoria now comprises a much healthier 27% of all dwelling approvals nationally and the lower rate of dwelling approvals together with Victoria’s very high rate of population growth should help to bring reduce fears of local oversupply. With Queensland’s housing market remaining fairly depressed Brisbane values have only moved 1.1% higher over the past twelve months , developer confidence is yet to pick up. Private sector dwelling approvals have increased by 10% over the past year but remain well below the long term average. Despite the low number of approvals, population growth into Queensland remains rapid, with the state population growing by 92,300 residents over the year to March – roughly the same raw figures as New South Wales but with about a third less new housing supply coming on line. South Australia’s housing market has remained one of the weakest across the capital cities, with dwelling values 0.8% lower over the past twelve months. With such sedate housing market conditions it is surprising to see dwelling approvals rise by 30% over the past twelve months. 76% of South Australian dwelling approvals are for detached homes, highlighting the fact that the local unit market in Adelaide remains a very small proportion of the dwelling mix despite the state government offering attractive incentives to purchase new inner city units. Dwelling approvals in Western Australia have increased by 18% over the past twelve months in line with very robust housing market conditions. The rate of capital gain across Perth has recently been slowing, as has rental growth and buyer numbers appear to have peaked as well, so it may be the case that developer activity starts to mellow across WA as well. One final point on the new level of dwelling approvals is the trend towards more medium and high density product. The graph below shows the number of dwelling approvals for detached homes nationally as a proportion of all dwelling approvals. Houses now comprise around 60% of all dwelling approvals, a big shift from ten years ago where they accounted for closer to 70% of all dwelling approvals. The trend towards unit development is likely being driven by changing market preferences more empty nesters and single person households , affordability constraints units tend to be cheaper and changed zoning rules more land is zoned for medium and high density development particularly in areas closer to the city centre .

RP Data & Rismark Home Value Index shows Melbourne on track for a new peak this Spring

The recent release of the RP Data & Rismark September Home Value Index showed that Melbourne house prices recorded a strong recovery but are not yet quite at previous peak levels The index differs from a median price measure by comparing the changes in values for all properties and by taking into account the inherent differences between homes that are sold. Nationally the results confirmed that a new peak was reached and this shows the outcome of the favourable monetary policy such as current low interest rates in more affordable market coupled with rising confidence. Melbourne house values rose by 2.6 per cent in the month of September and by 5.2 per cent over the quarter. Unit values rose 1.1 per cent in the month and by 3.2 per cent in the quarter. These strong rises show that consumers are more confident and have been encouraged into the market in growing numbers. If these conditions continue it will drive further growth, however the buoyant market is also likely to encourage more owners to sell, hopefully tempering the growth in prices. It’s worth noting that they are below peak. The current peak Melbourne house value was reached three years ago in October 2010 when the index value was 667.7 compared to 654.1 in September this year. One more month like the last and the old peak will be surpassed. For units the outcome in September would need to be repeated for another two months to reach the peak of 483.4 in February 2011. Robert Larocca RP Data Victoria Housing Specialist

Week ending 29th September 2013

There may have been fewer auctions this week due to the grand final but that has not prevented people buying and selling. RP Data’s preliminary results include 63 auctions reported in Melbourne this week with 53 finding a buyer. Across the broader market there have been 1,748 houses and units sold over the last week. The median sale prices have remained mostly stable with $462,000 being recorded for houses and $425,000 for units. Over the same time the daily index recorded a 2.2 per cent rise in Melbourne which was consistent with the 2.1 per cent recorded in Sydney. Over the medium term Sydney has stronger price growth as different fundamentals apply. Time on market for houses dropped from 40 to 39 days over the last week. Robert Larocca Victoria Housing Market Specialist

Buyers surging back into beach side housing markets

Lifestyle markets have been hit hard by a housing market downturn but it looks like some life is now starting to be breathed back into the coastal regions which are often synonymous with holiday homes, short term rentals and sea change migrants. I’m noticing the trend first hand; I own a house on the Sunshine Coast and watch the housing market there with a great deal of interest. More properties are being listed for sale as vendor confidence resurfaces and more homes are selling as buyer confidence improves as well. A quick look at two of the most iconic lifestyle markets where home values have been hit hard, the Gold Coast and Sunshine Coast in Queensland, shows the trend quite clearly from a volume of transactions perspective: Estimated transaction numbers for houses are 60% higher on the Gold Coast compared with a year ago and unit sales are 54% higher. Sunshine Coast sales have seen a similar improvement with the estimated number of house sales 45% higher over the year and unit sales up nearly 60%. Clearly the improvement in buyer demand is moving higher from a very low base, however the rising number of sales indicates that these markets have well and truly moved through the bottom of the cycle and are back on the path to what is likely to be a long recovery, considering values across most lifestyle markets remain substantially lower than when they peaked. It’s not just the number of sales that is rising; the higher buyer demand is starting to push prices higher as well, however the upwards pressure is mostly confined to detached homes. Once again focussing on the Gold Coast and Sunshine Coast for now, the Gold Coast median house price has moved 3.2% higher over the year while unit prices are down a further 4.2%. Sunshine Coast house prices are 1.3% higher over the year while unit prices were virtually stable with a 0.1% fall. As you can see from the series of lifestyle region graphs below, it has been and still is to some extent unit markets as opposed to detached housing markets where the most distress has been recorded. The reason for the more acute weakness in unit markets can likely be attributed to a couple of factors. • Pre-GFC many lifestyle markets had seen a substantial amount of unit development so there may potentially be supply issues in some markets. Additionally, with some high profile post-GFC settlements that resulted in substantial capital losses referring specifically to the Gold Coast , the public attitude towards unit developments in these locations may still be tainted. • Unit dwellings are more often owned by investors. Rental demand from both a short term tenancy ie holiday rentals and long term tenancy ie permanent rentals perspective remains sluggish in many lifestyle markets which implies less consistency in cash flow and uncertainty around yield. The graphs below cover some of the key lifestyle markets along the Eastern Seaboard and generally the trends are quite similar: rising volumes, some growth in house prices but unit prices remaining stubbornly sedate. In a market like Cairns where tourism is the primary economic pillar, housing market conditions are becoming healthier but the volume of home sales remain just less than half of what was being recorded pre-GFC. Unit prices have worn the brunt of the downturn, having fallen about 25% over the past five years. The Sunshine Coast and Gold Coast offer a great deal more economic diversity than Cairns which is probably one of the reasons why transaction numbers have held more firmly that what was recorded in Far North markets. Conditions are warming up with transaction numbers 24% higher than a year ago for houses and 27% more unit sales compared with last year. There hasn’t been a great deal of price growth just yet but with sales rising and vendor metrics improving we would expect the Sunshine Coast to continue along an upwards trajectory for prices and sales. The Gold Coast has been the poster child for distressed unit settlements over the past few years with high profile projects such as Soul, the Hilton and the Oracle making headlines for all the wrong reasons at settlement time. It seems that buyer demand is flowing back to the Gold Coast now, with transaction numbers rising and prices showing some upwards movement as well. The unit market on the Gold Coast is still seeing prices taper over the past year but I wouldn’t be surprised if this annual trend has already turned around over a more recent time period. The Tweed council area which lies directly south of the Gold Coast is seeing a similar dynamic with rising buyer demand and a glimmer of price growth in the detached housing sector. Selling conditions are improving, as demonstrated by the vendor metrics below; homes are selling slightly faster and vendors are slowing gaining some leverage with discounting levels tightening. The Byron Council region is showing a slightly different trend. Volumes are rising and selling conditions are improving, but the key difference is the fact that unit prices haven’t fallen away to as large an extent. Potentially the resilience in the unit market can be drawn back to the opposition to new housing development that has historically been the case across the Byron Shire.

Melbourne market preview for week ending 29 September

Final clearance rate week ending 22 September: 75.9 per cent Melbourne auctions expected week ending 29 September: 64 Melbourne private sales time on market week ending 22 September: 40 days houses Melbourne vendor discounting market week ending 15 September: -6.3 per cent houses New listings in Victoria: 7.9 per cent higher in month ending 22 September RP Data is expecting only 80 auctions across Victoria this week with 64 in Melbourne alone. The auction market typically takes a break each year at this time to allow vendors and real estate agents to enjoy the AFL Grand Final. Incidentally there are 7 auctions scheduled in Perth with all except one on Sunday. After this weekend’s hiatus the market will enter a very busy period until Christmas on a very strong footing with 8 consecutive weeks of clearance rates in excess of 70 per cent. Over the past 4 weeks the median price of houses sold by private sale in Melbourne has been $460,000 which is only a minor variation on the $455,750 recorded a month ago. The moderate nature of price growth in Melbourne is also shown in the RP Data-Rismark Home Index which has shown a 1 per cent rise in prices over the past month. Robert Larocca RP Data Victoria Housing Market Specialist

The current Victorian market is still below its best

Two useful statistics for measuring the health of the local market, particularly the private sale one, are the number of days a dwelling is on the market for and the amount the vendor discounts the property over the course of the advertising campaign. A review of those metrics for the Melbourne private sale market for houses shows that time on market is approaching the lows of 2010 and 2007 but that vendors expectations are less likely to be matched by the market. In July the time on market was 44 days compared to 62 days a year ago and above the 36 days in September 2009. It’s worth noting that 36 days was the lowest recorded since the series begun in 2005. If the market continues to strengthen as suggested by recent consumer confidence data then this will also fall, as long as vendors’ price expectations remain in line with the market. A similar pattern is evident when looking at the level of discounting. It is commonly understood that unlike an auction, homes that sell through private sale do so for less than their advertised price, but the lower the difference the stronger the market. In July the average vendor discount was -6.5 per cent compared to -7.5 per cent a year ago and above the -4.7 per cent in January 2008. The improving trend is backed up by more recent preliminary data but does not change the underlying message that the current market is better than a year ago but still below its strongest. Buyers between now and Christmas will face more competition but still have negotiating power. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 22nd September 2013

Auction volumes were boosted last week due to the AFL Grand Final and were met with more buyers resulting in a preliminary clearance rate of 76.9 per cent compared to 72.5 per cent last week. This result is based on 862 auctions with more to be collected over the week. Whilst strong this is still lower that the 79.7 per cent in the week ending 2 June from 867 auctions. The underlying health of the market is highlighted by the fact there have now been 8 consecutive weeks with a clearance rate in excess of 70 per cent. In the private sale market indicators were stable with time on market for houses remaining at 40 days and the average vendor discount for houses increasing from 6.2 to 6.3 per cent. The number of new listings being prepared for the market continues to rise with Victoria leading the nation with a 7.9 per cent rise over the past month in seasonally adjusted terms. Next week there are only 80 auctions in Victoria. Robert Larocca Victoria Housing Market Specialist

The largest, fastest growing, fastest shrinking and most dense council regions around the country

The largest council regions: Queensland’s capital city, Brisbane, is the largest municipality in Australia. There are 1,110,473 people that live in Brisbane, comprising just fewer than 5% of Australia’s population. The second largest council, which is also in the South East corner of Queensland, is the Gold Coast where the population is less than half that of Brisbane’s at 526,173 persons. In fact, four of the top five council regions including the entirety of the ACT are located in South East Queensland; the other two are Moreton Bay and Sunshine Coast. These four council regions alone account for slightly more than 10% of the national population. Not only is the Brisbane City Council region large in both area and population, it is growing rapidly. Over the past ten years the area has increased in population by about 20,200 persons each year or nearly 1,700 new residents every month. There are some benefits of having a large council. The taxation base is larger providing some economy of scale and the urban planning and approval process tends to be much more streamlined. The fastest growing council regions: Six out of the top ten fastest growing council regions around the country are located across the Western Australia and four of them are in the Perth metro area. The Perth Council has recorded a population growth rate of 125% over the ten years to June 2012 to reach a population of roughly 19,000 residents. The population growth rate across the Perth council area remains high at 3.7% over the 2011/12 financial year, however, councils like Serpentine-Jarrahdale +8.1% , Kwinana +6.6% , Armidale +5.9% and Wanneroo +5.6% have been outpacing Perth over the most recent 2011/12 period. Rapid population growth provides both positive and negative factors for local governments. The positive is that population growth is stimulatory – more people means a larger tax base and more demand for housing which provides a multiplier effect on the local economy as higher demand for housing translates to more employment, building materials, white goods, home furnishings etc. The challenge with rapid population growth is to ensure infrastructure and local amenity keeps pace with the population. More people means more traffic, a greater requirement for public transport, health care, schooling, retail facilities etc. Delivering on infrastructure is expensive and is the area where many Governments simply fail to deliver. The fastest shrinking council regions: The regions where population growth is in significant decline can broadly be described as regional areas often associated with agriculture. Five of the top ten regions where the population is shrinking the most rapidly are located across Western Australia’s Wheat Belt. Camamah -30.1% , Dalwallinu -27.8% , Mukinbudin -27.7% and Wyalkatchem -20.6% are seeing their population dropping from an already low level. The trend towards smaller populations across these rural areas is nothing new and is likely to continue as the average population of these areas grows older and younger cohorts move away. A declining population creates other issues including a lack of social diversity. The challenge for many of these areas is to continue providing infrastructure and services across a lower taxation base. These regions are extremely large in area which compounds the costs involved in servicing the sparse population. The councils with the highest population densities: Nine of the ten most densely populated council regions are located within the Sydney metro area. The most densely populated council is Waverley where there are just over 7,500 residents per square kilometre. The council includes popular suburbs such as Bondi, Tamarama, Dover Heights, Bronte and the Waverley. About 80% of Waverly dwellings are units or semi-attached. The regions with the highest population density tend to be located very close to the central business districts of each capital city and are of course synonymous with fewer detached homes, more apartments and town houses, efficient public transport systems and wide range of facilities and social options close by.

Melbourne auction preview for week ending 22 September

Final clearance rate week ending 15 September: 72.5 per cent Melbourne auctions expected week ending 22 September: 928 Melbourne private sales time on market week ending 15 September: 40 days houses Melbourne vendor discounting market week ending 15 September: -6.2 per cent houses New listings in Victoria: 6.5 per cent higher in month ending 15 September RP Data is expecting over 1020 auctions across Victoria this week with around 930 in Melbourne alone. This is the second week in a row with in excess of 1,000 auctions in Victoria and will ensure that buyers have plenty of choice. This is important as low volumes can often make it difficult for buyers to find the special home that they have been searching for. The highest volume of auctions is in Bentleigh East where there are 27 followed by 18 in Richmond and 17 in Glen Iris. Time on market for private sale of houses dropped back a small degree this week which when viewed in conjunction with the softer activity in the mortgage market shows that whilst the market is more healthy than a year ago it lacks the strength of previous upswings in 2007 and 2009/10. Robert Larocca RP Data Victoria Housing Market Specialist

Week ending 15th September 2013

This week’s preliminary clearance rate was 73.6 per cent compared to last week’s final of 74.7 per cent. This result is based on 871 auctions of residential homes with 641 selling and 230 being passed in. The spike in listings this week was a test for the auction market and it recorded a pass mark by continuing the trend of the last month and a half. The most recent interest rate reduction came at the start of August and has clearly encouraged a few more buyers into the market and helped keep the clearance rate above 70 per cent. Across both methods of sale listings are rising with a 6.5 per cent increase over the last month in Victoria on seasonally adjusted terms. Buyers conservative position is however still evident with a 3.5 per cent fall in local activity in the mortgage market. Melbourne continues to track below the very strong Sydney auction market which recorded an 84.3 per cent clearance rate this week. Robert Larocca Victoria Housing Market Specialist

Where is housing demand the strongest?

Australia’s rate of population growth is continuing to ramp up, placing consistent upwards pressure on demand for housing. The macro level demographic data is only up to date to December last year and population estimates for smaller regions such as council areas and suburbs, has only just been released current to June 2012. At a high level, based on the December 2012 demographic statistics, Australia’s population increased by 1.8% over the 2012 calendar year; the highest rate of population since December 2009. At a lower level, it is clear that the vast majority of Australia’s population growth continues to be most concentrated within the capital cities. About 66% of Australia’s population reside within one of the eight capital cities, however, the overt the 2011/12 financial year the capital cities accounted for 75% of the population growth. The rate of population growth is quite diverse from city to city and region to region. Perth is recording the highest rate of population growth at 3.6% over the 2011/12 financial year. Importantly, the City of Perth accounts for just 8.4% of Australia’s total population but over is attracting 18% of the population growth. Similarly, Australia’s third largest city, Brisbane, is home to 9.7% of Australia’s population but is recording 12.1% of the nation’s population growth. At the other end of the spectrum is Tasmania. The capital city, Hobart, is seeing its population rise by just 0.3% while the population across regional Tasmania is absolutely flat with a 0.0% change over the year. Not much demand for housing there. The maps and tables below provide a good overview about where the trends for housing demand have been most evident over the past decade.

Melbourne auction preview for week ending 15 September

Clearance rate week ending 8 September: 74.7 per cent Melbourne auctions expected week ending 15 September: 910 Melbourne private sales time on market week ending 1 September: 38 days Melbourne vendor discounting market week ending 1 September: -5.9 per cent New listings in Victoria: 5.3 per cent higher in month ending 8 September RP Data is expecting over 1,020 auctions across Victoria this week with around 910 in Melbourne alone. This will provide a substantial test for the market and the increase in stock is also mirrored in the private sale market with new listings growing in seasonally adjusted terms over the past week. As is often the case at this time of the year leading indicators point to a market slowly picking up pace with clearance rates at trend, time on market reducing for private sales and listings increasing. The test will be if this is matched by more buyers than this time last year. Robert Larocca RP Data Victoria Housing Market Specialist

RP Data Melbourne Auction comments w/e 8 September with Robert Larocca

This week’s preliminary clearance rate was 74.4 per cent compared to last week’s final of 72.1 per cent. This result is based on 441 auctions of residential homes with 328 selling, 113 being passed in. This is the 6th consecutive week with clearance rate in excess of 70 per cent. This outcome was last recorded in May 2010 and provides a further indication of a healthy market on the eve of a testing week with around 1,000 auctions. There was also a minor improvement in the private sale market with the days on market dropping from 40 to 38 over the past week and a commensurate fall in vendor discounting from 6.4 to 5.9 per cent. Melbourne’s result was lower than the Australia-wide clearance rate of 75.3 per cent due mainly to the 85.2 per cent recorded in Sydney. Robert Larocca Victorian Housing Market Specialist

Top ten tables for housing stats across the federal electorates

With the election literally just around the corner and still not a peep from the major parties on any housing policy, we thought it timely to provide a quick run-down on a few key housing metrics across the electorates. See below our top ten leagues tables by electorate.

Housing affordability affecting new home buyers and low income earners the most

The Australian Bureau of Statistics this week released a fascinating set of data; Housing Occupancy and Costs, 2011-12 see the release here . The release provides a very thorough overview about housing costs across different regions and age groups, income levels, tenure types and a wide range of other factors. The average mean cost of housing weekly across each state and nationally, as estimated by the ABS is provided below: One of the headline findings from the release is that housing costs as a proportion of gross household incomes have remained broadly unchanged since the 2003/04 financial year at about 14% see graph below . For the purposes of this study, “housing costs are the recurrent outlays by household members in providing for their shelter for themselves. The data collected on housing outlays in the SIH [Survey of Income and Housing] are limited to major outlays on housing, that is, mortgage repayments, rent, property and water rates as well as body corporate fees”. So… the costs don’t include expenses such as maintenance, repairs or insurance. Adding these costs into the scenario would likely more than double the cost of housing for those home owners who fully own their home ie they have no mortgage repayments and add about 13% to the cost of housing for those individuals paying down a mortgage. The scenario for renters of course wouldn’t change as these costs are covered by the landlord. Additionally, mortgage costs include both interest and principal payments; realistically the principal payment component should be considered as savings. The proportion of household income dedicated to housing costs is demonstrably higher across lower income households and the proportion is rising over time highlighting that financial stress is likely to be higher across these cohorts. Based on the most recent data for 2011/12 the lowest income quintile is dedicating 26% of their gross household income to housing costs compared with 22% over the 1995/95 financial year. Housing costs as a proportion of gross household income has drifted higher across all income quintiles, however the lowest earners have seen the largest increase in costs as a proportion of income. Across the different types of housing tenure, the lowest proportion of gross household income being dedicated to housing costs is evident for home owners without a mortgage at about 3%t based on the most recent data – no surprises there. This group doesn’t have the burden of mortgage repayments or rent to pay. Households paying down a mortgage showed the second lowest ratio of income to housing costs at about 18% of their gross household income, while renters are on average dedicating about 20% of the gross household income to housing costs. There’s not a great deal of difference in the proportion of gross household income dedicated to housing costs across the states. Proportionally, housing costs are the highest in the Northern Territory at 16% of household income and lowest in Tasmania where housing prices and rents tend to be much more affordable at 13%. The thing that strikes me about this release from the ABS is the low proportion of household income being dedicated to housing costs by those households paying down a mortgage. At just 14% of gross household income, it appears that the average home owner with a mortgage has a substantial buffer before they suffer mortgage stress. The old rule of thumb was that if a household is dedicating more than 30% of their gross income towards servicing a mortgage they were considered to be in ‘stress’. Based on the data, nationally, about 18% of households are dedicating more than 30% of their gross household income towards housing costs this is across the board, not just for those home owners with a mortgage and 5.6% are dedicating at least half of their income to housing costs. Clearly this 18% is where the focus needs to be from a social and affordable housing policy perspective. As can be seen in the graph below, those households dedicating 30% of their gross income or more towards housing are very much concentrated within specific lifecycle groups – particularly lone persons aged under 35, single parents and young families. The results also suggest that it isn’t so much those people that have had a mortgage for some time that find it challenging to repay mortgages, rather it is those recent first time buyers. This also potentially goes some way to explaining why first home buyer activity is currently so low at a time when mortgage rates are at virtual record low levels.

Fewer Australian real estate businesses over the 2012 financial year

The ABS released their Counts of Australian Businesses data last week. The data largely flew under the radar, but there are some interesting findings in the data that relate to the housing market and those people working within industries associated with housing either directly or indirectly. As a stark reminder about the realities of starting a new business, the data shows that of the almost 300,000 new businesses that commenced during the 2008/9 financial year, only 51% were still operating in June 2012. This is an interesting period to analyse due to the onset of the Global Financial Crisis and it is probably not a typical economic period given the severity of the global economic downturn. At a high level, the study showed there were just over 2 million businesses actively trading in Australia as at June 2012. Compared to a year prior there were about 9,000 more businesses active across the Australian business sector. Unfortunately a large component of the uplift in the number of businesses were classified as being within an ‘unknown’ industry sector consulting the technical notes on the release, these are businesses which are yet to be classified by the ATO but are actively trading . Even though there were roughly 9,000 more businesses across Australia over the year, 62 of the 85 industry groups excluding the ‘unknown’ category recorded a decline in business numbers over the financial year. Clearly the 26,440 unclassified businesses would be distributed across the classified industry groups, so it is unlikely that the fall away in business numbers is as severe as some of the figures suggest. The table below provides an overview of the largest industry sectors based on the number of active businesses at the end of the 2012 financial year. Construction services are by far the largest industry sector on this measure, representing 12.5% of all businesses. The construction sector includes a wide range of business types, however ‘carpentry services’ were the most populous 44,870 businesses , followed by ‘electrical services’ 35,180 then ‘plumbing services’ 25,580 . Given the prominence of construction and property related businesses as displayed in the data, it is no surprise that the Reserve Bank is looking for home construction to pick up the slack from a slowdown in mining investment over the coming years. The next largest industry sector was ‘Professional, Scientific and Technical Services’ representing 9.5% of all businesses followed by Property operators and real estate services which comprise 9.4%. Looking specifically at the third largest business segment, ‘property operators and real estate services’, more than half of these businesses were in the non-residential sector 53% . ‘Residential property operators’ comprised 29% of all businesses in this sector and ‘real estate services’ accounted for 18% of all businesses. Note that formal definitions of each sector can be found here. All states and territories have seen a reduction in the number of businesses within this category over the past year apart from the Northern Territory. The largest decline in business numbers was in Queensland where there were 734 fewer businesses which is likely to be a reflection on the soft market conditions that have been evident in the State. The fact that that there are fewer property and real estate businesses over the 2012 financial year should come as no surprise. Housing and commercial market conditions were pretty tough during this time and many smaller or less efficient operators would have felt economic pain. What is perhaps more surprising is that the fallout has not been more significant.

What happens to housing values and sales volumes following an election?

In last week’s blog I looked at what happens to the housing market in the 12 months leading up to a federal election, this week I take a look at what happens in the 12 months after a federal election. Once again, we have looked at movement in capital city home values and national house and unit sales over the 12 months following an election. The housing market is seasonal so the time of year of the election is likely to play some part in the results however, the 12 months’ worth of data does show the trend in the lead-up to an election. As you will see later, the position in the market phase and changes to monetary policy may also have a significant impact on the market performance. The five most recent federal elections have been: 3 October 1998 Coalition win , 10 November 2001 Coalition win , 9 October 2004 Coalition win , 24 November 2007 Labor win and 21 August 2010 hung parliament but Labor take power . Looking specifically at the change in home values over the 12 months following a federal election you can see that in 1998, 2001 and 2004 home values rose however, following the most recent two elections home values have fallen. Over the 12 months to July 2013, capital city home values have risen by 4.9% so the market currently has momentum going into the election but can it be maintained for the 12 months following the election? The strongest annual increase in home values following an election was 2001, with values increasing by 16.4% followed by the 1998 election where values rose by 10.7% over the following year. Over the 12 months following the 2001 election, interest rates increased by 50 basis points whereas following the 1998 election they fell by 25 basis points. It is also important to remember that between 2001 and 2004 there was a national boom in Australian home values. In 2004, capital city home values rose by just 1.8% over the following year. This was the tail-end of the national housing boom and over this time, interest rates rose by 25 basis points. Following the 2007 election, home values fell by 1.2% over the next year and home values fell by 3.0% over the 12 months following the 2010 election. Following the 2007 election, the financial crisis hit, economic growth slowed and interest rates were cut by 150 basis points from 6.75% to 5.25%. Following the 2010 election in August, interest rates were lifted by 25 basis points over the next year as values fell. If we look at the change over the year in national home sales, the results are reasonably similar, with volumes falling following three of the past five elections. The most up-to-date sales information indicates that sales to May 2013 were 19.0% higher and with interest rates moving lower more recently; sales appear likely to pick-up further over the year in the lead-up to the September election, but once again will the momentum carry through the next 12 months? The number of home sales was higher in the year following the federal election in 1998 13.9% and 2004 1.7% . In 2001, sales volumes fell by 4.6% in the year following the election, in 2007 they fell by 27.0% and in 2010 they fell by 5.7% over the year. It makes sense given broader economic conditions, that volumes and values fell following the past two elections however, it is a little surprising to see that in the midst of a large real estate market boom in 2001 and 2002 although values rose 16.4% over the 12 months post-election sales activity actually fell. Over the past five elections, home values and sales increased in 1998 when the Coalition held office for their second term and in 2004 when they took office for their fourth term. When Labor took office in 2007, values fell by 1.2% over the next year and volumes fell by 27% of course, they also had the financial crisis to deal with at that time. In 2010 following a hung parliament, values fell 3.0% over the next 12 months and sales volumes declined 5.7%. How much the trends outlined above can be attributed to an election is debateable however, federal elections and the subsequent following budgets no doubt have an impact on consumer and business confidence. It does seem from the past five elections that when there is no change of leadership that the housing market tends to respond better post-election than when there is a change in leadership or hung parliament, notwithstanding the impact of the financial crisis following the 2007 election. Following the upcoming election it will be interesting to see the housing market’s response. Housing affordability, low levels of growth in housing credit and high levels of household saving are no doubt likely to be barriers to a breakout in value growth and a surge in sales volumes. Not to mention the forecast that the national unemployment rate will reach 6.25% by mid next year which would be its highest level since September 2002. Despite all these constraints, home values have increased by 4.9% over the past 12 months on the back of the lowest mortgage rates in more than 50 years and rising levels of consumer, but not business confidence. If Labor holds office do we see a continuation of rising home values and increasing sales? If the Coalition takes office do we see even better conditions in the housing market or do we see deterioration in market conditions? We simply don’t really know but it will be interesting to see in the wash-up of the election what impact it does have on the housing market.

What happens to housing values and sales volumes in the lead-up to an election?

Over recent months I have heard lots of commentary about the expected slowdown in the housing market in the lead-up to a Federal election. This week I have looked at the five past elections and analysed the performance of the housing market over the 12 months prior to the election in terms of capital city home value growth and national house and unit sales. It is important to remember that the housing market is seasonal so the time of year of the election is likely to play an impact however, the 12 months’ worth of data does show the trend in the lead-up to an election. The five most recent federal elections have been: 3 October 1998 Coalition win , 10 November 2001 Coalition win , 9 October 2004 Coalition win , 24 November 2007 Labor win and 21 August 2010 hung parliament but Labor take power . Looking specifically at the change in home values over the 12 months leading up to the federal elections you can see that in each instance home values have increased. Over the 12 months to July 2013, capital city home values have risen by 4.9% so it looks almost certain that home values will increase over the year leading up to the September federal election. The strongest annual increase in home values leading up to a federal election was in 2001, with values rising by 18.8% followed by the 2007 election where values rose by 13.2%. Over both of these periods the housing market was already in an upswing. On the other hand, values rose by 5.7% in the lead-up to the 1998 election, 2.8% in 2004 and 8.8% in 2010. If we look at the change over the year in national home sales, the results are somewhat different building up to election. The most up-to-date sales information indicates that sales to May 2013 were 19.0% higher and with interest rates moving lower more recently; sales appear likely to pick-up further over the year in the lead-up to the September election. The number of home sales was higher over the year leading up to the 2001 and the 2007 elections. In 2001, sales volumes increased by 44.6% over the year and in 2007 they rose by 33.3%. In 1998, sales volumes fell by -2.6% over the year, in 2004 they fell by -11.0% and in 2010 they fell by -32.4%. So over the past five election campaigns home values have risen while in only two of the past five campaigns have home values and sales volumes risen. Values and volumes rose in 2001 when the Coalition was returned for a second term and they also both rose in 2007 when Labor took office from John Howard. How much the trends outlined above can be attributed to an election is debateable. Arguably the momentum of the market cycle is influencing the trends just as much as the election. Regardless of the cause, it looks like federal elections don’t have a slowdown effect on housing market conditions. The cynic in me suggests that the incumbent political party would generally be quite happy to see sales volumes and home values rising in the lead-up to an election. For most people the family home is the single largest investment and rightly or wrongly, Australians tend to feel more confident and happy when home values are rising. From a political stand point, around 70% of households either own their home outright or have a mortgage and rising home values is likely to be a much more palatable message to the electorate than one where the value of their largest asset is falling. It also suggests to me that housing affordability will remain only a minor election issue given such a large proportion of the population either own or are paying off their own home and many also have investment properties.

The average capital city home owner is almost $30,000 better off since Australia’s housing market started to recover in June last year.

Over the past five years to July 2013 dwelling values across Australia’s capital cities have increased by 14.8%. That’s interesting information, but for a lot of people it actually doesn’t mean much at all. A percentage shift doesn’t provide a great deal of context about the raw magnitude of the change. Home owners are more interested in how much money they have gained or lost. Expressed in dollar terms, a 14.8% rise in dwelling values over the past five years has provided the average home owner with roughly an additional $63,000 onto the value of their home. Compared to the previous five year periods, the most recent half decade growth rate is relatively tame. Between July 2003 and July 2008 capital city dwelling values increased by just over 34%, equating to roughly $108,500 in capital gains over the period. The five year period from July 1998 to July 2003 recorded an even larger capital gain of 89.5% or a gross wealth injection of just under $150,000 for the average home owner. The above figures are calculated by indexing the current median dwelling price across the combined capital cities historically based on the percentage change in the RP Data-Rismark Home Value Index which specifically measures the change in dwelling values across the complete portfolio of properties . The same technique can be applied across the capital cities, with the results shown in the table below. All capital cities have seen a rise in dwelling values from their respective low points. The recent recovery trend at the combined capital city level has seen the average home owner gain just under $30,000 in the value of their home based on a 6.5% recovery to date. As can be clearly seen from the graph below, the estimated average dollar value gain is quite different from city to city based on the extent and timing of the new growth phase. Darwin, where the housing market has recorded growth of more than 13% since bottoming out in January 2012 has recorded the most substantial dollar value increase at $56,638, followed by Perth at $50,249 then Sydney at $46,160. At the other end of the scale are Adelaide and Brisbane where the rate of recovery has been much more subdued with dollar value gains of $4,319 and $7,018 respectively.

Where to from here for home values?

According to the RP Data-Rismark Home Value Index results for June 2013, combined capital city home values increased by 3.8% over the 2012/13 financial year. The growth in home values has been moderate, as we have noted in recent weeks, the response to the low mortgage rate environment has not been as strong as in the past. This begs the question where to from here? The June results of the RP Data-Rismark Home Value Index showed a variety of performances across the capital cities and as I see it, the performances of individual capital city housing markets are likely to continue to diverge based on their own unique circumstances. We also know that activity is being driven by investors who can be fickle and exit the market quickly and upgraders whose activity is most likely linked to the recent pick-up in consumer sentiment and in some instances the recent pick-up may not continue based on the direction of the economy from here. Broadly speaking, I can’t see anything in the current housing or broader economic conditions which will see the market’s performance return to that which we saw prior to the financial crisis for a number of reasons. Firstly, household debt to disposable income currently sits at 147.3%. No doubt Australian households have a large amount of debt, most of which 133.2% is housing debt. If you look at the chart below, you will see that the debt to disposable income ratio has been virtually unchanged since the end of 2005, which is seven and a half years ago now! Clearly households have reached the limits to how much debt they can take on. Whether this limit continues into the future remains to be seen but at the moment it is clear we largely don’t want to take on more household debt and around 90% of this debt is related to housing. Secondly, and which directly relates to the first point, households have increased their level of savings and shown less of a propensity to spend. The national accounts data includes an item for the household saving ratio and looking at this over time below provides valuable insight. Over the past 12 months, the household savings ratio has been recorded at 10.5% and over the past five years it has been recorded at an average of 9.8%. The level of household savings currently is at its highest level since late 1987 25 years ago now and the recent trend of higher savings has reversed a 30 year trend over which time savings by households continued to deteriorate. Thirdly, consumers are changing the way they spend and doing it with their own money rather than with credit cards. Over the 12 months to May 2013, the number of credit card accounts increased by just 2.1%, in comparison debit card accounts increased by 6.2%. Total credit card transactions increased by 6.9% over the year but cash advances fell by -2.4%. Total debit card transactions increased by 13.9% over the year. Credit cards had an average outstanding balance of $3,236 and the average credit limit was $9,091. On an historical level both are quite high however, the average outstanding balance was down -3.5% over the year which was the biggest year-on-year fall on record and the average credit limit was -1.0% lower on the year a near record fall. The previous run-up in home values had been assisted by significant changes to economic conditions such as financial deregulation, significant falls in mortgage rates, a large reduction in unemployment, much lower inflation and strong growth in housing credit. Mortgage rates are below historic levels currently however the impact of shifting from 17% at the start of the 1990’s to around 7% at the end of the decade is not as significant as a further 1% to 2% reduction. It’s a similar story for unemployment which shifted from around 11% in 1992 to around 6.5% by the end of the decade. In fact, an anticipated increase in unemployment from the current low levels is one of the major factors contributing to the changes to consumer behaviour. In 1990, annual inflation was running at 7%, by the end of the decade it had fallen to around 2% and today it sits at 2.5%. The lower level of inflation since the end of the last recession has clearly contributed to the lower mortgage rates which in-turn has assisted the run-up in home values. Credit growth throughout the early 2000’s was sitting at an annual rate of 16% to 20% as the housing market surged. Ever since 2004, growth in housing credit has been slowing and over the past year credit has grown at a near record low level of 4.5%. In my opinion, none of these economic measures are likely to shift as significantly as they have in the past and therefore any changes are not as likely to be as conducive to significant growth in home values as they have been in the past. Now looking at individual capital city markets we can see my anticipated variances in performance over the coming year. I suspect Sydney will continue to be one of the standout performers and will continue to see values grow, this is largely due to the fact that value growth has failed to beat inflation over the past decade and dwelling construction remains insufficient. Melbourne continues to surprise however, it has not had a significant period of value correction as what has been seen across other major capital cities such as Sydney, Brisbane and Melbourne. We also know that housing supply is much more sufficient across the city than it is across most other major capital cities. Although values are currently rising on the back of low mortgage rates I do question the sustainability of the current rises, particularly once mortgage rates start to rise again Brisbane home values are currently -10.8% lower than they were at their peak and to date, values have increased by just 1.6% from their recent low point. Brisbane has experienced a long period of correction in values, with values currently at a similar level to what they were in late 2007. Given this, we do anticipate a pick-up in value growth in Brisbane on the back of the recent increase in sales activity. Adelaide home values have shown only moderate levels of growth recently, increasing by 2.7 per cent since values bottomed in July of last year. I anticipate that increases in home values across the city will remain modest over the coming year. Home values in Perth have reacted strongly to the ongoing lowering of mortgage rates. Home values across the city have increased by 6.0% over the past year and are now just -1.6% lower than their historic peak. The key challenge for the Perth market will be the slowing of the mining and resources sector and what impact that has on the housing market. Over recent months we have seen the rate of home value growth and rental growth start to slow and I anticipate the slowdown is likely to continue over the coming months. Hobart is the only capital city housing market that has recorded a fall in values over the past year. With a high unemployment rate and little in the way of economic or population growth it is difficult to see how the housing market in Hobart can, at this stage, build any sort of sustainable recovery. Darwin has been the standout housing market over the past decade and this has continued with values rising by 6.1% over the past year. Despite the recent strength, values in Darwin remain -11.1% lower than they were at their peak. Much like Perth, the Darwin housing market is likely to be impacted by the slowdown in the resources sector. This is already being seen with slowing rates of rental growth and home values having fallen by -0.4% over the first six months of 2013. Canberra home values have not recorded the same extent of value falls as most other capital city markets. Over the past year, home values in the city have increased by 1.1% however, as the below graph shows there are signs of a recent slowing of market conditions. With a looming federal election and likely cuts to the public service we would expect this will adversely affect demand for housing in the city and subsequently may result in some value falls.

Investors and upgraders continue to power the housing market

An ongoing theme in the recent increase in housing market activity has been that it has largely been driven by investors and upgraders rather than the first home buyers. If you recall, it was first home buyers that led the market recovery back in 2009. The surge in first home buyer activity saw this cohort of the market account for as much as 31.4% of the total number of owner occupier finance commitments back in May 2009; in May 2013 they accounted for just 14.6% of all owner occupier commitments and in terms of the number of commitments there were more than 10,000 fewer first home buyer commitments in May 2013 than there were in May 2009. The first home buyer market is much thinner this time round which may be due to a number of factors however, it is clear that the fact that there is no boost to the first home owner’s grant is partially responsible. So too is the fact that in New South Wales and Queensland the first home owner’s grant is only available for new homes with Victoria recently following suit as at July 1 this year . This has seen the proportion of first home buyers sink to just 7.3% of all owner occupier finance commitments in New South Wales and 9.8% in Queensland, both at pretty much record low levels. Although you would think incentives for first home buyers to purchase new product would be a positive, new stock is typically more expensive than pre-existing stock and therefore it may actually act as a disincentive for these first time buyers to move into the market. So with first home buyers making up just a small overall proportion of the housing market, it is the upgraders and investors which are really driving the overall market activity. Data relating to investment activity in the housing market is only presented in terms of the total value rather than the number of loans, nevertheless the trend is quite clear. In May 2013, $8.4 billion worth of housing finance for investment purposes was committed to. The $8.4 billion was the highest level of finance for investment purposes since January 2008 $8.3 billion . As the below chart highlights, investment finance commitments have been ramping up sharply over the past 12 months, increasing by 23.7% on a year-on-year basis and indicating a surge in investment activity in the housing market. As already highlighted, first home buyer finance commitments are at extremely low levels however, the total value of owner occupier new loan commitments which exclude refinances have increased by 18.5% year-on-year to May 2013. This data highlights that upgraders are also playing a significant role in the market currently albeit it is being outstripped by the rise in investment activity. So why are upgraders and investors so active in the current market? Clearly the low mortgage rate environment is proving to be an attractive incentive to investors and upgraders but one would think that it would also be attractive to first time buyers however, this has not been the case perhaps due to the reasons already highlighted as well as the fact that much of the first home buyer demand was brought forward due to the availability of previous grants and stamp duty concessions. From an investment perspective it is probably the hunt for yield, or the combination of yield and capital growth prospects, which is driving the increase in investor activity. With official interest rates low and yields on most forms of investment quite low, I believe investors are increasingly seeking out higher yielding properties that will hopefully show medium to long term capital growth prospects. Although housing is not a liquid asset, investors can get in now and lock in a yield in the hope that rents and values continue to trend higher over the coming years which would subsequently boost their return. Whether this is proves to be a good investment strategy will of course be revealed over the coming years. The current spread between official interest rates and capital city gross rental yields is 152 basis points. This is close to the largest spread since 1999. Units tend to be much more attractive to investors in the housing market and the current spread in 215 basis points which is the largest spread since late 1997. Of course these figures are just looking at the spread between the gross yield and don’t factor in the moderate growth in values which has been recorded at 4.0% for houses and 2.4% for units across the combined capital cities over the past year. Given this, I don’t think it is any surprise that investor activity has been surging back to the housing market. On the upgrader side of the equation, the likely reason this segment of the market are so active is due to a few main factors. Firstly mortgage rates are extremely low currently and the likelihood of any short term increases to mortgage rates seems limited so upgraders are taking advantage of these conditions. In fact, if you were to fix in your mortgage for three years you could find a rate beginning with a 4. Secondly, growth in home values has been quite modest over recent years, with combined capital city home values increasing by just 12.8% over the past five years. Of course there are varying performances across individual cities but values have generally risen at a modest pace recently. Finally, households have been saving around 10% of their income for the past five years reversing the 30 year trend of declining rates of savings. The additional savings means that if you were to upgrade and use those savings, the size of your borrowings may be similar or perhaps even lower than the initial loan on the current home. Overall, despite the fact that upgraders and investors have been so active in the market growth in home values has been quite modest to date. Sales activity has lifted from an extremely low base however, the evidence suggests there isn’t a level of speculation in the market to drive values significantly higher. This is probably due to the fact that the more emotive first time buyers are playing a relatively small overall part in the market currently whereas the more experienced upgrader and investor market is driving current market activity.

Where is it more affordable to pay down a mortgage than a landlord?

Today RP Data released an update to their Buy versus Rent report which provides a suburb by suburb summary about the standard costs associated with servicing a mortgage compared with paying rent. Before everyone starts pointing out that the analysis doesn’t include the costs associated with a property purchase and ownership stamp duty, conveyance, rates and taxes are some examples , nor does it include an assumptions around capital growth or decline. The purpose of the report is to provide a base level summary about mortgage costs across four different scenarios versus rental costs for a particular product type within a specific suburb. The four scenarios used for mortgage costs are laid out below together with the number of suburbs where we the typical mortgage payment is likely to be lower than the typical rental payment: Compared with the same analysis for one year prior the number of suburbs where it is more affordable to pay down a mortgage than rent has increased substantially. In June last year there were only 179 suburbs on the list. The big jump in numbers can be attributed to a few factors. Firstly, the fact that property values have grown at a slower pace than rental rates. Most capital cities are still recording dwelling values which are lower than their previous peaks. Of course there is also the fact that mortgage rates have moved back to around generational lows which makes the cost of servicing debt much more affordable. For those who don’t mind paying a little bit more than the typical rental payments within a suburb, the opportunities increase substantially. If you are willing to pay an extra $50/week on top of the typical rental payment the number of suburbs where paying a mortgage can be more affordable than paying rent rises to 1,761 suburbs. You can download the full Buy versus Rent report here: www.myrp.com.au/buyorrent.

Why aren’t dwelling values increasing at the same pace as the last growth cycle?

As the housing market recovery continues in a fairly sedate manner, I thought it would be interesting to compare some of the key housing market metrics that we follow to observe the differences in the current market recovery compared with market conditions back in 2009/10 which was the previous recovery/growth phase post GFC. The analysis provides some explanation about why the rate of capital appreciation is so much lower over the current cycle compared with the previous growth cycle. The series of graphs below trace each indicator from the commencement of the cycle; in 2009/10 the series commences from January 2009 the first month where dwelling values started rising post GFC according to the RP Data Rismark Home Value Index through to October 2010 which was when the housing market broadly peaked. The 20012/13 cycle commences from June 2012 which was the first month of value growth in the most recent cycle and goes through to the most recent data which is available for each indicator. From the graphs below which track dwelling values based on the capital city RP Data – Rismark Index, it is clear there is a substantial difference in the performance of the housing market between these two periods. Capital city dwelling values increased by 14% over the first thirteen months of the 2009/10 cycle compared with a 3.8% lift in dwelling values over the same period in the current cycle. The lower rate of capital gains over the most recent thirteen month period comes at a time when vendors are still discounting their asking prices to a greater extent; over the past 12 months the level of vendor discounting has averaged 6.7% compared with a 6.2% rate of discounting over the same period of the previous growth cycle. A year into the growth cycle during 2009, the average rate of vendor discounting was recorded at 5.5% compared with the current rate of 5.8%. Clearly vendors are discounting their price expectations to a greater extent currently than they were at the same time in the previous cycle. Looking at the trend in vendor expectation, which has recently been improving quite rapidly and we may see discounting conditions move in line with where they were over the previous phase over the next few months. The average selling time over the current growth period has moved virtually in line with the previous growth phase apart from the seasonal hump which shows up in the most recent phase’s data average selling time tends to blow out in January and February . Twelve month’s into the current growth cycle we are seeing the typical capital city home sell in 43 days compared with 42 days at the same state in the 2009/10 recovery. Clearance rates are also broadly in line with the previous growth phase indicators at the same time. Currently over the past few weeks the weighted average clearance rate has been recorded around the 67% mark while clearance rates were averaging closer to 70% at the same time over the previous phase. There are going to be some seasonal difference in the comparison points here, however the rate of auction clearance suggests that buyer and seller expectations are converging similar to what occurred during the 2009/10 growth period. Now for some of the big differences in housing market conditions. Firstly, looking at the average loan size we can see that there hasn’t been anywhere near the same level of uplift in the value of home loans being committed to which helps to confirms the lower rate of dwelling value growth. One point to make though is that the average loan size didn’t really start to escalate swiftly until the eight months into the previous growth phase see second graph below, ‘Average loan size indexed . We haven’t seen anything like that in the current phase to date. The number of first home buyers in the market currently is also radically different, as is the level of market stimulus for first home buyers. Back in the early phases of the 2009/10 growth phase first time buyers were taking advantage of the First Home Buyers Grant Boost as well as stamp duty concessions and low interest rates. Over the first eleven months of the current growth phase, according to ABS housing finance data, there were just under 83,500 first home buyer housing finance commitments. Over the same period of the 2009/10 growth phase there were nearly 176,000 first home buyer commitments. That’s a big difference. Arguably, first home buyers tend to push prices higher, not just because of the grants that were/are available, but also because their behaviour can be more emotional than other segments of the market. First home buyers currently represent just 14.3% of the overall market compared with 24.8% at the same stage of the 2009/10 recovery phase. Investors, on the other hand, are currently showing a larger presence in the housing market compared with the same stage of the cycle during the previous growth phase. The value of investor loans is currently higher than what was recorded at the same stage of the market back in 2009/10. Counter to first home buyer behaviour, investors tend to be more clinical in their purchasing and less emotional which is potentially another reason for the restrained level of value appreciation in the current cycle. There is also the factor of fewer active buyers. Looking at the number of house and unit sales in the market, although there has been a decent uplift in numbers over the past year or so, there were substantially more home sales taking place at the same stage of the previous growth phase. That additional level of buyer demand was also likely to be one of the factors that was pushing values higher at a faster rate compared with the current cycle. Overall, many of the indicators are quite similar in the current market conditions when compared with the market at the same stage of the previous growth cycle. The most significant difference is the more subdued rate of growth which can probably be attributed to lower overall demand, fewer first home buyers, more investors and less appetite for debt. There are plenty of other factors I haven’t touched on there. The federal election is probably having a dampening effect on demand and of course consumer confidence is shakier than it was in 2009 due to the current economic uncertainty, not to mention that consumer behaviour has seen a sustained change with household savings ratio averaging 9.8% for the past five years and private sector housing credit growth at near record low levels.

Where are the migrants to Australia coming from?

RP Data’s Property Pulse this week included a research article on population growth the Property Pulse is delivered to RP Data subscribers each week . As a broad overview, Australia’s population growth rate over the 2012 calendar year was recorded at 1.75% – the most rapid rate of population growth in three years. There were an additional 394,200 new residents in Australia over the past year, 60% of which can be attributed to net overseas migration. With overseas migration being such a significant driver of population growth / housing demand, it’s worthwhile providing an update on exactly where most of these overseas settlers are coming from. As can be seen in the graph below, the vast majority of overseas migrants are still coming from the Oceania region mostly New Zealand . Just over 34,400 long term and permanent migrants originated from the Oceania and Antarctica region over the year to April 2013, equating to about 23% of all migrants to Australia over the past year. Note that the Oceania and Antarctica region includes New Zealand, Melanesia Papua New Guinea, Vanuatu, etc , Micronesia Guam, Nauru, etc , Polynesia Fiji, Cook Islands, Tonga, etc and Antarctica. Southern and Central Asia is the region where the second largest number of migrants to Australia are originating from. Southern Asia includes countries such as India, Pakistan, Bangladesh and Sri Lanka while Central Asia includes countries such as Afghanistan, Armenia and Kazakhstan. Over the past year there were 28,580 movements that originated from this region. The ABS also provides a breakdown of migration movements across a selection of countries. Based on the graph below, it is clear that New Zealanders continue to be a primary driver of migration into Australia with 28,750 movements recorded over the past year. Chinese migrants are the second most populous at 17,790 movements, while movements from India 17,520 the UK 12,100 , Philippines 6,760 and South Africa 4,750 are also large drivers of the migration flow. Over the past decade there have been some substantial shifts in the number of migration movements. Flows from Oceania have risen from comprising 17.5% of all movements a decade ago to now comprise just fewer than 23%. Southern and Central Asian migration movements equated to 10.2% of all migration activity a decade ago and are now almost 19%. There has also been a substantial proportional lift in North East Asian migrants 11.5% in 2003 to 15.2% in 2013 . The regions where the proportion of migration flows have fallen are South East Asia includes countries such as Vietnam, Thailand, Indonesia, Philippines and Singapore where migration flows now represent 14.6% of all movements compared with 16.4% a decade ago. Movements originating from North West Europe counties such as England, Scotland, Ireland, France, Germany, Denmark, Sweden now account for 10.5% of all movements, down from 15.8% ten years ago. Movements from North East Africa and the Middle East I Sudan, Morocco, Egypt, Syria are some examples have seen a decline in their proportion of migration activity as well, down from 10.8% ten years ago to 6.5% over the past year. There has been quite a bit of attention lately suggesting that housing demand from Asian nations, particularly China, has been rising in Australia; and based on the migration figures that is likely to be true at least from a population growth perspective . For a variety of reasons there is much less attention placed on housing demand flowing from our easterly neighbours in New Zealand which accounts for a much larger flow of migration movements. Another important factor to consider, especially for property industry professionals, is to ensure you know your target markets. With overseas migrants seeking out Australian housing, be it to buy or rent, think about the regions that are most appropriate and ensure you are communicating appropriately; translating research material is an obvious starting place something that RP Data will be doing over the coming months .

When is a city not a city? | A: When it’s a suburb or a council region or a statistical division or a statistical subdivision or a…

Often times when we are presenting our research findings we find there is sometimes confusion about the geographic boundaries we are reporting on. Take our standard indices reporting for example, which is typically across capital city boundaries. As a default, whenever we are reporting on capital cities we use the respective capital city statistical division boundary. It’s easy to understand why there can be some confusion though, as most people aren’t familiar with standardised boundaries that are provided and maintained by the Australian Bureau of Statistics. Take my home town of Brisbane as a case point. When people refer to ‘Brisbane’ they could be talking about the suburb of Brisbane, the Brisbane Local Government Area, the Brisbane Statistical Division or more recently the Brisbane Greater Capital City Statistical Area. As you can see from the map below, the regions are vastly different in their geographic scope and area; property market conditions will be quite different depending on which region is being analysed. The maps below provide a further summary about which council areas and statistical subdivisions are included within each of the capital city statistical division boundaries that we report on. The Sydney statistical division extends north to the border of Lake Macquarie, south to Wollongong and west to include the Blue Mountains. The Sydney statistical division contains 43 council regions, the largest number of municipalities of any capital city. The Melbourne statistical division extends out to the border of Geelong to the west, to the Bass Coast to the South, West to Baw Baw and north to the Macedon Ranges and Mitchel council regions. There are 31 council regions across the Melbourne statistical division, the second highest number of capital city municipalities after Sydney. The Brisbane statistical division contains just 5 local government area boundaries, all of which are very large compared with most other capital city council areas. The region is bordered by the Sunshine Coast to the North, Gold Coast to the south and Somerset / Lockyer Valley / Scenic Rim to the west. The Adelaide statistical division is the third smallest of the capital city statistical divisions after Canberra and Hobart at just 1,826 square kilometers. The region includes 18 council areas and is bordered by the Adelaide Hills, Barossa and Mount Barker council regions to the east, Mallala to the north and Yankalilla to the south. Perth is home to six out of ten of the smallest local government area boundaries across the capital cities. The Peppermint Grove council region is just 1.06 square kilometers in area, East Fremantle is 3.1 square kilometers and Cottesloe is 4.4 square kilometers. The Perth statistical division includes 30 council areas, the third highest number of capital city municipalities. The borders of Perth statistical division extend north to the Gingin and Chittering Shire Councils, east to the Northam, York and Beverley council regions and south to Mandurah and Murray. Hopefully the maps provide some more context about the regional specification of our reporting. Capital city boundaries and regional boundaries for that matter are broad in geographic scope, and similarly, the housing market statistics across these regions should be considered to be fairly macro in their analysis. For anyone involved in the industry or who is active in the market, you need to keep in mind that housing markets can perform quite differently at a more granular level which is why we have plenty of indices available at smaller geographic aggregations including council regions, suburbs, postcodes and even streets . Note that we are in the process of releasing our flagship hedonic indices suite across the new ASGS boundaries and our capital city reporting will eventually be across the GCCSA Greater Capital City Statistical Areas . Check out the ABS geographic pages for more information on the standardised geography we report on.

Largest falls and greatest gains in property values around the country

A quick update on where the largest declines in residential property values have been experienced and where the largest capital gains have been recorded across the country. The bar charts below show the top 30 statistical divisions nationally for the largest ‘peak to current’ decline in dwelling values ie change in house and unit value from their respective market peak through to the end of May 2013 and the largest annual capital gains over the past five years based on compounding growth rate . The largest corrections have clearly been recorded across the coastal and lifestyle markets; more particularly the largest declines are most concentrated across unit dwellings within these regions. There are a variety of factors that have caused values to fall substantially in these areas: Unit dwellings within the lifestyle regions generally show a larger proportion of investor owners and holiday home / second home owners. In times of financial distress, the investment property or second home will often be the first to be divested. A large number of properties were added to the market in these areas at a time when buyer demand was virtually non existent. Additionally, unit dwellings within these markets are often more reliant on short term holiday rentals or long term rental demand from service workers associated with the tourism and retail sectors, both of which have shown weakness post GFC. These markets were prime beneficiaries of the ‘sea change’ phenomenon where retirees or prospective retirees were driving migration and housing demand in these locations. I would expect that this trend and hence housing demand has slowed substantially as many retirees and prospective retirees look to rebuild their wealth post GFC before embarking on their sea change. There’s also the fact that most of these markets recorded a strong run up in values pre-2008 and were arguably overvalued. For those individuals who have aspired to own a holiday home or relocate to one of these lifestyle markets the buying opportunities are now looking much more affordable than they were back in 2007. The largest gains have generally been recorded across regional markets around the country, particularly those associated with the mining sector. The Pilbara region of Western Australia stands out as recording the highest rate of capital gain at 19.8% per annum over the past five years. This is clearly a spectacular return, however many of these mining regions are now showing a substantial slowdown in buyer demand as the resources sector transitions out of a very strong phase of infrastructure investment and growth.

The destruction and gradual reconstruction of rental yields in Australia

Looking at the historical growth cycle of capital city rents and value growth, it has been quite a rare occurrence for weekly rents to outpace dwelling values for growth. In fact, since 1996 there have been only two periods where weekly rents significantly outpaced dwelling values. The first of these occasions was during the GFC when dwelling values fell by close to 5% and rents rose by almost 8%. The second period was during the recent housing market correction which ran from late 2010 through to mid-2012. Both cycles gave yields a chance to regain some of the lost ground that was eroded over the previous growth cycles. The most significant erosion of rental yields took place between 1996 and 2004 when gross rental yields virtually halved. When you consider that dwelling values surged by 142% between the end of 1995 and the beginning of 2004 while rents rose by only 25%, it becomes quite clear what drove the destruction of high average rental yields in Australia. The average gross yield across the combined capital cities moved from 7.8% in 1996 down to 4.0% by the beginning of 2004. Gross yields reached a low of 3.6% towards the end of 2007 through to early 2008 as value growth continued to outperform rents. More recently capital city dwelling values are up 2.9% over the past twelve months compared with a 3.1% rise in dwelling rents. From a longer perspective, over the past five years weekly rents have increased by 27% while dwelling values have increased by a much smaller 10%. With rents rising at a faster pace than dwelling values the by-product is of course an improvement in rental yields. Gross rental yields for houses are currently recorded at 4.2% up from a low of 3.5% and the average gross yield on a capital city unit is 5.0% up from a low 4.4% . Looking across the capital cities, the current yield scenario is quite different from city to city. Darwin is continuing to record the highest gross yields of any capital city. The Brisbane housing market has quickly moved through the ranks to record the third highest yield of any capital city for houses and the second highest for units. At the bottom of the yield pile is Melbourne where houses are returning a gross yield of just 3.7% while units are providing a higher 4.6% gross yield. As can be seen from the graph below, the gross rental yield was on a consistent downwards trend since the 90’s, however Melbourne’s spectacular rate of capital gains during 2007 and 2009/10 together with relatively sedate rental growth has conspired to cause gross yields to move lower than any other capital city. With vacancy rates remaining around the 2-3% mark across most capital cities, it is reasonable to expect further and potentially greater upwards pressure on weekly rents. This is likely to be particularly the case in those cities where new dwelling supply has been short such as Brisbane, Perth and Sydney. While I doubt we will see capital city yields return to the highs last recorded in the 90’s, it is reasonable to presume we will see ongoing improvements in the yield environment across the Australian housing market. This scenario implies a continuation of subdued capital gains with a consistent over performance from rents compared with values; not an unreasonable notion. Anecdotally a lot more of the investors I have been speaking with are considering tweaking the balance of their investment strategy; looking to maximise their yield while buying in locations where they expect the asset to show potential for long term capital gains. Previously many investors were buying purely for capital gain prospects without a great deal of focus on the yield potential. While capital gains are going to be the main strategy for the majority of investors, I wouldn’t be surprised if we see an ongoing focus on the rental side of the equation.

Housing market sentiment remains high, but for how long.

RP Data, together with Nine Rewards, released an update to their housing market sentiment survey this week. The headline findings showed that housing market sentiment was substantially higher than what it was six months ago, but virtually unchanged from earlier in the year. The survey was conducted across 1,030 respondents who were located across the capital city and ‘rest of state’ regions around the country. The headline findings showed 80% of Australians think it’s a good time to buy a home but only 37% think it’s a good time to sell. The results suggest, at least from a consumer perspective, that housing remains a buyers market. With regards to consumer expectations for home values over the next six months and twelve months, the results were broadly positive, with 41% of respondents expecting values to rise over the next six months and half the respondents expecting values to rise over the next twelve months. Both measures are a substantial improvement in the views of consumers from six months ago 33% of respondents expected values to rise over the next six months back in October 2012 and 42% expected values to rise over the coming twelve months in October last year . What’s more interesting is looking at some of the more granular results by region around the country. There aren’t any real surprises here… the markets which are generally showing the most buyer activity and value recovery are also the markets where the largest proportion of consumers are expecting values to rise over the coming six and twelve months. The Northern Territory read Darwin , Perth and Sydney are the markets where the largest proportion of consumers are expecting values to rise over the coming six and twelve months. Conversely, very few respondents are expecting improving values within Tasmania, regional South Australia and the ACT. It’s worthwhile noting that the survey responses were collected prior to the federal budget announcement. Based on the Westpac-Melbourne Institute Consumer Sentiment Survey, which showed a sharp decline in May, it is reasonable to assume the improved confidence readings in the RP Data – Nine Rewards survey may have been dented post budget announcement. Stay tuned in three months when we run the survey again. More details in the media release and headline findings report can be found below: View this document on Scribd

US house prices recovering at a faster pace than Australia’s

The US housing market has clearly moved through the bottom of what has been a sustained and severe correction cycle. Based on data from RP Data’s parent company, CoreLogic NYSE: CLGX , the US housing market peaked way back in April 2006; between that time and the market trough in February 2012 70 months , US house prices fell by just over 33 per cent. Prior to the housing market crash in the US, home prices had been rising since early 1992, with the rate of growth gathering pace over time. The annual rate of growth peaked at 17.6% around mid-2005. The Australian housing market has shown some important differences to the US cycle. Although our combined capital cities index doesn’t extend back as far historically as the US index, it can be seen from the above trend lines that the Australian housing market showed a fairly similar rate of growth over the late 90’s, albeit with some movement, prior to 2001. The ‘boom’ in Australian values between 2001 and 2003 far exceeded the rate of the growth being recorded in the US, however the corresponding cycle post 2003 was much weaker than what was recorded across the US market, with Australian values recording virtually no growth over the next two years. Both the US and Australian housing markets are now on a recovery path, however once again there is a significant difference in the rate of growth being recorded. In the US, based on the CoreLogic House Price Index HPI , the market bottomed out in February last year and since that time prices have increased by 10.5% an annual growth rate of 11.0% . The rate of recovery across the Australian housing marked has been more measured. The local market bottomed out at the end of May last year, with values recording a 4.2% increase between the market trough and the end of April 2013 an annual growth rate that equates to 4.5% per annum . US house prices have now been increasing for 13 straight months. It’s worth delving a little bit deeper in the US housing market data to see what is driving the recent substantial upwards movement in home prices. Some of the reasons CoreLogic points to are: The US economy is getting close to its fourth year of expansion. The US economy grew by 2.5% over the first quarter of 2013, largely fuelled by residential investment ie dwelling construction which was up 14% over the second half of 2012. The strongest recovery trends are being recorded in those areas that have either recorded a more significant correction in dwelling values or a high level of new housing construction. The graph below is taken directly from CoreLogic’s recent ‘The Market Pulse’ newsletter anyone who is interested in the US housing marked should subscribe… it’s free and packed with the best housing market analysis available in the US , the Census Divisions that have recorded some of the largest losses are now showing some of the largest price bounces. The number of mortgages in delinquency mortgages that are more than 90 days in arrears are drying up. According to CoreLogic the number of delinquent mortgages has fallen by a third since arrears peaked back in January 2010. Distressed sales, as a proportion of all sales, have improved over the past couple of years which is also helping to improve housing market conditions. CoreLogic estimate that 22% of all sales in March were distressed, which is still very high, but better than the 26% being recorded a few years ago. Buyer demand is increasing also, with the number of dwelling sales 9% higher in March compared with the same time last year. Importantly, REO sales real estate owned REO properties are dwellings that are owned by a financial institution which they have acquired after an unsuccessful short sale or foreclosure auction were 24% lower compared with a year ago and short sales ie where a home is sold for less than the mortgage amount on the property were 28% higher than a year ago, which suggests that both owners and banks are more willing to accept a loss on the property in order to move on. Overall, the housing market in the US is recovering at a significantly faster pace than what we are experiencing here in Australia. Keeping in mind though that we still need to see US prices increase by a further 26.5% before the market broadly returns to the pre-crash peak. The US dynamic is quite different to what we have here in Australia and many of terms used in the US are foreign to our market due to the differences in our financial systems, regulations and availability of data. The Australian market recovery is more measured and consumers largely remain cautious and conservative, a fact which is reflected in the most recent consumer sentiment date released by Westpac and the Melbourne Institute.

Key messages for the housing market from the Federal budget

Policy makers, including the Reserve Bank and Federal Treasury, are increasingly looking towards the housing market and housing construction to take up some of the economic slack as the economy transitions away from relying on infrastructure spending in the mining sector. For a sector that seems to be increasingly regarded as the ‘White Knight’ for our federal economy, there wasn’t a great deal of attention or detail in the Federal Budget that explains what, if any, support the Federal Government is prepared to provide to ensure the housing sector will achieve the growth target of 5.0% for the 2013/14 financial year and 5.5% in the 2014/15 financial year. From the budget paper: Just as the resources boom will transition from its investment phase to the production phase over the next two years, the broader Australian economy is also expected to begin its transition to non-resources drivers of growth. Growth in the non-resources parts of the economy is expected to be underpinned by solid growth in household consumption, a recovery in the housing sector and a modest recovery in business investment outside the resources sector. While this transition may not be seamless, Australia starts from a position of strength and resilience. … There are also early signs of a recovery in the housing sector. In the December quarter National Accounts, dwelling investment recorded its second consecutive quarter of positive growth, growing at its strongest quarterly rate in over two years. After a decade of lacklustre growth in housing construction, conditions are favourable for a sustained recovery. Low interest rates, favourable demographics, low vacancy rates, rising house prices and high rental yields are all expected to support demand in the housing construction sector over the forecast period. Industry groups were seeking guidance or support around incentivising prospective buyers, reforms relating to infrastructure charges to encourage more development, and support for training and jobs for housing construction and related industries. None of these issues were addressed. There was no guidance on population growth targets either, which has featured in earlier budgets. The themes that were very relevant for the housing market were: Pensioners who have owned their family home for at least 25 years can now sell their home and direct the proceeds of the sale into a special banking account that is exempt from pension means testing. The dollar amount of the deposit is capped at $200,000 and the means testing exemption expires after ten years. The other string attached to this pilot policy is that the home owner must be downsizing to what the budget describes as a ‘retirement village or granny flat’ those people downsizing into aged care accommodation aren’t eligible for the pilot . Both of these terms are open to interpretation, so clearly before the pilot kicks off in July 2014 there will need to be a lot more clarity around what a retirement village or granny flat is. The other point of little clarity was around the tenure of ownership. This policy states that the home must have been owned for at least 25 years. Based on sales over the past twelve months, less than 5% of all dwellings that transacted were owned for 20 years or more I don’t have the 25 years or more figure at hand… but it is likely to quite a bit lower than 5% . Most home owners hold their home for about 7-9 years before selling – either for upgrading or moving for work reasons. The lifecycle of property ownership suggests there aren’t going to be a large number of home owners who have held the same home for 25 years or more which suggests to me this pilot may be a bit of a dud unless there are some tweaks or clarifications to the rules. Non Residents buying Australian property with a price tag of more than $2.5 million will be required to pay a 10% withholding tax. The new tax for non-resident buyers aims to insure the risk of capital gains flight. Basically, the Government is collecting a bond from the purchaser at the time of sale in case they ‘forget’ to pay capital gains tax when they ultimately sell. The new tax essentially makes premium properties ten percent more expensive for foreign buyers, however considering the new tax only applies to properties worth more than $2.5m, the effect will be confined to the premium sector of the housing market. It may be enough to put off some foreign buyers, however it is likely many will simply comply with the new tax as another cost of purchase. There is a BIG infrastructure spend in the budget that is particularly relevant to areas of Queensland and Melbourne. Infrastructure spending typically has a very positive effect on local property markets that directly or indirectly benefit from the new infrastructure. An additional $24 billion in infrastructure spending through to 2018/19 was announced within the budget as part of the Nation Building Program. The key projects to receive federal funding were: $4.1 billion is devoted to upgrading the Bruce Highway along Queensland’s eastern seaboard $3 billion is being dedicated to the Melbourne Metro Rail program $1.8 billion is being provided for Sydney’s M4 and M5 extensions $715 million is provided for Brisbane’s Cross River Rail project $500 million for the Midland Highway in Tasmania $448 million for the South Road upgrade in Adelaide $418 million for the Swan Valley Bypass in Western Australia $400 million is dedicated to Sydney’s F3 to M2 connector project The string that is attached to the funding pledge was that State Governments need to match the Federal spend and form alliances with the private sector to deliver the projects. Considering the limited capacity of most state budgets, matching the proposed spend might be one of the biggest challenges in seeing this funding come to fruition. The Budget announcement, as it relates to the housing market, is pretty much steady as she goes. The housing market recovery this time around is much more organic than what we saw in 2009 and 2010 more free from Government stimulus which is arguably a healthy state of affairs. A lot of faith is being placed on the housing sector and to date there has been firm evidence that buyers are returning to the market and values are starting along a recovery path. What is not as evident is how the construction sector is going to respond. Dwelling approvals are up almost 4% over the year but the month-to-month data has been volatile and overall growth could be described as sluggish at best. One thing that is looking quite certain is if we are to see a sustained improvement in housing investment a low interest rate environment is likely to be a necessity. Low rates are here to stay for the foreseeable future.

There were 1,213,595 individuals with a negatively geared property over the 2010/11 financial year

Last week the Australian Tax Office ATO released the taxations statistics for the 2010/11 financial year. The statistics showed that over the year there were 1,811,174 individuals that owned a rental property. This was out of 9,416,002 individuals that have a taxable income and 12,637,623 individuals that lodged a tax return. The data indicates that 14.3% of individuals that lodged a tax return owned investment properties while a greater 19.2% of individuals that reported a taxable income owned investment properties. This indicates that despite the fact 1,811,174 individuals own investment properties, the vast majority of Australians don’t invest in residential property. Of the 1,811,174 individuals that reported to the ATO as having an investment property, 1,213,595 of these individuals, or two out of every three investors, were recording a loss on their rental income. The total value of these losses over the year was $13.285 billion. Obviously negative gearing of investment properties allows owners to claim a tax deduction on these costs. The average annual loss for these property investors with negatively geared properties was $10,947 or $210.50/week. There were 597,577 individuals that made a profit from their investment property in 2010/11. The total value of this income was $5.423 billion. These investors have no losses to claim a tax deduction on and would have to pay tax on their investment property; of course they would have more money in their hand each week as a result of the positive gearing. The average annual profit earned from these positively geared investment properties was $9,075 or $174.50/week. The data shows that on average, the losses made on investment properties that are negatively geared are larger than the profit on the positively geared propertied. What negatively geared investors sometimes lose sight of is the fact that a loss is a loss. What I mean is that although the loss is tax deductible at the end of the financial year they have to carry the cost of that loss throughout the year at a sometimes significant cost. For some it would undoubtedly be preferential to have that extra money on hand throughout the year rather than getting a larger tax return at the end of the financial year. The $13.285 billion in rental losses over the 2010/11 financial year was 24.7% higher than the 2009/10 financial year however, it remains -0.2% lower than the historic high value of losses recorded over the 2007/08 financial year. The number of negatively geared property investors rose by 4.8% over the year however, the number of investors was also below the historic high of 2007/08 by -1.8%. According to the ATO data, 72.8% of individuals that owned an investment property owned just one. Meanwhile, 18.9% of individuals owned 2 properties while just 0.9% of individuals owned 6 or more. No doubt the total value of the losses and the proportion of total investors claiming a loss on their property are quite alarming. From an investment perspective you’d assume that it is generally preferential to make a profit than it is to carry a loss for 12 months of the year. Where negative gearing works is when it reduces an individual’s taxable income to such an extent that there is a greater financial windfall from claiming that loss than there would be if that property made a profit. Of course investors using a negative gearing strategy also expect the value of their asset to rise, offsetting the shortfall. These benefits are usually more likely to accrue to those earning higher incomes and this is where you have to wonder if many investors really are benefiting from the negative gearing of their investment properties. The ATO data indicates that 72.3% of individuals with a loss making investment property have a taxable income of less than $80,000 a year, with 32.3% having a taxable income of less than $37,000 per year. The total value of the losses for individuals earning less than $80,000 equated to $9,756.25 a year or $187.62 per week. Assuming that they all had a taxable income of $40,000 per year, which represents the middle of the range, the $9,756.25 annually is 24.4% of their annual taxable income. That is a significant proportion of their taxable income and a significant cost to the individual throughout the year just to secure a tax deduction at the end of the year. If we assume the average income earner that has a taxable income of $51,342 owns an investment property, that investment property is costing them 21.3% of their taxable income throughout the year. There have been many calls for negative gearing to be removed from residential property however, I believe it is extremely unlikely that either side of politics is likely to go down that path. Negative gearing of residential property saw the ATO forego $13.285 billion in taxation revenue over the 2010/11 financial year. What it did allow for, because it is so ingrained in the psyche of those who invest in property, is for private residents to cater to demand for rental properties from those residents that don’t own their own home. It is clear that the provision of rental accommodation is not a burden that Governments wish to bear however, one has to wonder if foregoing more than $13 billion in tax revenue is a cost that the federal Government can afford to give up. The data also shows that many lower income earners are investing in negatively geared properties, perhaps many are doing so without understanding what, if any, the true benefits are. The goal of investment should ultimately be to make a profit not a loss and with capital gains in housing much slower over the past five years and this trend anticipated to continue perhaps some investors should re-assess whether their current negative gearing strategy is truly working for them.

Who is Bruce Rock and other insights about population growth

Most people wouldn’t have heard of Bruce Rock. I asked my wife and she thought it might be the name of a rock singer that’s Kid Rock… . Bruce Rock is actually a council region located 254 km east of Perth. According to the Bruce Rock council web site, it’s quite a nice place to visit: The Shire of Bruce Rock and its townsite are situated in the heart of the Wheatbelt, 254km east of Perth. It has a population of approximately 700 people, with 1200 people in the shire. Bruce Rock ‘leads the way’ to open spaces and an agricultural experience to be enjoyed by all. We welcome visitors to enjoy the picturesque main street, gardens, amphitheatre and sculpture park, historic buildings, museums, federation style verandahs and great facilities. Unfortunately, it’s also one of two council’s recording the fastest rate of population decline over the past year. According to the recently released regional population statistics from the Australian Bureau of Statistics, the population of Bruce Rock fell by 2.7% over the year to June 2012. In raw number terms that equated to a loss of only 27 people; but when you have a population of less than 1,000 people to begin with, I’m guessing you would want to retain as many people as possible. The council region of Hay, located in the Riverina region of NSW, also recorded a decline of 2.7% in population over the year to June 2012. Hay is quite a bit larger than Bruce Rock with an estimated residential population of 3,013 residents that’s taking into account the 84 fewer people over the year . Hay Shire is noted as being one of the flattest places on earth. More importantly, the region is part of one of the most important agricultural centres in the country. Looking across the council regions that have recorded the most significant rate of population decline it shouldn’t come as a surprise that they are generally rural locations and more often than not, they have an economy centred around agriculture with tourism often cited as a secondary industry. I suspect the challenge for these regional communities is retaining the younger cohorts of the population. A quick look at the Census data for the top five council regions based on the largest percentage fall in population shows an average age which is considerably higher than the national average which supports this notion. There has been plenty of research done on the regional population drain across Australia which a Google search will uncover. As an aside, I thought this article from Computerworld titled ‘NBN to stop the rural brain drain’ was quite an interesting perspective on one of the benefits of how high speed internet access may help to sustain populations across regional communities. Looking at areas where population growth has been the fastest, the regions tend to be across the outskirts of the capital cities and to a lesser extent the inner city areas where densification is driving population growth. The fastest growing council region in the country is the Shire of Serpentine-Jarrahdale located on the outer southern fringe of the Perth metro area. In fact, thirteen of the top 20 fastest growing council regions are located in Western Australia. From a wider perspective, comparing the capital cities and regional areas across the country, the four largest capital cities Melbourne, Perth, Sydney and Brisbane are recording the vast majority of Australia’s population. In fact, 69% of the national population growth over the year to June 2012 was centred within these four cities. In percentage terms, the Greater Perth region is punching well above its weight, recording population growth of 3.6% over the year to June 2012. The other regions recording a rapid rate of population growth are the regional areas of Western Australia, Darwin and Brisbane where the growth rate is higher than 2%. Just like a declining population poses challenges, so too does a rapidly growing one. Delivering sufficient infrastructure is always the pain point for regions where population growth is strong. Pressure for new roads, bridges, public transport, schools and hospitals are high on the agenda in any of these regions and State and Local Governments are constantly challenged to deliver what is required. If you’re interested in what is happening with population growth trends, I’ve put together a series of thematic maps based on SA2 boundareis that highlight where population growth is occurring and where are the areas experiencing a population drain.

Low inflation keeps door open for RBA on interest rates

The Australian Bureau of Statistics ABS released the Consumer Price Index figures for the first quarter of 2013 earlier this week. The figures, which measure inflation, showed an increase of 0.4% over the quarter following a 0.2% rise over the December 2012 quarter. Based on data over the past six months, annual inflation is currently running at 1.2% which is well below the Reserve Bank’s target range of 2% to 3%. The RBA prefers to look at measures of underlying or ‘core’ inflation which strip out some of the more volatile measures such as some agricultural products and fuel prices. Underlying inflation is measured via the trimmed median or weighted mean CPI measures. Over the quarter, both measures were slightly stronger than headline inflation, recorded at 0.6% and 0.5% respectively. Over the 12 months to March 2013, headline inflation was recorded at 2.5% while the underlying measures were recorded at 2.2% for the trimmed mean and 2.6% for the weighted median. All inflation measures show that annual inflation currently sits at the lower to middle range of the RBA’s target range for inflation. The CPI calculation is made up by measuring the change in the cost of a basket of goods. These 11 ‘components’ make up the headline CPI reading and they include a number of sub-groups that make up their overall value. Over the 12 months to March 2013, costs associated with: health 6.1% , education 5.8% , housing 5.1% , alcohol and tobacco 3.7% and insurance and financial services 2.9% recorded the greatest increases. On the other hand, clothing and footwear -1.5% and recreation and culture -0.5% costs fell while furnishings and household equipment 0.6% , transport 1.4% , communication 1.5% and food and non-alcoholic beverages 1.6% recorded low levels of increases. The housing component of CPI provides the greatest contribution to the overall CPI result, with an overall weighting of 22.3%. As mentioned, housing costs have increased by 5.1% over the year which is a much greater increase than the 2.5% increase in headline inflation. Electricity 17.1% , gas and other household fuels 16.8% , utilities 13.5% and property rates and charges 5.8% costs have all increased by more than the growth in the overall housing component. No housing sub-group has recorded a fall in CPI over the year however, water and sewerage costs have risen by the lowest percentage at just 2.6%. Annual growth in new dwelling purchases by owner occupiers and maintenance and repair of the dwelling both 2.8% , rents 3.5% and other housing 3.9% have each been much lower than the headline figure for the housing component of CPI. The ongoing trend we have noted for a number of years now is that it is not the cost of the mortgage or rents which have been climbing sharply; rather it is the cost of those regular gas, rate and electricity bills which are continually increasing. Electricity costs have risen at an average annual rate of 8.3% over the past 10 years, followed by utilities 8.0%pa , water and sewerage 7.6%pa and gas and other household fuels 7.2%pa . On the other hand, maintenance and repair of the dwelling cost have increased by 2.6% annually over the decade followed by; new dwelling purchase by owner occupiers 3.5%pa , other housing 3.7%pa and rents 4.4%pa . Overall the data indicates that inflation in the Australian economy remains at low levels and that the calls for interest rate hikes will likely now dissipate. In fact, with home value growth slowing in April, commodity prices falling and mining investment expecting to peak throughout 2013 there may be a need for further interest rate cuts this year. Specifically for housing, the data shows that the growth in those regular quarterly household bills has gotten out of hand to some extent over the past decade and certain costs continue to grow significantly each year. Cost escalation associated with house purchases and rentals although above headline inflation are quite contained relative to other housing costs.

Outstanding mortgage debt to Australian banks, building societies and credit unions is growing at record low levels

Every month the Australian Prudential Regulation Authority APRA publishes monthly banking statistics which include amongst other things the total value of outstanding loans on the books of Australian banks for owner occupied housing and investment housing. This information is published individually for every bank operating in Australia. As at February 2013, domestic banks had a total of $1.147 trillion in mortgages on their books; at the same time rpdata estimates that the total value of all housing in Australia was around $4.85 trillion. Over the month, 66.9% of all outstanding mortgage debt was for owner occupier homes compared to 33.1% for investment homes. Outstanding loans mortgage debt accounted for 63.1% of all outstanding loans of domestic banks. The housing finance data published by the Australian Bureau of Statistics ABS each month includes the aggregated data published each month by APRA for banks however, it also includes figures for all authorised deposit-taking institutions ADI’s . ADI’s include banks as well as building societies and credit co-operatives. As mentioned, the total amount of outstanding mortgage debt to banks as at February 2013 was $1.147 trillion, to all ADI’s it was $1.2 trillion. The data shows that banks are overwhelmingly the most popular institutions for mortgages in Australia, accounting for 95.8% of all outstanding mortgages. Of course the banking sector in Australia is dominated by four major players; ANZ, Commonwealth Bank CBA , National Australia Bank NAB and Westpac. These four major banks, excluding CBA’s subsidiary BankWest but including Westpac’s subsidiary St George, hold 85.1% of all outstanding mortgage debt by banks operating in Australia and 81.5% of all outstanding mortgage loans to domestic ADI’s. These figures indicate that more than four out of every five mortgages in Australia are to either ANZ, CBA, NAB or Westpac. Over the past 12 months, the total value of outstanding mortgage debt to Australian ADI’s has increased by 6.0%. This data set has been published from March 2002 onwards and this is close to the slowest rate of growth in outstanding mortgage debt on record. Across all ADI’s, 67.5% of outstanding mortgage debt is for owner occupation purposes compared to 32.5% of mortgage debt being for investment purposes. What this data indicates is that investment borrowers are slightly more likely to go to a bank for a mortgage than they are to go to a credit union or building society. Over the 12 months to February 2013, the total value of outstanding mortgage debt to Australian ADI’s for owner occupation purposes has increased by 5.5% which is the slowest growth on record, compared to investment mortgage debt growing by 7.1%. The higher rate of growth in outstanding mortgage debt for investment purposes reflects the broader ABS housing finance data which shows the value of finance commitments for investment purposes rose by 15.4% year-on-year to February 2013 compared to a 5.3% increase in commitments for owner occupation purposes. The Reserve Bank RBA published some information in their recent Financial Stability Review which supports the notion of slower growth in outstanding mortgages. In the report they specifically noted: ‘Contributing to the slower pace of credit growth is the fact that many households have been taking advantage of the lower interest rate environment to pay down their debt faster than required. Mortgage buffers – balances in mortgage offset and redraw facilities – are now estimated to be equivalent to around 14 per cent of the outstanding stock of housing loans see graph below . When interest rates fall, not all borrowers reduce their mortgage payments, resulting in an increase in prepayment rates. The increase in the rate of prepayment as a result of the decline in mortgage lending rates since late 2011 is estimated to have reduced the growth rate of housing credit by around ½ percentage point over 2012. Measured a different way, in aggregate, households’ mortgage buffers are equivalent to around 20 months of scheduled repayments principal plus interest at current interest rates. This provides considerable scope for many borrowers to continue to meet their loan repayments even during a temporary spell of unemployment or reduced income. As with housing loans, households have also been paying off credit card debt; net repayments on personal credit and charge cards have been above average in recent years and balances on personal credit cards have also slightly declined since mid-2012.’ With borrowers paying off their loans quicker and having a greater ‘buffer’ sitting in their off-set account it is no surprise growth in outstanding mortgage debt is at historic low levels. Add into the mix, the fact that households continue to save around 10% of their disposable income and that the household debt to disposable incomes sits at around 150%, having plateaued over the past six year, and it is difficult to see how credit growth will return to previous levels in the foreseeable future. This is despite the fact that we currently have a low interest rate environment and capital city home values have increased by 2.8% over the first quarter of 2013. The challenge for the banking sector will of course be how can they attract new customers to lend to when this air of caution exists surrounding spending and high levels of debt? The caution and aversion to credit is further highlighted by the fact that the RBA’s credit card statistics for February 2013 show that the average outstanding loan balance on credit cards fell by -2.5% over the year, the greatest year-on-year fall on record for that series. Regulators will have to continue to ensure that lending practices and policies don’t deteriorate over coming years as banks seek new ways of attracting lending, particularly to the housing sector which accounts for 63.1% of the total value of outstanding loans to the domestic banks.

Recovering but not recovered

The housing market recovery has broadly been underway since the end of May last year and since that time dwelling values across the combined capital cities Index have increased by 4.7% through to the end of March 2013. Most cities reached a low point at a different time and have recorded different rates of recovery. Darwin, at 13.9%, has recorded the largest recovery in dwelling values followed by Perth +9.4% , Hobart +6.9% and Sydney +5.4% . At the other end of the spectrum is Adelaide +1.5% and Brisbane +3.1% where the recovery in dwelling values has been more subdued. While the recovery is demonstrable across each city, the only city to reach a new historic high is Sydney, where values are now 0.1% higher than their previous November 2010 peak. Interestingly, the Sydney recovery has largely been driven by higher unit values rather than detached house values. Looking at the Sydney recovery by dwelling type shows that Sydney unit values actually reached a new high way back in May last year while house values remain -0.4% lower than their 2010 peak. Based on the combined ‘dwellings’ index, Sydney values are now broadly 0.1% higher than their November 2010 peak. Melbourne values recorded a more severe downturn, with values peaking in October 2010 and finding a low point at the end of May 2012. The recovery to date hasn’t been enough to offset the decline, with values remaining -6.2% lower than their 2010 peak. The recovery has been greater across the detached housing market +5.2% compared with units +3.6% . Of all the capital cities, Brisbane’s housing market is showing the largest gap between peak and current dwelling values. The correction across the Brisbane housing market has been more significant than other cities and values remain -9.5% lower than when they peaked back in November 2009. Adelaide dwelling values remain -5.5% lower compared with their September 2010 peak. Additionally, Adelaide is recording the smallest level of dwelling value recovery to date, with dwelling values increasing by just 1.5% between the June 2012 trough and the end of March 2013. Perth’s housing market recovery has been substantial, with values rising 9.4% since they bottomed out in late 2011. The market trough in Perth was much earlier than most other capital cities, with Perth’s housing market responding to the strong state economy and population growth that can be attributed to the local resources sector as well as an exceptionally tight housing market and rapidly rising rents. House values have recovered much more than unit values, rising by 10.0% compared with a 6.8% recovery across the unit market. Hobart’s housing market has seen a recent improvement, with values now -8.7% lower than their November 2009 peaked. Brisbane and Hobart were the two capital cities that recorded a market peak the earliest both in November 2009 and it is no coincidence that it is these same two cities that are recording the largest gap between peak and current dwelling values. The Hobart market bottomed out only recently October 2012 and since that time values have risen by nearly 7%. Darwin’s housing market has recorded both the largest correction values were down nearly 20% from peak to trough and the strongest recovery with values having increased by 13.9% since they found an early low point back in January 2012. Growth rates in Darwin have recently levelled however, suggesting the market may be starting to level. Rents continue to rocket higher though, rising by close to 15% over the past year which suggests that yields will continue to move higher as well which could drive further value growth on the back of investor demand. Canberra’s housing market bottomed out quite early compared with other capital cities, in January 2012. Since that time values are up 5.1%, which is a surprisingly strong recovery considering the local uncertainty that comes with a federal election and the recent softness across Canberra’s rental market rents are down nearly 2% across Canberra’s house market . At a combined capital cities level, values still need to recover by more 3.0% before they reach a new historic high. Based on the rate of recovery to date, it won’t be long before the housing market moves to a new historic high.

New South Welshmen leaving the state in droves, heading to Queensland and Western Australia

Population growth is an important determinant of housing demand – to put it simply, more people generally equates to a larger requirement for new homes. This week’s RP Data Property Pulse focusses on the broad national population growth figures which were released by the Australian Bureau of Statistics last week. Our blog this week looks at the September quarter population change data in more detail, focusing on the state by state results. At a national level, population growth is fuelled by two factors: the rate of natural increase births minus deaths and overseas migration. At a state level interstate migration is also a factor in population growth. On a state-by-state basis population growth has been strongest in absolute terms within Victoria 94,837 , Queensland 91,389 , New South Wales 86,033 and Western Australia 81,694 . These four states have accounted for 92.5% of total population growth over the 12 months to September 2012. Across the individual states, only Queensland 12,104 , Western Australia 11,091 , Victoria 1,296 and the Australian Capital Territory 755 have seen a net gain in population from interstate migrants ie more residents arrived over the state/terriroty border than left for other states/territories . Over the year to September 20123, the net number of interstate migrants arriving in Queensland was at its highest level since the 12 months to December 2009 and Western Australia’s net interstate migration figure was its highest level on record since the time series began in June 1982. On the other hand, 18,448 more residents left New South Wales than arrived over the year followed by 2,748 net residents leaving Tasmania, 2,541 net residents left South Australia and 1,509 net residents left the Northern Territory As the above chart shows, the resource states are currently the largest beneficiaries of interstate migrants from other states. Queensland has always been a significant beneficiary of population growth from other states, particularly New South Wales and Victoria, however, the rise in prominence of Western Australia is a relatively new feature. This is likely to be a result of the resources sector boom which has occurred in that state over recent years. The other side of the equation of course is overseas migration and which states reap the benefits of these new arrivals. Over the past 12 months, 91.8% of all overseas migrants or 209,403 persons have settled in one of New South Wales 59,432 , Victoria 53,996 , Western Australia 50,613 and Queensland 45,362 . As the above graph shows, most overseas migrants to Australia have initially settled in either New South Wales or Victoria and based on this you can assume they tend to settle in Sydney or Melbourne. Given this, the benefits and costs of overseas migration are not being felt right across the country but are mainly concentrated in the major population centres of New South Wales, Victoria , Queensland and Western Australia. Based on all these figures, outside of New South Wales, those states which tend to lose residents to other states or see a low inflow also fail to attract a significant proportion of new arrivals to the country. This has repercussions for the overall economic performance of these states as they lose many of their young and educated to the larger states which arguably have more abundant education and job opportunities. On the other hand, a number of these states and territories are also failing to attract overseas migrants. The reason being that these migrants also tend to be more attracted to the areas with better educational facilities and job prospects. Perhaps some of the smaller states should be looking at ways that they can better attract new migrants to their state, surely factors such as cheaper housing in states like South Australia and Tasmania could be an attractive lure but there must also be the jobs and wages available to both attract and then keep these new settlers. It may also help to stem the flow of residents that leave these smaller states.

Reserve Bank gives Melbourne a gloom injection

Want a good read? Check out the Reserve Bank’s Financial Stability Review. Sure, it’s not everyone’s cup of tea, but this report which is published half yearly is an absolute treasure trove for anyone interested in the Australian economy, or more importantly, how the Reserve Bank is interpreting economic data which of course as a flow through to monetary policy settings. One of the most interesting sections of the Review is the RBA’s views on the Melbourne housing market page 48/49 – more on that later. For those that don’t want to wade through all 66 pages, here is a one minute run down of the important stuff. Global financial conditions have improved over the past six months despite the recent Cyprus fiasco . The Eurozone is making the hard decisions required to dig themselves out of an economic hole although the region continues to face significant challenges. Even though conditions are improving, it is probably safe to say that the Eurozone remains the biggest risk to global financial stability. The US economy is gathering momentum and the Asian nations are generally in good health. Global equity markets are trending higher indicating growing confidence. Australia’s banks also remain in a healthy position, with global wholesale funding costs easing. Despite the cheaper wholesale finance, banks are continuing to attract domestic deposits, so reliance on global money markets has been reduced. Australia’s banks are very profitable despite low levels of credit growth, which provides a strong global position when it comes to meeting the Basel III capital requirements. Domestic business failure is at a historically high level, a factor related to Australia’s high exchange rate and the high rate of household savings consumers are spending less . Even though more businesses have folded, the vast majority of businesses continue to meet their debt obligations business loan arrears peaked in 2010 at around 3.6% and were below 3% in December. The net wealth of households has been rising on the back of higher dwelling values and improving equity markets together with a general aversion by households to take on more debt. The debt servicing capacity of households is also improving thanks to lower interest rates. The arrears rate for home loans peaked in 2011 and is now moving lower with just 0.5% of Australian mortgages more than 90 days in arrears. The arrears rate is moving lower despite some softening in the labour market with the rate of unemployment edging higher over the past year. Importantly, as interest rates have fallen, most households have continued to repay the same level of principal and interest when servicing their mortgages. Additionally, the proliferation of offset facilities is allowing households to accumulate savings that can be offset against their mortgage debt. This has resulted in a substantial buffer being built up across mortgage holders, to the extent that the aggregate mortgage buffer is now nearly two years around 20 months ahead of their repayments schedule. Given such a large buffer, households have some flexibility in their repayments if further softening in the labour market does eventuate. The growing mortgage buffer is also one of the reasons why housing credit is growing at historically low levels. The RBA points out that although financial stress across households remains low, household debt and gearing remains very high. The Bank goes as far as to imply that households should continue to save and reduce debt to further strengthen their financial resilience. This statement is probably the biggest hint that interest rates aren’t going to fall further in an effort to stimulate consumer spending and household activity. Rather, any further rate cuts are likely to be in response to a weakening labour market or a global shock. The RBA’s comments with regards to the Australian housing market were overall very positive. The fact that mortgage arrears peaked at about 0.6% in 2011 and have now slipped to 0.5% of all mortgages is a solid sign that households are adequately coping with their mortgage repayments. The RBA has relied on the RP Data-Rismark hedonic indices to comment on the recovery in dwelling values to date. Based on the RBA analysis, dwelling values are up by around 4% since the May 2012 trough. Using a more up to date measure, based on the RP Data Rismark daily five capital city aggregate index, dwelling values have recovered by 4.7% through to March 27th. Where the RBA has expressed a specific concern though is with the Melbourne housing market. The Bank has singled out Melbourne, expressing concern about the build-up of housing supply across the inner city apartment market and detached housing markets across the outer suburbs. “Although housing loan arrears rates are currently low across most parts of Victoria, the outlook for the Melbourne property market appears to be softer than for other large cities and some banks have signalled that they will be alert to any signs of deterioration in asset performance. The current stock of land for sale is at a high level and building approvals data point to increases in the stock of housing, and potential oversupply, in some parts of Melbourne, particularly the inner-city apartment market Graph 3.20 . This is on top of previous strong supply of detached housing in the outer suburbs. The increase in the stock of housing is consistent with Melbourne dwelling prices declining further and recovering less of their earlier decline than prices in most other capital cities have done.” The RBA makes a fair point, and I have said on a number of occasions that Melbourne’s resilience to date has been surprising. The multi-graph below from the RBA highlights the key issues. Another weakness for the Melbourne housing market is the fact that transaction volumes have stabilised at a low level; the city isn’t seeing the same upwards trend in sales activity that has been noticeable across recovering markets such as Perth, Brisbane and Sydney. The low rate of sales activity has seen listing numbers mount across Melbourne, to the extent that there are currently about 10% more homes being advertised across Melbourne than there were a year ago. The RBA also point out that historically higher levels of home loan arrears have been recorded across particular housing markets after a period of strong value growth coupled with a large number of new dwelling commencements. For example, loans that originated in New South Wales between 2003 and 2006 and those that originated in Queensland and Western Australia between 2007 and 2008 have shown a higher proportion of arrears rates. This profile of rapid dwelling value growth and large scale home building fits the Melbourne situation quite comfortably over the past five years. Dwelling values increased by close to 55% between the beginning of 2007 and the 2010 market peak. At the same time dwelling approvals across Victoria surged as can be seen in the RBA graph 3.20 above . While I concur with the RBA that the inner city apartment market and outer fringe detached housing market is facing some serious oversupply challenges, that doesn’t necessarily mean that Greater Melbourne is facing a prolonged period of subdued market conditions. If the early indicators for 2013 are anything to go by, the Melbourne market is showing some positive signals. In Melbourne’s favour is the fact that auction clearance rates are pointing to strengthening market conditions. Melbourne is Australia’s largest auction market, so clearance rates are one of the best and most timely indicators of how well buyer and seller expectations are aligned. Last week the clearance rate in Melbourne was 69.2% and the average clearance over the year to date is 65.9%. The last time clearance rates were this high in Melbourne was August 2010. Additionally, the broad Melbourne market has shown a reasonable level of recovery since the market bottomed out in May last year. Values are up 5.9% since bottoming out last year, with 2.9% of the growth having taken place during 2013. Additionally, the average time a home is on the market has been reducing in Melbourne and levels of average vendor discounting have also been showing some subtle improvements. The inner city apartment market in Melbourne and the outer fringe housing market are likely to be an underperforming segment over the coming years; at least until supply levels are absorbed which will take some time. Melbourne faced a similar scenario in the early part of the last decade when the Dockland’s precinct sprung out of the ground in a flurry of apartment development activity. The oversupply of apartments dampened conditions in that precinct for the next five years, but supply was eventually absorbed and the Dockland’s precinct gradually started to record capital gains and rental growth. These two precincts aside, Melbourne has shown a strong start to 2013. The big question will be whether the performance across the other segments of Melbourne’s housing market will be strong enough to bolster the headline figures to maintain growth. A key factor that will determine the outcome for Melbourne’s inner city apartment market and outer fringe will be population growth, which can be read as buyer demand. In raw numbers, Victoria is recording the largest number of new residents compared with other states up 89,000 over the year to June 2012 and the population growth rate is 1.6%. Another key factor will be how successful the development sector is at delivering new housing stock that is competitive in pricing, design and location compared with existing stock. Time will tell, but undoubtedly the Melbourne inner city and outer fringe housing market will under a great deal of scrutiny over the coming year.

The good news and the bad news on Australian labour markets

Good news: 71,500 jobs were created over the month of February Bad news: 75% of them were part time roles The February labour force data published by the ABS earlier this week caught most of us off guard. The number of jobs created was nothing short of spectacular, the rate of unemployment remained steady at 5.4% and the participation rate rose from 65.0% to 65.3% in seasonally adjusted terms. The headline jobs growth figure showed 71,500 new jobs were created across Australia. At face value that’s a pretty impressive number of new jobs – the highest month-on-month number of new jobs since July 2000 in fact month-on-month jobs growth has only been that high eight previous times across the ABS series which extends back to 1978 . At face value the figures look very positive, however drilling down shows that the vast majority of new jobs were part time. 75% of jobs growth was for part time positions over the month and over the past twelve months, 69% of new jobs have been part time roles. The proportion of part time jobs to full time jobs is currently recorded at 32% which is an all time high based on the ABS seasonally adjusted series which extends back to 1978. If we see part time jobs creation continue at this pace it is likely the proportion will increase. The labour force utilisation rate was measured at 13.4% in February, unchanged from February the previous year, however the age group showing the highest rate of underutilisation was the youngest age category of 15 to 24 year olds where 27.0% of the working population within this age group is either unemployed or would like to work more hours. Another interesting factor to take into account when interpreting the headline labour force data is that 70% of all jobs created over the past year were located in New South Wales and Victoria. Jobs growth is moving away from the mining states. Australia’s third largest state based on population, Queensland, managed to comprise just 9% of the total number of jobs created nationally while Western Australia accounted for 18% of the jobs growth. Overall, despite some of the labour market softness that I have highlighted, the recent jobs data should be seen as a positive. Viewed at a macro level, which is generally what Federal policy makers base their decisions on, the labour market is looking quite healthy and surprisingly resilient. The jobless rate is holding firm at the low level of 5.4%, the number of new jobs created over the month was historically high and more people are actively seeking work. The latest labour force data will add to the speculation that the interest rate cutting cycle is either at or approaching completion.

Housing demand focused on new housing and investment while first timers fall off a cliff

The latest housing finance data from the ABS painted a pretty dim view of housing demand, with the headline figures showing a seasonally adjusted fall in the number of owner occupier housing finance commitments of 1.5% in January following an adjusted 2.1% fall in December. This was the fourth consecutive month where the total number of owner occupier loan commitments has fallen. While the latest data indicates housing credit demand remains soft, digging below the surface shows that demand for housing credit has been being growing at a cracking pace for the purchase of new housing +27.7% year on year and 9.6% higher than the five year average over the full 12 months and investor demand is ramping up quite swiftly as well. Before going into the details, it’s useful to have a refresh on what the ABS housing finance data includes and doesn’t include. The headline figures for the number of commitments include data on owner occupier loans only investor loans aren’t included in the counts which is a real weakness in the ABS data series . This data is further segmented across four categories as shown in the pie graph below: commitments for established housing excluding refinanced loans , refinanced loans for established housing, commitments for the purchase of new dwellings and commitments for the construction of a new dwelling. As you can see below, housing finance commitments for established dwellings comprise, by far, the largest proportion of owner occupier commitments. With such a large proportion of activity in this segment about 86% of all commitments over the past year , the headline figures for housing finance commitments are very much dictated by what is happening in this space. Looking at each of the above categories individually shows some interesting trends across the segments. Finance commitments for established housing, excluding any refinanced loans, were relatively flat over the year, falling by 0.8% compared with January 2012. The number of new loans for established housing is continuing to track at historically low levels; over the year to January 2013 the number of commitments was 10.7% lower than the five year average. The soft performance in credit demand for established housing is the primary reason why the overall housing finance commitment numbers remain so weak. We haven’t seen housing finance commitments for established housing remain this low consistently since the mid 90’s. New housing finance commitments for the construction of new dwellings have remained relatively flat +1.9% year on year but -4.6% below the five year average after spiking through late 2008 and most of 2009 in response to the first home buyers grant boost which provided $21,000 incentive for first home buyers of new dwellings or constructing a dwellings. Loans for new homes have surged over the past twelve months, increasing by almost 28% over the year and tracking 9.6% higher than the five year average over the twelve months ending January 2013. The surge in demand for finance related to newly developed housing is arguably the most positive indicator to come out of the ABS housing finance data. The surge in lending activity across this segment of the market suggests that the stamp duty concessions which are available for across most states for new homes are providing some stimulus for this sector of the market. It also may indicate that purchasers prefer to buy newly built homes rather than engage in what can often be the time consuming and difficult process of choosing to construct a home. This would also be reflective of a growing proportion of units being purchased as opposed to vacant land on which a home is then constructed. The owner occupier housing finance data is also segmented by first home buyers and non-first home buyers. This portion of the data shows that first home buyers are becoming increasingly thin on the ground, representing just 14.9% of all owner occupier commitments the lowest ratio since June 2004 . The number of first home buyer loans has fallen by 28% year on year to January 2013 and on an annual basis, first timer loans were tracking 21% lower than the five year average. The low level of first home buyer finance commitments probably also reflects the fact that the first home owners grant is only available in some states for new builds which would result in a pushing out of the finance commitment because only a deposit is required up front. It’s safe to say that first home buyer demand was substantially brought forward due to the grant top ups that were available from the Federal Government in 2008 and 2009 as well as by the state level stamp duty concessions that were generally available for established dwellings which have now reverted to being available for new homes only . Data about investment related loans is comparatively scant in the ABS housing finance data. There are two tables in the release that contain information about investment lending: table eleven which reports on the value of housing finance commitments for owner occupiers and investors, and table 12 which reports on housing loans outstanding. The value of investor related housing finance commitments has seen a decent surge since August last year. Year on year growth in the value of investor finance was recorded at 18.6% in January and total value of investor housing commitments was tracking 2.4% higher than the five year average over the past twelve months. Based on the January data, investors now comprise 36% of the value of all housing finance commitments, well above the five year average of 33.6%. Clearly investors are viewing the housing market in a much more positive light, which should come as no surprise considering the recent correction and measured recovery in values and the higher yield environment. So, while at face value the number of new mortgages being committed to looks pretty bleak, there are some shining lights in the data. The increasing level of demand for new homes should provide some flow through benefits to the housing construction sector which is desperate need of a health injection. Additionally, the increasing level of investor activity is also a positive sign that housing market sentiment is improving across this important sector of the market which will also lead to an uptick in rental housing at a time when vacancy rates remain low.

Consumers more optimistic about Australiaâ

Consumers more optimistic about Australia’s housing markets in 2013 Last week Nine Rewards and RP Data undertook our second housing market sentiment survey. The first survey was in October last year and we intend to run the survey every three months. The results were stronger than I expected, in the sense that only a very small proportion of the survey respondents expected dwelling values to fall over the next six to twelve months. The survey is administered by Nine Rewards, a company which is owned by the Nine Entertainment group and has a panel of more than 1.4 million survey participants, 1,040 of whom participated in the housing sentiment survey. Nine Rewards have ensured the sample is representative of the population, including respondents from all states, across a range of age groups and property tenure types own their home, paying off their home, renting etc . The results showed that 38% of the survey respondents expected home values to rise over the coming six months, slightly higher than the 33% who thought values would rise back in October last year. Just over half the respondents expected dwelling values to rise over the next twelve months, a decent jump from 42% back in October last year. The results reinforce the results from the Westpac-Melbourne Institute consumer sentiment survey which surged to its highest level since December 2010 last month. Consumers are becoming more confident and more willing to make high commitment decisions. Even though consumers are becoming increasingly confident about the Australian housing market, the magnitude of the growth expectations remains reasonably tame. Of those respondents that thought home values would rise, about 80% of them are expecting values to rise by less than 5% over the next five years. There were some considerable differences in the responses from region to region and city to city. Residents of the ACT and Perth have the most optimistic expectations for their local housing markets, with about 70% of respondents in these regions expecting home values to rise over the coming 12 months. At the other end of spectrum are Tasmanian’s where only 30% of respondents expect values to rise over the coming year. Growth expectations for housing markets in Brisbane and Melbourne remain relatively sedate, with less than 50% of respondents living in those cities expecting values to rise. Respondents to the survey were also asked about where they expected rental rates to go from here over the next six and twelve months. A larger proportion of consumers are expecting rents to rise over the coming year, with 54% of those surveyed expecting higher rents over the next six months and 62% of respondents expecting higher rents over the next year. Overall, the results provide a fairly positive assessment of how consumers are viewing the housing market around Australia. Look out for the next results in three months’ time.

Where is the investment in our airports?

As someone who travels interstate regularly, one of my major frustrations as I am sure it is with most passengers is with airport delays. Whether it is planes delayed in their take-off or coming home to Brisbane and having to circle over the Gold Coast for 30 minutes before we have clearance to land, it is one of the more unenjoyable aspects of travel. When you have a look at the growth in flight and passenger numbers over recent years and consider the lack of investment in additional airports or airport expansions it is no surprise why delays are virtually inevitable. Data published by the Australian Department of Infrastructure and Transport highlights airport passenger figures which shows why so many of our planes are leaving or arriving so late. Politically, building new airports are a very sensitive issue as highlighted by the fact that Governments have been trying to agree on a site for a second Sydney airport for many years and we still appear no closer to a solution. Preliminary data shows that the number of airport movements has increased by 4.2% throughout 2012 with 1,429,497 flights over the year and 140,928,756 passengers. The major capital city airports have seen flight volumes increase by 4.1% over the year and passenger number growth of 4.8%, while the number of flights has increased by 4.6% in non-major capital city airports with passenger growth of 2.7%. The nation’s three busiest airports are those which service the three largest cities Sydney, Melbourne and Brisbane . These three airports accounted for 48.7% of all flights over the year and 61.7% of all passengers, when you include the fourth largest airport Perth 55.5% of all flights and 70.7% of all passengers went through these four airports. Sydney airport alone accounted for 20.9 % of all flights and 26.3% of all passengers. Of course these four cities service the most populous regions of the country and they account for around 56% of residents, highlighting that the number of flights is in-line with the population however, there is a disproportionate amount of passenger movements through these four airports. This is largely due to the fact that these four airports act as the major hubs for international flights and many intra-state connecting flights. Over the past 20 years, the number of flights at a national level has increased at an average annual rate of 1.3% and the average annual rate of growth has been a much higher 2.7% over the same period across major capital city airports. Over the period, flight numbers through Perth have increased at an average annual rate of 4.7% followed by 3.2%pa through Brisbane and 3.1% pa through Melbourne. The reason why these airports are seeing so much traffic is due to the fact that most of the major businesses are located in these cities and these airports also generally act as gateways to the regional areas of the state, thus business travel is significant through these cities. Despite the fact that air travel has surged over recent times, there has been very little investment in airport infrastructure. Outside of the expansion of Avalon Airport in Victoria as a second Melbourne airport there has been minimal action on secondary airports or development of additional runways. The cost associated with delayed flights to businesses and the negative impact these delays potentially have on Australia’s tourism sector I believe, are too important to ignore. The statistics show that air travel is continuing to grow however, airport capacities are failing to grow in-line. Let me know what you think, how important is it to provide additional major airports and to boost the capacity of our current airports and is enough being done to cater to our future needs?

Fewer homes selling at a loss across Australia

After showing a consistent upwards trend, the proportion of homes selling at a loss across the country has eased over the final quarter of 2012. Based on all dwelling sales over the December quarter 2012, 12.5% of all properties sold for less than their initial purchase price compared to 32.1% of homes selling for more than double their original purchase price. The result highlights that many vendors continue to enjoy a significant profit on the sale of their home with 45.1% of all home sales over the quarter realising a profit of more than 50% greater than the purchase price. As the above graph shows, the instance of homes selling at a loss has eased over recent months but on an historic basis the trend remains at elevated levels. On the other hand, the proportion of homes selling for more than double their purchase price is at low levels after trending lower over recent times. The proportion of homes sold at a loss has eased from an historic high of 13.5% of all sales over the three months to September 2012. Although 13.5% of properties sold at a loss over the September 2012 quarter, 30.9% of all homes still sold for more than double their initial purchase price. The important thing to note with this data is that just because a person has sold at a loss it doesn’t necessarily indicate financial strain. Some vendors are obviously willing to take a loss on the sale of their home if they are re-purchasing at what they perceive to be a lower price. The most recent housing loan arrears figures published by the Reserve Bank showed that around 0.6% of all loans across the country were past 90 days due. Nevertheless, there are regions across the country which are of concern considering just how high the proportion of homes selling at a loss is. Across individual capital city housing markets, the proportion of homes sold at a loss over the December quarter 2012 ranges from 5.3% of homes in Canberra and Darwin to 18.9% in Brisbane. On the other hand, the instance of home selling for more than double their initial purchase price was as high as 43.0% in Perth and as little as 26.4% in Sydney. It is of course a concern that almost 1 in 5 homes sold in Brisbane over the quarter sold at a loss however, the majority of homes still showed a profit on sale. Across the combined capital cities, the instances of loss are much lower than those nationally. Over the December 2012 quarter, 9.9% of capital city house sales were made at a loss compared to 33.2% of sales at prices which were greater than double the original purchase price. Throughout non-capital city housing markets the instances of loss has been quite varied. Coastal markets which are associated with tourism and were formerly popular with ‘sea changers’ have typically incurred the greatest proportion of loss making home sales. Conversely, regions linked to the mining and resource sector have typically been much less inclined to incur a significant loss on the sale of a home. Queensland’s Gold Coast, Sunshine Coast and Far North which includes Cairns regions have recorded the greatest proportion of homes selling at a loss over the quarter. These three regions have recorded 39.4%, 34.5% and 33.8% of homes respectively selling at a loss over the quarter. Most of the other regions which have realised the greatest proportion of sales at a loss are prominent coastal housing markets. Regional markets that are linked to the mining and resources sector have generally seen the lowest instances of loss over the quarter. It is important to note that the turnover of stock in many of these regions is quite low due to limited housing stock across these markets. The Far West region of New South Wales has recorded no sales at a loss over the quarter while Western Australia’s Pilbara region has only seen 2.3% of all sales at a loss and North Western New South Wales has recorded 4.3% of all home sales at a loss. Overall, in certain areas there has been a high proportion of homes sold at a loss over the quarter however, it is encouraging to see that the instances of loss broadly across the country is falling. The region’s most susceptible to losses are the coastal markets which were very popular with ‘sea changers’ in the lead up to the financial crisis as well as being popular locations for holiday homes. As demand has fallen, vendors have had to significantly drop their prices in order to sell in this is reflected in the fact that certain markets are seeing a large proportion of homes selling at below their previous purchase price. The better news is that there is not one region across Australia where the majority of sales are occurring at a price below the previous purchase and subsequently most vendors are realising some form of profit on the sale of their home.

Where can you buy a house or unit under $400,000 across the capital cities and major regional markets?

The issue of housing affordability always strikes a nerve here in Australia, and there is no doubt that homes across Australia’s largest capital cities are expensive by international standards. There are plenty of studies around that aim to investigate how affordable or unaffordable Australian housing is, however I found the recent Reserve Bank of Australia article pages 13 to 22 in the December quarter RBA Bulletin on housing affordability to be one of the most informative studies http://www.rba.gov.au/publications/bulletin/2012/dec/pdf/bu-1212.pdf . The RBA point out some of the differences in methods for calculating housing affordability, particularly around the house price to income ratio and why results can be significantly and fundamentally different depending on what data and figures are being used. For example, on the housing side of the equation, using an ‘average’ mean price rather than a ‘median’ will result in a higher estimate of housing prices; so too will focussing on just capital cities rather than all of Australia. Another factor is whether the analysis is based solely on ‘house’ prices rather than ‘dwelling’ prices which include attached and semi-attached homes. On the income side of the equation, it really depends on where the income data is being sourced from, with the typical options being either survey’s such as the Census or from the national accounts data, both of which are sourced from the Australian Bureau of Statistics. Survey data typically only includes cash income such as salaries and wages, while the national accounts income data includes additional income sources such as superannuation payments. The difference between using medians and averages is clearly demonstrated in the below graph which show the dwelling price to income ratio to be around 4.1 times based on averages and about 6.6 times using medians. On the topic of housing affordability, and in line with an ABC World News discussion I was involved with today, I thought it would be interesting to update our analysis about where to find Australia’s most affordable housing. Across the capital cities and based on all sales recorded over the 2012 calendar year, 31% of house sales and 46% of unit sales were transacted at a price below $400,000. Aggregating the figures together for dwellings shows that about 34% of all capital city homes sold for less than $400,000 over 2012. As you can see in the table below though, the largest proportion of these sales was in Hobart where 67.6% of all house sales and 82.5% of all unit sales were priced under $400,000. Similarly, Adelaide recorded 49.7% of all house sales and 70.7% of all unit sales with a sale price lower than $400,000. Maybe not so coincidentally, not only are these Australia’s most affordable capital cities, but Tasmania and South Australia are also showing the highest rates of unemployment. At the other end of the spectrum is Canberra where only 8.6% of house sales were priced lower than $400,000. Detached house sales under $400,000 were also comparatively rare in Darwin 23.0% and Sydney 24.7% . The city with the largest premium ie $2 million plus is Sydney where 3.0% of all house sales were priced at $2 million or higher and just shy of 1% of Sydney units were at this price or higher. Outside of the capital cities, housing prices are typically much lower. Take Newcastle, one of Australia’s largest regional cities, as a case in point. The median house price at Newcastle is $395,000 compared to Sydney’s $660,000 and the median unit price is $340,000 compared to $489,000 in Sydney. 51% of houses sold over the past year were at price points below $400,000 and 68% of unit sales were priced lower than $400,000. As far as housing affordability goes, the vast majority of regional cities provide a substantial saving on the cost of housing compared to the capital cities. The drawback to many of these areas though is that job opportunities are often scarce. If we saw more Government and private sector businesses choosing to locate their headquarters in regional locations, the labour market conditions would an improve and it would be easier to attract new residents. The tables below provide a comparison point against the capital city data for key regional markets around the country: The series of thematic maps below provide some geographic context to the above table. Areas shaded in the red have recorded at least 80% of house or unit sales at a price below $400,000 over the 2012 calendar year. The concentric circles mark the 10km, 20km and 50km points from the capital city GPO. The white space on the maps is typically areas where the number house or unit sales are either very low or non-existent. The spatial trends are pretty clear and should come as no surprise. The vast majority of affordable sales are generally located in the outer fringes, with very few suburbs showing a high proportion of house sales lower than $400,000 within 20km of the city. This trend is particularly the case in the larger capitals, although there are a few exceptions. The proportion of unit sales priced under the $400,000 mark show an improvement in proximity, demonstrating the more affordable price points that medium and high density housing options provide.

Record gap between median house and unit prices…but it doesn’t necessarily mean demand for units is increasing

With the release of the RP Data-Rismark Home Value Index results earlier this month, we also received the updated information on median selling prices of homes over the three months to January 2013. This data revealed that the gap between selling prices of houses and units reached a record high over the first month of year. At a national level, median selling prices of houses were 11.4% higher than median selling price of units and across the combined capital cities, the differential was a much larger 19.4%. Five years ago, the differential was 15.6% and 8.3% respectively and a decade ago capital city houses were 1.1% more affordable than units and nationally houses were 5.6% more affordable. Across most individual capital cities the difference between selling prices of houses and units is at a record high. In fact, Adelaide and Hobart are the only cities where the difference is not currently at record highs and they are only 2.6% and 5.0% off the records respectively. The above chart highlights the differential across the major capital cities over time. The graph also shows that since the start of the 2000’s the gap between the median price of a house and that of a unit has increased significantly. The difference between median selling prices of houses and units is currently quite significant across individual capital cities. In particular, some of the most expensive housing markets nationally such as Sydney, Melbourne, Darwin and Canberra all have a price differential in excess of $100,000. Across the individual capital cities the current differences are: Sydney $171,000 Melbourne $103,250 Brisbane $99,500 Adelaide $78,000 Perth $96,000 Hobart $85,750 Darwin $164,000 Canberra $165,000 The significant price difference is highlighted by the fact that houses remain a much more popular choice across the nation than units. The 2011 Census showed that 75.6% of all occupied dwellings were houses. Although houses remain more popular, for price sensitive purchasers, particularly in major capital cities, units may be the only option for these buyers to enter the market. With the gap widening between house and unit prices you would expect that unit sales activity would be increasing but this has not been the case over recent years. Of those properties sold over the 12 months to November 2012, units accounted for just 29.2% of sales across the combined capital cities and 25.6% at a national level. As the graph above shows, there has been a strong trend toward fewer unit sales since late 2009. This trend was probably influenced to some extent by the boos t to the First Home Owners Grant and the subsequent surge in first time buyers, many of whom were looking to purchase detached homes. It is important to note that this trend may be slightly overstated due to the fact that off-the-plan unit sales are not provided until the property is titled however, there remains a trend toward fewer unit sales over recent years. This seems to contrast dwelling approvals data which was released earlier this week. The annual dwelling approvals data shows that the proportion of units approved for construction has reached an historic high with 40.4% of all approvals over 2012 for units. Of course the data still shows that the majority of approvals are for houses but it is noteworthy that more than half of all New South Wales approvals and almost half of all Victorian approvals were for units. Given that in Sydney and Melbourne there is such a large gap between median house and unit prices this may be indicative of developers offering the market a cheaper housing alternative in the form of units. However, given that the number of unit transactions has been falling since 2009, are more units what the marketplace wants? I believe that most Australian’s still aspire to own their detached home however; the high cost of vacant land coupled with limited new land supply and the concentration of employment opportunities within a few major centres has made owning a detached home out of reach for some. For others, the only locations in which they can afford to own a detached home is either in a regional market, where there are fewer job opportunities, or on the outskirts of the city where amenity and infrastructure is less abundant than in those areas closer to the city centre. Higher density units within inner city areas remain popular with investors because of their strong rental demand and subsequent attractive rental returns. As a result of the more affordable price point of units as opposed to houses and their appeal to investors, I believe we will continue to see more and more units being developed, in particular within inner city areas. Whether or not it is necessarily the product type that the market aspires to own, is unlikely to matter, given the reality is that for a proportion of the population, units are the only product type that they can afford in the location that they desire unless they choose to locate within the more affordable detached housing areas on the outskirts of the major cities . What do you think, are more units what the market wants and are units a viable alternative to the high cost of detached houses?

New and emerging trends in real estate technology and practice notes from Inman part 2

This week I’m outlining some of the more interesting trends that were presented at the Inman Connect conference recently held in the USA. Arguably, the Americans are one step ahead in embracing mobile technologies and digital business applications. We can expect some, or all of these trends to become more ingrained in every day real estate practice as time progresses. Once again, first mover advantages are there to be had for early adopters! I’ve added links where appropriate – if you have any favourite apps or tools that I have missed please make comment. Everyone is reviewing everything. Apparently 50% of business comes from referrals. The most important part of a referral is reputation. This comes back to recommendations and reviews. Review web sites like Yelp where consumers can rate their level of satisfaction and provide details about a service provider’s performance have become well patronised. One only has to look at sites like Trip Advisor, Expedia, Eopinion and Amazon.com to look at how products and services are being reviewed by consumers. Ideally, all roads should lead to great content about you, however negative reviews should always be responded to. [As an aside, the founder of Expedia and Zillow, Rich Barton, has also recently released www.glassdoor.com – a site which provides employees with the opportunity to anonymously review their companies]. Sites like www.reputation.com are become established to help individuals and companies track their online profile and assess their online reputation. Does your web site display property on mobile platforms? It is predicted that mobile users accessing the web will outnumber static PC/laptop users by around 2015/16. Mobile web usage is on a rapid upwards trajectory, and industry participants are recognizing the importance of having a web site that is flexible across multiple platforms that incorporates flexibility in display and provides a variety of multimedia and interactivity. Some industry participants have moved to using HTML5 to update and design their websites; taking advantage of the scalability that HTML5 provides as well as the ability to include multimedia content without relying on plugins or API’s. Search optimisation and website maximisation: Nicole Nicolay from ‘Agent Evolution’ gave a great presentation on having a web presence and ensuring your branding is consistent and obvious. Her business specializes in creating websites using WordPress because it is inherently flexibility and is optimized for search engines . Some of Nicole’s tips were: Make sure your website platform is responsive? across different platforms Ensure your branding is obvious – users should be able to tell ‘what you do’ instantly and what your expertise is. Make sure your content is unique – have a template web site but not template content. This should be particularly easy for real estate agents; ensure there is local neighborhood content in your ‘about pages’, update the content regularly, and if you have time start blogging. Is your home page search tool worth using ie the search box that a lot of web sites have embedded in their home page . There are plenty of ways to maximise in-built searching facilities – provide some functionality that isn’t available from the major portals more localised searching, more relevant content . Capture user details – ensure there is a facility for browsers of your site to leave their contact details, but you might need to offer something of value as an incentive. Make sure you have a call to action. Content is no longer king. Jim Marks from ‘Agent Alliance’ made the interesting point that content is no longer king, but context is king. Content is everywhere and its still important , but what is more important is how you take that content and position it from a relevant perspective that adds the most value to your respective market place, clients and prospects. Where does your content come from and how are you delivering it. Internet marketing. One speaker suggested that 2013 would be the year of social media metrics – measuring the effectiveness of social media and maximizing marketing effectiveness via social media channels. Internet marketing is all about maximizing your sphere of influence; your internet marketing success will be dictated by how you treat the sphere of influence that you’re not connected with, rather than the ones you are connected with. Offline it can be hard to make friends, but online, people expect it! Try to ensure you bring all your contacts on line where your conversations can be more comfortable and up to date. Once your contacts are connected on line, you will notice that your ‘sphere of influence’ ripples outwards as more and more connections are made. The guys from Agent Alliance have a webinar series called ‘wired for success’ that touches on some of these topics. There was a huge amount of focus on social media 59% of web users trust a brand that has a social media presence apparently consumers relate this with a level of service and reputation . 2013 will be the year where the high performers go well beyond establishing their social media presence and actually start to create and nurture online relationships. The primary vehicles are still Facebook and Twitter, however there is a lot of momentum behind Instagram, Snapchat and Pinterest. Social media has opened the door to keeping in touch with people like never before. More and more industry participants are realizing social media is no longer a passing fad and that 2013 will be the year when we enter the first fully fledged social media age, which is all about online relationships rather than simply posting to Facebook. Katie Lance from Inman News made the comment that we need to stop ‘random acts of social media’ and create an intentional social media strategy. Two of the tips she had were: Create Facebook lists – one for client and one for prospects. Engage with those lists once a day; relationships are built up with small interactions over time. Take the online offline – send personal notes when you need to make someone feel special. A cool App she mentioned was ‘Ink’ – they will take your emailed note and send it as a template and well-presented snail mail card it works in Australia… I checked . Dana Shaut, the social media director from ‘gauranteedrate.com’ suggested the following strategy for announcing an open house via social media: Create a Facebook event and share it across your groups, your business page, your personal profile, and in a private message. Export the event so you can email it to nonline not online friends Announce the event on linked in and Twitter Then pin the event to Pinterest Then upload the pictures to Instagram try the Picstitch app if you want to make a collage add filters to enhance the photos Make sure all communications have links to the property listing and the social media pages. Some handy tools and apps that are either gaining traction or firmly embedded in best practice process Docusign – this document management application seems to be pretty well embedded in most real estate agents process flow. Sign, send and store documents in the cloud all via any internet enabled device. Dropbox – document storage in the cloud. Access key files anywhere, anytime. Evernote – here’s the explanation from Wikipedia they explain it better than the Evernote web site does Evernote is a suite of software and services designed for note taking and archiving. A “note” can be a piece of formatted text, a full webpage or webpage excerpt, a photograph, a voice memo, or a handwritten “ink” note. Notes can also have file attachments. Notes can be sorted into folders, then tagged, annotated, edited, given comments, searched and exported as part of a notebook. Dot Loop – the first online software that allows real estate agents, buyers and sellers to complete the transaction process from offer to close, all in one place. I’m not sure if this could work in Australia just yet due to rules regarding original documents but looks like the way of the future. Boomerang – if you use Gmail, this add-on allows you to schedule email and reminder deliveries Join.me – “a ridiculously simple screen sharing tool for meetings on the fly” – kind of like Webex Haiku Deck – a handy presentation App kind of like PowerPoint that turns your Ipad into a slick presentation tool – have a look at the gallery of examples Mosaic – create a hardcopy photobook from your Ipad – some agents are sending their vendors a photobook of their listing photo’s as a memento. Ink – send snail mail cards via email – agents are using this handy app for birthday cards, thank you cards, anniversaries etc. Everyone likes to get something in the mail. Real Satisfied – survey your recent clients and get testimonials Mail Chimp – publishing tool – design email newsletters, share them on social networks, integrate with existing services and track the results. Task Rabbit – a social network to help people get things done. Post a task, registered local ‘task rabbits’ make offers how much they will charge to do the job , pay the rabbit once the task is complete. This isn’t too relevant here in Australia, as there aren’t any Australian task rabbits, but interesting concept none the less. Any.do – ‘top do list’ or task manager that synchs across all your devices mobile phone, tablet, outlook etc Elance – find freelance workers globally post your job, review proposals, manage and collaborate online, pay for the approved work 30:30 – clutter free task manager app, fully customizable, synchs via the cloud.

The Latte Vision – will the real estate transaction ever be as easy as buying a latte?

Last week I had the benefit of attending the Inman Connect conference in the USA. I like getting to Inman each year; it’s a great way to keep up to date with new technologies, trends and evolutions in best practice which are relevant to the real-estate sector. This year was no different, so I thought I would share some of the things I thought were most interesting. I’ll be sharing my notes over two parts – the first part explores what Bradley Inman calls ‘the Latte Vision’ and the second, which we will publish on next week’s blog, covers off on some of the new trends, apps and utilities that are starting to emerge in the US as must have’s and must do’s across the property sector. One of the key themes this year was what they call the ‘Latte vision’, where purchasing a property will eventually become as easy as purchasing a coffee. While I don’t really agree that buying or selling a property will ever be that streamlined you don’t need finance approval before buying a coffee, for example! , however, I absolutely agree with the philosophy that the property transaction can be made much more efficient. Digital document transfer, administration and signing is already happening to varying extents in Australia; US agents are arguably further down the track with applications like Docusign, Dropbox and, to a lesser extent, Dot Loop, firmly entrenched in the their work flow. In a more practical sense, the ‘Latte Vision’ means more than moving to a paperless transaction environment; it means that a large amount of the paperwork ceases to exist. Speakers at Inman were looking forward to a time when buyers are financially pre-approved on site with a tap of their smart phone. At the same time their phone transfers vital details like contact details and preferences back to the agent. Their mobile device would also download the latest research, comparable sales, brochures and neighbourhood information. Documents are created and controlled in the cloud, pre-populated with cross referenced data sourced from a variety of databases. Signatures are digital and documents can be executed on any platform that has access to the internet be it a mobile phone, tablet or computer . Bradley Inman gives an entertaining summary of his Latte Vision here. From a personal level though, he seems to gloss over, or miss completely the inherent complexities involved in a real estate transaction, the role of the agent as an intermediary and consumer mistrust of what can be seen as privacy invading technologies. These factors are going to be significant hurdles to the Latte Vision. Additionally, there are other regulatory obstacles – banks need to be comfortable with digital signatures and transfer, and we need to be sure that these digital documents are completely enforceable. Not only would a paperless transaction be more efficient, it would also be more secure and help to minimize the risk of fraud digital records are much easier to cross reference and data mine . Some elements of the Latte vision are already here, some are just around the corner, and some might be just fanciful thinking for the foreseeable future. What is certain is that the way real estate is bought and sold is already changing. To make progress here in Australia, the first steps will involve greater acceptance of digital documentation and digital signatures. We need to see greater collaboration between the banking, insurance, legal and real estate sectors, and also of course with State Governments who administer the titles. Cross referencing data sources and digital transfer of information will be a critical element in improving efficiencies of the transaction. Agents who have jumped from the analog to the digital age early have gained some serious competitive advantage for themselves. For those looking to gain the first mover advantage here in Australia it’s not too late it would be worthwhile checking out some of the trends and applications I have outlined below and look up your own US case studies. When technologies are moving this fast, it becomes hard to catch up if you get left behind. From a completely different perspective, another speaker was direct in his cynicism of the Latte Vision, reminding the audience that you can dominate social media, be well and truly into the cloud and fire off digital documents all day long, but the secret to a successful business is always going to be hard work. I think the secret sauce will ultimately involve both!

US house prices are once again on the rise

CoreLogic RP Data’s parent company released their November House Price Index HPI this week, providing an up-to-date assessment of housing market conditions in the United States. The CoreLogic HPI provides the most authoritative assessment of how house prices are changing across the United States. The November results provide a further positive indicator that the US housing market, and for that matter, the US economy, is emerging from a long down turn. Keeping in mind that house prices peaked in the US way back in 2005, and it was the ongoing cumulative declines in home values and subsequent mortgage defaults that were largely the catalyst for triggering the Global Financial Crisis in late 2007. Overall, according to the HPI, house prices fell 33.3% from the market peak to the market trough, which was in February 2012. Since this time, US housing prices have recovered by 9.6%; however prices remain well below their 2005 peak. The rate of annual growth is now tracking at 6.3%, which is the highest annual gain since June 2006. In their latest ‘Market Pulse’ report I highly recommend you download it if you are interested in the US housing market and economy – available here: http://www.corelogic.com/about-us/research.aspx CoreLogic highlight the start of the housing market recovery can be tied to a few different factors. Most important is the decline in the number of REO real estate owned ie bank owned properties and the lack of inventory in the current market. REO sales are down about 20% compared to the previous year and the number of homes for sale is low due to what CoreLogic describes as the ‘lock out phenomenon’, whereby potential sellers are blocked from the market due to the fact that their debt level is higher than their property value. These buyers are locked out because, in most cases, they need to sell at a high enough price to extinguish their debt as well as create some equity for their next home purchase. As home prices rise, CoreLogic expects the tight for sale supply to ease. Another positive factor for the US market is the fact that transaction numbers are also on the rise. The number of home sales was up 6% in 2012; the first time the annual number of sales has increased since 2005. Overall, the improving US housing market should bode well for the US economy and global confidence levels. The fact that more homes are selling also implies that confidence levels are improving as the US economy starts on a long road to recovery. As an aside – below is the updated trajectory graph showing how US home values and Australian home values have behaved post peak. While the Australian market was following the trajectory of the US downturn quite closely over the first sixteen months after the market peak, it is very clear now that the Australian market has stabilised much earlier than what transpired in the US.

Negative gearing and its impact on the housing market

In its most simplistic form, negative gearing for investment housing allows investors to deduct their losses against their personal taxable income. These losses may occur when the investor incurs costs such as interest on a home loan as well as maintenance and other small expenses on an investment property. However, it is important to note that negative gearing is not unique to the property asset class; it also applies to businesses and shares in Australia. The most important thing to realise about asset negative gearing is that it is fundamentally off-setting a loss. Although you can claim that loss on your tax return, the investor must carry the cost of that loss throughout the year. Ultimately, when investing, most purchasers would be hoping that rental rates increase over time and result in the asset moving from a loss-making one to an income producing one. It is also important to note that between September 1985 and September 1987, negative gearing laws were changed. The government quarantined negative gearing interest expenses on new transactions. As a result, investors could only claim interest expenses against rental income, not other income. Given that negative gearing provides a benefit to investors, we look at the impact these changes had on the investment market over the two-year period. The first component is the impact the changes had on the rental market. According to the rental component of CPI data, rents across the capital cities rose by 21.8% over the two years to September 1987 the period during which negative gearing laws were changed . The increase in rents was most pronounced over the period in Sydney 26.1% and Perth 31.1% . As a comparison, over the two years to September 1985, rental costs rose by a lower 17.0%. The data clearly shows that rental growth was present over this period and it was greater than it was over the two year period directly preceding it The above chart shows the period for which the negative gearing rules were changed and are bolded black . Here you can see that rental growth was well above average, particularly recent averages, but it was not unprecedented with rents growing by a greater amount on an annual basis in late 1982 and early 1983. Another important determining factor is the demand from investors over this period. Unfortunately the Australian Bureau of Statistics does not provide information on the number of loans to investors; rather it provides the total value. The total value of investment finance commitments in September 1987 was 41.5% higher than in September 1985. These figures seem to suggest that at that time there was no weakness in demand for investment housing however, a clearer outcome would be apparent based on the number of loans rather than the value. The reason why negative gearing was reinstated in September 1987 was that it was proclaimed that rents rose sharply on the back of a fall in housing market investment. However, it doesn’t look as if investment in the housing market dried up throughout this period. Rents clearly did rise quite sharply throughout as demonstrated. Many in favour of removing negative gearing from property say that it should occur due to the fact that housing is an unproductive asset class. My argument is that given that housing provides shelter, if investors don’t purchase these assets, it would then be the responsibility of the Government to provide this shelter. Ultimately, that would mean that anyone that pays taxes would be funding housing for those who can’t afford it themselves. One of the arguments against negative gearing is that the tax deductions afforded to investors in the housing market reduces government revenue. However, if investors did not provide shelter to those that can’t provide it to themselves, government revenue would already be reduced due to the fact that this responsibility would fall on the Government. If we look at the recent Australian Bureau of Statistics ABS dwelling approvals data, it is interesting to see just how much of the new housing supply is created by the private sector as opposed to the public government sector. According to the ABS dwelling approvals series which began in July 1983, between July 1983 and October 2012, 4,355,266 dwelling approvals have been given to the private sector compared to just 228,843 to the public sector. Over the last 29 years give or take a few months , public housing approvals have accounted for just 5.0% of all dwelling approvals. This is less than 8,000 approvals by the public sector each year! Over the 12 months to October 2012, 145,515 dwellings approvals were granted to the private sector 98.6% compared to just 2,065 to the public sector 1.4% . The most recent Census data shows us that of those homes occupied, 29.6% are rented investment properties . Based on this data, if we assume that without the private sector building homes for investment purposes, the public sector would have to account for 29.6% of all dwelling approvals to cover those in rental accommodation. Over the past 12 months this would have equated to 43,684 dwelling approvals. If we also consider that the median home price across Australia as at October 2012 was $386,000, and if the Government had to buy the land and build 43,684 homes, this would cost the Government of the day $16,861,900,480 based on the number of approvals and the median home price. Of course this is a rather simplistic calculation and if the Government were to build homes on their own land it would cost them less as that figure includes land and building. Also, it is unlikely that private investment in residential housing would cease without negative gearing but I would expect that it would fall. The most recent taxation statistics data shows that over the 2009-10 financial year, $4.81 billion in net rental deductions were claimed by taxpayers. In order for the Government to break even to allowable deductibles from tax returns they would have to be building those 43,684 homes at a cost of $110,100. Based on the current median home price across the country at $386,000, they would have only been able to build 12,461 homes over the past 12 months or 8.4% of the total building approvals over the past year. It should be noted that not all new builds are for investment purposes but if we assume that 29.6% are there is a significant short-fall. When you look at these figures it is obvious why negative gearing is unlikely to be removed. Whether the removal of negative gearing impacted investment or not, and whether it lead to an increase in rents is a secondary concern relative to how much it would cost the Government to supply public housing for the almost 30% of Australians that don’t own their own home. These figures are not to suggest that if in the case negative gearing was removed, there would be no investors in the market however, the appeal of negative gearing is part of what attracts many investors to the market. Without negative gearing it is likely that there would be fewer investors and therefore less private developers delivering new homes coupled with a greater need for the public sector to provide housing. The flow on effect may also be that there would likely be lower demand for housing credit. Although some proclaim removing negative gearing would cause house prices to fall, I would expect that new housing supply would be even tighter as developer’s struggle to achieve pre-sales for new development, this may in-turn force prices higher than they otherwise would be. By looking into the figures in more detail, it makes good economic sense for the government to allow housing investors to negatively gear their properties so that the significantly greater cost of providing social housing is not borne by the Government and ultimately the Australian taxpayer.

Resources sector propped up by eleven mega projects

With the mining sector and commodity prices such a topical issue at the moment for all the wrong reasons , it’s worthwhile having a look at the latest statistics regarding Australia’s resources and energy sector. As you can see from the Reserve Bank’s ‘Commodity Price Index’ below, non-rural commodity prices are down 21.6% since peaking in July 2011 the non-rural component of the index includes prices for base metals and other resources, while rural commodities include agricultural items . The fall in commodity prices is one of the primary reasons why Australia’s terms of trade the ratio of export prices to import prices have peaked, as can be seen in the graph below taken directly from the RBA’s latest Statement on Monetary Policy . While the fall in commodity prices and the terms of trade appears to be quite glum news, look at how high the indicators are compared to their long term average. Despite falling by nearly 22%, the non-rural component of the Commodity Price Index remains 125% higher than the long term average. The slowdown in commodity prices can be tied back to the slowdown in the Chinese economy, where economic growth has moderated from around 15% pre-GFC and will likely end the 2012 year around 7.5% according to the OECD. The OECD are also projecting an improvement in Chinese economic growth over 2013, with a growth forecast of 8.5%, suggesting we are likely to see at least a stabilisation in Chinese resources demand, if not some level of growth. With so much riding on the mining sector, the release of the Bureau of Resources and Energy Economics BREE ‘Resources and Energy Major Projects’ publication last week provides a timely update on key economic variables and the investment pipeline for the sector. The latest update from BREE highlights the changing landscape for resources and energy related projects; there are eleven fewer committed projects in the pipeline since April 2012 due to some projects being completed , however the value of committed projects has increased by around $8 billion, which is an historic high. Another key point from the report is the significant proportion of projects which are classified as ‘mega projects’, i.e. those projects worth at least $5 billion. There are eleven mega projects at the committed stage, which account for 76%, or $201 billion of the total value of currently committed projects. Further to this, the vast majority of mega projects relate to projects involved with the liquefied natural gas LNG sector, as can be seen in the graph below, accounting for the top seven most significant committed investment projects. Australian resources projects have a lot riding on the natural gas sector at a time when price pressures from the oil and gas industry in the US have been seen a significant competitive intensification and will likely place further downwards pressure on gas prices internationally. At the same time there have been local cost blowouts which are causing the industry to be increasingly uncompetitive on the world stage. According to BREE, the cost increases are related to skilled labour shortages, the high Australian dollar, and transport costs, as well as some scope creep across the projects. Clearly, the resources sector has some challenging times ahead and there will be subsequent headwinds faced by Australia’s economic prosperity; it’s no wonder the Reserve Bank are looking towards other industry sectors to fill the economic hole that is being left by the downturn in the resources sector. While the news appears to be pretty glum across the resources sector, the downshift is coming from an ultra-high base and there is still a huge amount of resources projects that remain committed to, as can be seen in the map from the BREE report below.

Why does Sydney have the most expensive housing market?

Sometimes when people try to answer this question, they point out that more expensive property prices are offset by higher wages in Sydney; and this argument is, at least to some extent, true. Sydney wages are higher, but not to the same extent as property prices compared with other cities. Based on data released by the Australian Bureau of Statistics this week, the gap between Sydney and Melbourne wages is only around $5,000 9.2% per annum, Brisbane is fairly similar, with wages being $5,100 9.4% lower per annum. Perth wages are roughly on par with Sydney’s, showing a $490 0.9% difference. The largest gap between Sydney wages and the other capital cities is apparent in Hobart where the difference is a more significant $10,500 19.3% per annum. The data released by the ABS is unfortunately quite lagging, being current to June 2010. To compare apples with apples, we have provided median dwelling prices from June 2010 to highlight what might be described as some inequity of dwelling prices when we compare Sydney incomes with dwelling prices. Looking at the differences between average wages and median dwelling prices, the only capital city where the comparison of incomes and dwelling prices is roughly equitable is in Melbourne. Melbourne dwelling prices and incomes are roughly 9% lower than Sydney’s. A more up to date look at current dwelling prices shows that in October this year, Melbourne’s median dwelling price is now 11% lower than Sydney’s. Looking at Australia’s third largest city, Brisbane, shows that incomes are 9% lower than Sydney’s, but dwelling prices are 15% lower. Since June 2010 the gap between Brisbane and Sydney dwelling prices has widened to nearly 25%. Adelaide dwelling prices are 25% lower than Sydney’s while wages are tracking 17% lower. Based on median prices to October 2012, the gap between Sydney dwelling prices and Adelaide’s has widened to 30%. Average wages/salary’s across Perth are only 1% lower than Sydney’s but median dwelling prices are 7.2% lower. The October median dwelling price data now shows Perth dwellings to be 13% more affordable than Sydney’s. The gap between Sydney and Hobart wages and prices is the largest of any city, with Hobart wages averaging 19% lower than Sydney’s, however, dwelling prices were getting close to being 40% lower than Sydney’s back in June 2010. More recent October data shows the median dwelling price in Hobart to be 43% lower than Sydney’s. The average wage in Darwin is only 2% lower than Sydney’s, however, median dwelling prices are 10.5% lower. Darwin is one of the only cities were the gap between median dwelling prices has narrowed since 2010 a reflection of the recently strong growth conditions in Darwin , with the Darwin median dwelling price recorded at 8.3% lower than Sydney’s median dwelling price in October 2012. Finally, in Canberra, the average wage/salary is 6% higher than Sydney’s, making Canberra Australia’s highest paid capital city. While incomes are higher than Sydney’s, dwelling prices were 13% lower than Sydney’s back in June 2010. Based on the October median price data, Canberra dwellings are now 7.5% more affordable than Sydney’s. The question still remains, though, why are Sydney prices so much more expensive than other capital cities. Like any pricing related question, the answer often comes back to the relationship between demand and supply. From a demand perspective, Sydney has the largest population of all the capital cities and the second highest level of population growth based on raw numbers rather than percentage change . New South Wales also attracts the largest number of overseas migrants. From a supply perspective, the inefficiencies surrounding land release and development across New South Wales has resulted in an insufficient level of new dwelling construction, creating a housing market which is undersupplied. The undersupply of housing tends to place some upwards pressure on prices. Other reasons, apart from the higher incomes argument, likely come down to a handful of other factors. Geographically, development and urban expansion in Sydney is curtailed by the large tracts of national park and the large number of waterways located across the Sydney metro region Sydney is one of Australia’s most mature housing markets. The long established inner city and coastal areas tend to push the overall median prices up. In fact, the outer western and northern fringes of the Sydney metro region provide some of the most affordable capital city housing markets across the major capitals. Another factor is the high cost of vacant land across Sydney, which is much higher than any other capital city.

Confidence in Australia’s housing markets is gathering pace

The confidence level amongst Australian consumers as measured by the Westpac-Melbourne Institute Consumer Sentiment Index has been on an upwards trend since April this year, and over November the Index recorded a sharp rise to reach the highest level since April 2011. An easy way to interpret the index is when the reading is over 100, optimists are outweighing pessimists and when the index is lower than 100 pessimists are outweighing optimists. In November 2012, the Consumer Sentiment Index was showing a value of 104.3. I have found measures of consumer confidence to be one of the most important indicators for the housing market, with the index showing an 85% correlation with the number of transactions in the housing market. To put it simply, when consumers are lacking in confidence, transaction volumes tend to be low and when confidence is high, the number of home sales follows suite. Confidence readings aren’t the same across all of the states. In fact, Queensland, South Australia and Tasmania are continuing to record index values below the 100 mark, although each of these states has seen an improvement in the confidence reading. The most optimistic states are New South Wales, Victoria and Western Australia, where the index is now tracking higher than 100 note the index is not available for the Territories . Interestingly, the Confidence Index has moderated in Western Australia, most likely a response to a weaker resources sector, while New South Wales and Victoria are the primary drivers of improving confidence levels. One of the subsets of the Consumer Sentiment Index is the ‘Time to Buy a Dwelling Index’, which has shown a significant improvement nationally and across each of the States. The national index is now showing the highest reading since September 2009 and most of the state level indices are approaching their 2009 highs as well. The indicators are further affirmation that the Australian housing market has moved out of the down phase of the cycle and there is mounting evidence that conditions will continue to improve. Average selling time has shown an improvement, so has the level of vendor discounting and auction clearance rates are holding firm above 50%. Additionally we have seen values on an improving trend since the beginning of June. Despite the October fall in the RP Data-Rismark Home Value Index, it is looking like the November reading will be another positive month for the capital city housing market, with values up 0.3% over the first 21 days of November.

First home buyers prefer Western Australia and Queensland

First home buyers have been stepping up their activity in the market over recent months, with the Australian Bureau of Statistics housing finance commitments data showing a 14.3% jump in the number of first time buyer loans over the September quarter of 2012 compared with the September quarter of 2011. First home buyers now comprise 19.3% of all owner occupier housing finance commitments, which is slightly higher than the decade average of 18.5% The number of housing finance commitments for first time buyers has been very much influenced by the specific concessions and stimulus available at the state level. For example, the stamp duty concession that was available in New South Wales up to December 31st 2011 resulted in a surge of first time buyer activity leading up to the cut-off date see black trend line below . Similarly, in Victoria, the expiry of the state level First Home Buyers Bonus on July 1 saw a similar surge in activity leading up to the expiry of the stimulus red trend line in graph below . More holistically, the First Home Buyers ‘Boost’, which was provided by the Federal Government in late 2008 through to the end of December 2009, saw a record number of first home buyers flow into the housing market. First home buyer, as a proportion of all owner occupier housing finance commitments, peaked at just over 30% in May 2009. The response from first home buyers to the concessions and stimulus demonstrates how much pent up demand there is across this important segment of the housing market. Affordability constraints are a significant factor for first time buyers, and a stamp duty saving or grant clearly makes a big difference to their sentiment towards a home purchase and their willingness to enter the market. On a proportional basis, first home buyers are most active in Western Australia and Queensland. It seems that housing prices have little to do with attracting first home buyers to a market, with the most affordable states for housing, Tasmania and South Australia, attracting the lowest proportion of first time buyers. Common sense would dictate that employment opportunities would be a factor in attracting first home buyers, and that case can absolutely be argued in Western Australia, where there were over 68,000 new jobs created over the past year. That isn’t the case in Queensland, which has shown a fall of nearly 43,000 jobs over the past year. One explanation for the popularity of Western Australia and Queensland for first time buyers is the fact that these two states attract the largest proportion of interstate migrants you can see our wrap on population growth and interstate migration in a recent blog here . While first time buyers are becoming more active and comprise a larger than average proportion of the owner occupier market, the raw numbers remain low from a historical standpoint, with the September number of first home buyer finance commitments tracking almost 17% lower than the five year average.

The ins and outs of indices

With the other major index providers now releasing their September quarter data, we can start to see a firm pattern of recovery emerging in Australia’s housing markets. The ABS released their stratified median series on the 6th of November showing a 0.3% rise in capital city house values over the September quarter, following a 0.6% increase in prices over the June quarter. Similarly, APM showed a flat September quarter 0.0% after reporting a 0.4% rise over the June quarter. Closer to home, the RP Data-Rismark results showed house values were actually down over the June quarter by -1.4% and up 2.2% over the September quarter. The flow of data brings to mind how, a few months ago, there was some commotion from a particular housing market commentator who presented a strongly worded case that the RP Data-Rismark Indices were unreliable and inaccurate. It turns out, that was much kafuffle about nothing. Being the earliest reporter on housing market conditions the RP Data-Rismark series are published one day in arrears, unlike the ABS which took 37 days to publish their September results , it is easy to become a target when reporting on a change in market conditions. At the time, of course, we vigorously defended our methodologies, pointed to our on-line white papers, highlighted the due diligence and independent auditing of our data and infrastructure and the peer review of the index construction. We went into detail about our rate of data collection and attribute coverage. We even put out an update on this blog addressing some of the misperceptions. An extract of the assertions from one of the media articles is below taken from Australian Broker online . Moving on… its worthwhile re-visiting the differences between the RP Data-Rismark Home value measures compared with the ABS. We have had some questions on why companies would purchase a subscription to our indices when the free ABS index reports a similar result without cost. The graph below shows the two measure move virtually in synch over time with some smaller differences over shorter time frames. Without going into a lot of detail on the differences in methodology we have documented the benefits of a hedonic measure over a stratified median in the past on this blog , some of the key points to highlight are: The RP Data-Rismark measure is much timelier, being published just one day in arrears. For those who need timely data to factor into their decision making, strategies and market communications, no other index is this early to market. The RP Data-Rismark measure is much more specific to housing types, reporting on the performance of houses, units and combined ‘dwellings’. The different product types show quite different trends and performances. Granularity – the RP Data-Rismark indices are available across smaller geographical boundaries. We publish the headline results at the capital city and combined capitals level, however the index is also calculated across statistical divisions and statistical subdivisions nationally. The methodology can also be applied to customised boundaries where required. Length of time series – the RP Data-Rismark hedonic measure extends back to 1995 for most capital cities. Other indices within the RP Data-Rismark suite of index products we produce everything from simple median prices and stratified medians, through to repeat sales indices show an even longer time series. Measures by price point – The index can also be reported across broad price segments; the RP Data-Rismark stratified hedonic index measures value changes across the most expensive, most affordable and middle priced capital city suburbs. Authority and credibility – the RP Data-Rismark index is without doubt the most heavily relied upon index throughout the Government, banking, finance and economic sectors. Transparency – the RP Data-Rismark Index methodology has been independently audited, as has the data collection and infrastructure the index is runs upon. White papers on the index construction are available here. Portfolio tracking – the index was designed specifically to track the risk and return profile of a diversified property portfolio and enable financial markets to use the index as benchmark for trading. You can view the daily index movements at the Australian Securities Exchange and also at the RP Data web site as well as on Bloomberg and Reuters services. For a complete overview on the RP Data-Rismark Home Value Index, I can recommend you have a look at this blog we provided a few months ago.

Shares or Property – what’s the better performer?

Ahh, that old chestnut… It’s a question that is often asked. What performs better? Shares or property? On a capital appreciation measure over the past decade, the past half-decade, and over the past three years, residential property has well and truly outperformed shares. Over the most recent twelve month period shares have outperformed the housing market. It’s important to note that the share market has shown periods where capital gains have been substantially higher than what has been achieved in the housing market. As can be seen in the ‘rolling annual change’ graph below, the annual growth rate in the ASX 200 has been has high as 39% over a twelve month period the year ending February 2010 ; share prices have also fallen by more than 40% in the space of a year, which is what happened during the GFC the ASX 200 fell by 42.7% over the year ending November 2008 . Capital city dwelling values haven’t shown anywhere near the same level of volatility. The largest rise over any twelve month period, based on the RP Data-Rismark eight city aggregate index, was 21.0% over the year to May 2002, and the biggest fall was recorded just recently when dwelling values fell -5.3% over the year to May 2012. While the volatility of the share markets may appeal to some, it is the stability and resilience of residential housing that is likely to be one of the key reasons why investing in the housing market is a popular choice for mum & dad investors.

The BIG spring auction test

The housing market across Australia will be put to the test this weekend with one of the biggest auction week’s taking place since December 2010. There are 2,353 auctions planned to be held this week, with the vast majority scheduled for Saturday, October 27th. There have only been six other occasions since early 2008 where the number of scheduled auctions has been this high. The last time we recorded an auction market close to this size was over the week ending April 1st, 2012, when housing market conditions were considerably weaker than what they are now. The clearance rate over that week was 49%. More recently, the weighted average auction clearance rate across the capital cities has been tracking around the 55% mark, with the largest auction market, Melbourne, recording a clearance rate of 60% or higher over three of the past four weeks. [Edit note: Melbourne's clearance rate was revised down to 57.7% for last week. Based on the more recent data, Melbourne's clearance rate was recorded at 60% or higher over three of the past five weeks. See comments section for more details.] Our other vendor metrics, which include the average number of days it takes to sell a dwelling and the average level of vendor discounting, have also shown an improving trend, suggesting the buyer and seller expectations are starting to find some common ground. Vendor discounting the percentage difference between the original listing price of a property and the ultimate selling price has been consistently improving since July last year. This can probably be attributed to both vendors setting more realistic asking prices for their properties, and buyers losing some leverage in their negotiation position as market conditions show signs of a recovery. Average selling time has stabilised at around the two month mark, a slight improvement from last year but nothing to write home about. Dwellings were averaging 58 days to sell in August this year and 62 days at the same time last year. The results from this weekend’s auction market will be closely watched. I’ll update the blog on Sunday with our preliminary results. On Thursday, when we have our final results for the past week, I will update the blog again. Note: RP Data publishes preliminary auction clearance rates every Monday, based on an average collection rate of about 60% of all auctions. By Thursday of each week we finalise our clearance rates, typically averaging a collection rate between 80% and 90% of all auction’s held. Weekend update: Auction markets held firm over the weekend with the preliminary weighted average clearance rates across the combined capital cities recorded at 54.6%. Both Melbourne and Sydney recorded a 59% success rate based on the preliminary data. Thursday update: The final clearance rate last week was 61.5% in Melbourne and 55.6% in Sydney, both solid results. Across the capital cities, the weighted average clearance rate was 54.6%. RP Data collected results for 87% of all Melbourne auctions and 80% of all Sydney auctions; across the capital cities are collection rate was 83%.

Has the market entered a recovery phase or are we seeing a temporary improvement in housing market conditions?

Based on daily movements in the aggregated RP Data-Rismark Home Value Index updated daily at www.rpdata.com, www.asx.com.au, Bloomberg & Reuters covering Australia’s five key capital cities, Australia’s housing market reached a recent trough on May 30 of this year after values peaked 1.5 years earlier and 7.7% higher. Since the recent low point in the index, dwelling values across the five city aggregate index have gained 2.5%. As can be seen from the table below, each capital city reached their respective market peak and eventual trough at different times. Perth’s housing market peaked the earliest May 9, 2010 , followed by Brisbane May 13, 2010 with the other major capitals finding a high point in October or November 2010. Additionally, the recovery time frame and duration of the correction varies from city to city. The cities where housing markets were comparatively weaker recorded an earlier peak, while the stronger markets Sydney and Melbourne saw values peak later in the cycle. The combined Brisbane/Gold Coast market saw values consolidate over a two year period, with values falling by 12.9%. Adelaide’s housing market correction ran for 1.8 years, with values down 8.4%. In Melbourne, values fell by 11.1% over 1.6 years, Perth recorded a 12.5% correction over 1.5 years and Sydney’s housing market saw the smallest correction, with values down 6.8% over a 1.5 year period. An interesting development in the most recent set of daily indices data is that the upwards trend in values that was evident from the end of May has taken a turn. The five city aggregate index reached a recent peak on the last day of September; over the first sixteen days of October dwelling values have retraced 0.6%, hinting that the October results may finish in negative territory. If the month of October does see the monthly index move back into the red, it will be the first fall since the five city index fell by 1.4% over the month of May 2012. The market dynamic for each of the capital cities included within the daily index is provided below. Two graphs are presented for each city; the recovery phase ie market trough to October 16 and the longer cycle of values since June 30, 2009 which provides a depiction of when each market peaked, the duration and magnitude of the correction and the start of what seems to be a recovery. Has the market entered a recovery phase or are we seeing a temporary improvement in housing market conditions? If you have a view either way, feel free to make comment. A further note: a rolling twelve month time series of the daily index is now available for download http://www.rpdata.com/research/back_series.html .

Housing demand is rising at the fastest rate since December 2009

The latest demographic update released by the Australian Bureau of Statistics late last month provides an overview on population growth and migration flows up to March 2012. The data revealed the rate of population growth, at 1.49%, was the highest rate of growth since the last quarter of 2009 and net overseas migration was at the highest level in two years, with just over 197,000 net overseas migrants arriving in Australia over the twelve months to the end of March. That’s 18% higher than what was recorded a year ago, highlighting how significantly Australia’s rate of net migration growth has turned around. Every state has seen an increase in the level of overseas migration, with New South Wales and Victoria attracting the largest raw numbers. Western Australia has seen the most significant uplift in overseas migrants, with the net number of new residents from overseas up 49% over the year to March 2012. The trends in interstate migration are the most interesting, at least in my view. Phil Lowe, the Deputy Governor of the Reserve Bank, included a great series of graphs in his recent speech in Hobart speech is here that makes it very easy to compare the interstate migration trends below . Interestingly, Queensland has never had a net outflow of residents and New South Wales has never had a net inflow and the net inflow into the state is once again ramping up. Western Australia is also seeing a strong surge in net flows of new residents over the border, a factor which is clearly being influenced by the resources sector. Historically, Queensland has attracted the lion’s share of interstate migrants, but since 2010 Western Australia and Queensland have been recording fairly similar numbers of net interstate migrants. Stronger population growth is a significant factor for the housing market because it creates demand for housing. The weakness in Tasmania’s housing market can partly be explained by the fact that the state has been seeing an exodus of residents to other states and territories that has been getting progressively worse over the past year. Looking forward, we can expect population growth to continue to increase across Australia. If the Department of Immigration forecasts are anything to go by table below , we are likely to see higher levels of population growth over the coming years on the back of further overseas migration. More information on the forecasts can be found in the latest IMMI Outlook for Net Overseas Migration.

Learn how to make confident property decisions at Realestate Masterclass

Television property guru Andrew Winter will provide his secret tips to buying and selling success at a series of Realestate Masterclasses organised by Leader/News Local/Quest/Gold Coast Bulletin/Sunday Times. The Realestate Masterclasses, which are supported by the Commonwealth Bank, will look at how the current market is performing, local hotspots – for investors, first home buyers and prestige – new ways to save and structure on your mortgage and how to get the best price as a buyer and a seller. “There is a lot of uncertainty about the property market at the moment, with questions about the global economy, selling conditions and local interest rates,” says Andrew, the host of Selling Houses Australia on Lifestyle and a former real estate agent with more than 25 years experience. “But buying and selling property is really about research and preparation and knowing what to expect so you can make good decisions and not end up featuring on a reality TV show!” The Realestate Masterclass has been created to answer your questions about how to succeed in the property market and to provide practical tips and advice that can be used immediately. “We want to increase people’s knowledge and confidence about buying and selling property because regardless of whether markets go up or down, there is always something you can do to reduce your risk,” Andrew says. Other speakers will include senior research analysts from RP Data, Tim Lawless and Cameron Kusher and the Commonwealth Bank. Attendance is free, but space is limited so bookings are essential. Go to http://www.realestatemasterclass.com.au Every attendee will receive a Realestate Masterclass magazine including a suburb by suburb analysis of local prices. The Realestate Masterclasses will be held at Melbourne – Doncaster Sunday October 14 3.30pm Village Cinema Westfield Doncaster, Shop 2010 – 619 Doncaster Road, Doncaster, VIC, 3108 Melbourne City Monday October 15 5.30pm Event Cinemas 131 Russell Street, Melbourne, VIC, 3000 Sydney – Parramatta Sunday October 21 3.30pm Event Cinemas Level 4 159-175 Church Street, Parramatta, NSW, 215 Sydney – City Monday October 22 5.30pm Event Cinemas 505-525 George Street, Sydney, NSW, 2000 Gold Coast Sunday October 28 3.30pm Event Cinemas Robina Town Centre, Cnr Collyer Quays Lido Promenade, Robina, QLD, 4230 Brisbane Monday October 29 5.30pm Event Cinemas Indooroopilly Shopping Centre, Moggill Road, Indooroopilly, QLD, 4068 Perth Monday November 5 5.30pm Event Cinemas 57 Liege Street, Innaloo, WA, 6018 Adelaide Monday November 12 5.30pm Event Cinemas Level 3, Westfield Marion. 297 Diagonal Road, Oaklands Park, SA, 5046

Brisbanites and Canberrarians become active

If you want an example of how stimulus sensitive the Australian housing market is, look no further than Brisbane or Canberra. Transaction volumes absolutely spiked in July. In Brisbane, our estimate of transaction numbers surged by 52% compared with the June reading, and in Canberra the number of home sales was 41% higher than sales in June. The last time month-on-month transactions were that high in Brisbane was back in March 2010, and for Canberra the number of sales in July hasn’t been that high since March 2011. Of course, the surge can be attributed to the changes in stamp duty rules in both Queensland and The Australian Capital Territory. The large jump in Queensland can also be attributed to the pre-concession slowdown where buyers put off their purchase until the savings became available on July 1. Queensland brought back the ‘Transfer Duty Home Concession’, which provides a concessional stamp duty rate of 1%, up to a value of $350,000 for owner occupier purchasers. This is separate from the first home buyer stamp duty concession, whereby first time buyers pay nil stamp duty on purchases up to $500,000. The changes can save buyers up to $7,000 when they purchase a home. Under the ACT’s ‘Taxation Reform Plan’ stamp duty is on its way to being abolished completely. Although the reforms became ‘live’ on June 6th of this year, the effect of the stamp duty discounts are certainly clear based on the July numbers. A statement from the ACT Government spells out their views on stamp duty: “Stamp duty is unfair, and poses a significant extra cost burden on people buying a home. It will be phased out progressively over twenty years. From tomorrow, stamp duty will be decreased, making buying a home cheaper. Stamp duty on a $500,000 home, for example, will fall by $2,450 immediately and by more than $7,000 over five years.” The table below outlines the stamp duty savings from the new scheme see the document here . With the Canberra median house price at $545,000, a saving of more than $2,450 is a reasonable incentive. A similar phenomenon was evident New South Wales, when the State Government announced stamp duty exemptions would cease on January 1st 2012. As a result, there was a 23% surge in buyer activity over the last quarter of the year compared with the September quarter. Of course, another example of a stimulus in the housing market is the recent interest rate cuts, which are a much broader based incentive. It is no coincidence that the housing market started to gain traction at the end of May, after the RBA cut rates by 50 basis points, and again in June, slicing a further 25 basis points off the cash rate. Since the end of May, capital city dwelling values have risen 3.1%; with the further rate cut in October, it is logical to presume that the effect will provide further momentum for dwelling values.

Go forth and save

The Reserve Bank’s bi-annual ‘Financial Stability Review’ is always a good read for anyone interested in domestic and overseas economic conditions. The Review is focussed on assessing Australia’s financial system and any potential risks to financial stability. Working to ensure a strong financial system and efficient payments system is one of the key objectives of the Reserve Bank, so their commentary and analysis in this publication provides an important insight about how the RBA is reading domestic and global economic conditions. For the time poor or less interested! a must read is the ‘Household Balance Sheets’ section which starts on page 37. One of the central theme’s running through the report is that Australian households are very much focused on saving; borrowing has slowed and is now more in line with income growth and households are choosing to repay their debt more quickly than required. The Bank is very much supportive of the higher household savings ratio households, on average, are currently saving about 9.5% of their disposable income , and in fact is actively encouraging Australians to save save save! The RBA attributes the higher savings rate to a number of factors. Firstly, there is a large cohort of the population who are actively seeking to rebuild their wealth post GFC real net worth per household has declined by 11½ per cent from its peak in 2007 . Secondly there has been a decline in the consumer appetite for risk which has resulted in a significant reduction of direct household exposure to equities down from 18% in 2007 to 8.5% in 2012 . In contrast, bank deposits as a proportion of total household assets have risen from 18% to 25% over the same period. With regards to the housing market, the RBA have reiterated that dwelling values have stabilised over recent months and their view of future growth in home values is relatively sedate: “While prices nationally have stopped falling in recent months, any future recovery is unlikely to produce housing price growth much faster than income growth, as was seen through much of the 1990s and 2000s, because that earlier period was one of adjustment to the structural decrease in nominal interest rates and liberalisation of the banking system.” Importantly, mortgage arrears appear to have peaked and have retracted slightly from their 2011 high which was just above 0.6% to move below 0.6%. The rate of mortgage arrears is low by international standards but high based on the historical levels recorded in domestically. The rate of mortgage arrears is highest in key areas of South East Queensland, with the RBA highlighting the Gold Coast, Sunshine Coast and Ipswich as regions where arrears rates have deteriorated. It is important to note that although mortgage arrears are comparatively high across these regions, the rate remains below 1.5% of all securitised mortgages. The RBA also highlights that some areas of Melbourne may start to see higher rates of arrears over the short term. “Although arrears rates on housing loans in Victoria are currently quite low, there is some chance they could rise, due to a potential oversupply of property in some segments, particularly inner-city Melbourne apartments and houses at the south-eastern fringe.” From a financial stability perspective, the Reserve Bank is of the opinion that the residential mortgage portfolios of the larger banks are geographically diversified enough that there isn’t likely to be any level of distress on the financial system related to mortgage defaults or distress. In summary, the latest Financial Stability Review provides a positive assessment of the Australian banking sector and household balance sheets. The international economy continues to provide some worries, however the RBA points out that that the banking sectors in areas outside the Eurozone are continuing on a gradual recovery. For Australian banks, international funding pressures appear to have eased and domestic deposits as a funding source are continuing to increase. The RBA is very much satisfied with the level of household savings and is openly encouraging households to continue their prudent behaviour. That’s not great news for the retail sector or housing market, as greater savings implies less spending. “Ongoing consolidation of household balance sheets would be desirable from a financial stability perspective, as it would make indebted households better able to cope with any future income shock or fall in housing prices.” Note: all graphs have been taken directly from the Financial Stability Review document published by the Reserve Bank of Australia.

How will the mining boom look a year from now?

The Bureau of Resources and Energy Economics BREE released their September quarter update on the resources and energy sector this week which revealed a fairly upbeat assessment of Australia’s resource driven exports sector. The BREE update highlights that prices for key Australian commodities are falling and further falls are expected. Providing some counterbalance to the lower prices is expectation that export volumes are likely to increase for several years to come at least. According to the report, “The net result is that the value of resource and energy exports in 2011–12 are expected to be 8 per cent higher than in 2010–11 and to total $193 billion”. The report goes on to forecast a 2 percent fall in the value of resources and energy exports in 2012/13 to $189 billion. A 2 percent fall isn’t too bad considering how steeply revenue has risen in recent times. The report comes at a time when the Australian resources sector is the centre of attention for all the wrong reasons, with prices for Australia’s two largest exports recording significant falls from their peaks. Iron ore prices, which were as high as $US180/tonne a year ago, fell as low as $US86/tonne earlier this month since that time prices have moved back above $US100/tonne and hard coking coal prices have fallen 25 percent since June to around $US150/tonne without any sign of an improvement just yet. Two things are worth highlighting before we go any further. Iron ore and coal both metallurgical coking coal and thermal coal are by far the most important resource exports for Australia, with the export value estimated to be worth about $111 billion over the 2011/12 financial year; that’s more than the value of all the other major commodities combined see graph below . Additionally, China is an extraordinarily important trading partner, particularly when it comes to Iron ore. China accounts for 18 percent of Australia’s exports, the largest proportion of any nation beating out the US 11 percent and Japan 8 percent . Focussing specifically on resource exports only, China’s share jumps to a whopping 41 percent approx. $46.6 billion of all resource exports out of Australia. Ten years ago China’s share of Australian resource exports was just 7 percent. With China such an important trading partner, particularly for iron ore see graph below showing value of iron ore exports by country , the economic fundamentals of China are intrinsically linked to Australia’s economic prosperity. BREE has put forward what seems to be an optimistic forecast for Chinese economic growth, suggesting the Chinese economy will grow by 8.5 percent in 2013 BREE are using the projections put forward by the IMF in their July World Economic Outlook. Most economists are putting Chinese economic growth at a lower 7.5 percent for 2013. Even at this lower rate of forecast growth, the rate of growth is still quite spectacular. The strong economic growth in China implies that demand for steel making ingredients iron ore and coking coal should remain robust despite the recent weakness in prices. BREE are forecasting an 8% increase in the volume of iron ore exports over the 2012/13 financial year and a 27% fall in the price of iron ore over the same time frame, providing a net reduction in iron export revenues of 16%. The markets for coal are quite different, with Japan being the major trading partner for both coking and thermal coal. The economic outlook for Japan certainly isn’t as strong as China’s with the IMF forecasting economic growth of just 1.5% in 2013 after 2.4% growth in 2012. Exports for thermal coal is driven by demand for electricity production and BREE expects increasing demand across Asia to support a 14 percent increase in thermal coal exports by volume next year and an 11 percent reduction in prices net increase of 11 percent export revenue for 2012/13 . Part of the demand increase will come from Japan where most of the nuclear power plants are being shut down in the wake of the 2011 tsunami. Australia is the world’s largest exporter of metallurgical coal; in 2012 BREE forecasts that exports of metallurgical coal will increase by 14 percent compared with 2011. The bulk of Australia’s coking coal is extracted from Queensland where it has just been announced mining royalties will increase from 10 percent to 12.5 percent for coal sold at between $100 to $150 per tonne a 15 percent royalty will apply for coal prices higher than that . BREE is forecasting a 12 percent increase in the volume of metallurgical coal exports over the 2012/13 financial year but a 28 percent reduction in prices, resulting in a net 15 percent decline in export value. The export commodities that are forecast to see the greatest rise in export value are Bunker Fuel up 112 percent on the back of significant price rises , LNG up 36 percent due to higher volumes and prices , Alumina up 29 percent due to higher volumes and prices and LPG up 15 percent . While the overall outlook for the resources sector isn’t quite as rosy as what it has been over the last couple of years, the forecast from BREE suggests much of the price falls will be made up by increases in volumes. BREE is also placing a large amount of faith in the IMF economic growth projections for China and a level of stimulus from the Chinese Government which may be overstated considering recent statements from the Chinese Government. Whether or not these assumptions prove to overly optimistic is yet to be seen. At the same time that we are seeing some weakness spread through the resources sector we are also seeing an increasing level of complexity and costs surrounding Government royalties and taxes on the sector. That’s not going to help Australia’s competitiveness or attractiveness during this softening of the commodities cycle.

Four reasons why Australia’s housing sector hasn’t responded to demand

The Reserve Bank released their September quarter Bulletin this week here which included a superb article outlining their research around supply side constraints across the capital cities of Australia. The report identifies four factors that are impediments to a responsive housing supply across the country: Complexity of the planning process which can create uncertainty, lengthy delays and risk for developers as well as significantly increase costs for developers. Provision and funding of infrastructure – gone are the days of the Government funding the costs of roads, utilities and community services out of the tax base. The report states “developers often fund at least half of new utility and transport infrastructure in Sydney, Brisbane, Perth and Adelaide”. Often the costs fronted by developers are negotiated across each project providing an uneven playing field and planning uncertainty. Land ownership and geographical constraints – fragmented land ownership across infill and greenfield locations makes it difficult for developers to identify and acquire sites that are appropriate for large scale development. Additionally the geographic constraints such as the large tracts of national park north and south of Sydney are identified in the report. Public attitudes towards infill development – the report specifically comments on infill developments being subject to community opposition which can result in non-approval, restrictions on development approval and a loss of project viability. One of the most revealing tables in the report compares the costs of greenfield development across each of the major capital cities. Indicative costs for developing a greenfield site in Sydney are more than three and half times what it costs in Melbourne. The imbalance in development charges provides a distinct insight about why new development has been so lack lustre in Sydney while at the same new housing supply has been very sufficient in Melbourne. The report is timely in the sense that the ABS also released their June quarter dwelling commencements data which showed that, despite a 4.6 percent rise in dwelling commencements over the quarter which was driven by a spike in the volatile ‘other’ sector which generally refers to apartments , new dwelling starts were down 10.8 percent over the year. The graph below, which tracks annual dwelling starts versus the annual change in population growth clearly highlights the lack of any response in housing supply to surging population growth between 2004 and 2008. In fact, as population growth read ‘housing demand’ surged new housing starts were trending downwards. More recently we are once again seeing population growth ramping up at a time when new dwelling construction remains weak. The third graph from the RBA report highlights how a comparably low cost and reasonably efficient land release strategy played out for Melbourne. Despite recording similar rates of population growth between Sydney and Melbourne, the number of land parcels released in Melbourne has been more than double what has been recorded in Sydney. The RBA authors of the report summarise their findings like this: “Given the difficulties involved in satisfying the large number of stakeholders involved in the housing supply process, it is likely that these important issues will remain on the policy agenda for some time.” I couldn’t agree more. Developing land in Australia is currently a tough gig it seems, and with most state governments looking to bolster their budgets it is hard to imagine any resolution to issues like infrastructure charges and levies any time soon. From another perspective, attracting population growth means that development needs to be facilitated if not encouraged by all levels of government. A larger taxation base has got to be a positive for most state governments at the moment given their financial positions.

Are the rich getting richer? Not in the housing market.

Most people who have any interest in the housing market will appreciate that the performance of home values can vary broadly based on a range of factors. Geographically, for example, we have seen Darwin values rise by more than 8 percent over the first eight months of the year while Melbourne values have fallen by 2.6 percent over the same time frame. Across the broad housing types there are differences as well, with unit markets generally showing stronger conditions compared with the detached housing market. We are also seeing significant differences across price segments in the market with the most expensive housing markets generally underperforming compared with the more affordable markets. Across the combined capital cities, the most expensive twenty percent of suburbs have seen values fall by -8.5 percent since the market peak compared with a -4.0 percent fall across the most affordable twenty percent of suburbs and a -4.4 percent fall across the broad middle 60 percent of suburbs. As can be seen from the graph above, the most expensive markets have outperformed the broader capital city average during the growth phases but underperformed during the corrections. Over the past five years the annual rate of growth across the most expensive segment of the market has been just 1.7 percent per annum compared with a growth rate of 2.9 percent per annum across the most affordably priced suburbs and 3.3 percent per annum across the broad middle priced suburbs. The trends across the price segments aren’t uniform across all of the capital cities. Brisbane and Adelaide are showing the opposite performance, with the more expensive price segments of the market returning a better result for dwelling values compared with the more affordable priced suburbs. This is interesting in the sense that Adelaide and Brisbane are also the most affordable mainland capital cities to be buying in Adelaide’s median dwelling price is $371,500 and Brisbane’s is $405,000 . The weaker performance in these markets can be linked with mortgage repayment pressures being felt across the mortgage belts of both these cities, particularly in South East Queensland where many of the most affordable suburbs in the region have shown a higher than average level of mortgage arrears. The performance across price segments highlights why it is so important to drill down below the capital city boundaries in order to truly understand housing market conditions. Prospective home buyers and sellers should be looking at the dynamic of the housing market from a localised perspective ensuring they are in tune with market conditions at both the macro and micro level. There are bound to be significant differences in how markets are performing.

Where is it more affordable to buy compared with renting? Some practical usage scenarios.

Get the complete and complimentary ‘Buy v Rent’ report and spreadsheet here: http://www.myrp.com.au/buyorrent This week RP Data released the Buy versus Rent report. The report turned out to be more popular than we expected – the number of people trying to download the free report and Excel spread sheet overloaded the servers that run the myrpdata.com web site which resulted in a slow load and problems downloading the files. Sorry to anyone who experienced difficulty. The load has now eased, so you shouldn’t have any problems accessing the site now and downloading the report and Excel file http://www.myrp.com.au/buyorrent . The report compares the costs associated with servicing a mortgage across four different scenarios: Paying off the principal and interest on a variable mortgage rate Paying interest only on a variable rate Paying off the principal and interest on a 3 year fixed rate Paying interest only a three year fixed rate The loan principal is based on a 90% loan to valuation ratio taken from the median value of a house or unit in the suburbs. The calculations are based on monthly repayments over a loan period of 30 years and the interest rates used are 6.15% discounted variable and 5.9% 3 year fixed . These costs are compared with the typical cost of renting in the suburb. It’s important to note, there are additional costs involved with owning a home which are not factored into the analysis costs of purchase such as stamp duty, legal fees, inspections etc, rates and maintenance are some examples , nor does the analysis factor in any capital growth involved within owning a home. The headline findings showed there were 238 suburbs nationally where servicing a loan was more affordable that paying the landlord based on the most popular principal and interest scenario with a variable mortgage rate. Based on an interest only loan with a fixed rate over three years the number of suburbs expanded to 1,759 suburbs nationally. Anyway… all these findings and detailed tables are available in the report which can be downloaded here for free: www.rpdata.com/buyorrent What I wanted to focus on here is the benefit of downloading the spread sheet also available without cost at the same location as above . For anyone with rudimentary Excel skills, this freely downloadable spread sheet is a great starting point to get a feel for the costs associated with renting or buying in any suburb around Australia. For those without those skills, I’ve provided a few tips on what to do below. The spread sheet can be sorted and filtered to zero in on the suburbs that best your lifestyle or budget. For those Excel novices you can get some further hints at http://www.exceltip.com/ For the first example, say you wanted to live within 20km of the Brisbane CBD and didn’t want to spend more than $100 per week more than what it costs to rent. Simply filter the list and voilà – here are the results: As another example, if you really wanted to live in a house in the Eastern Suburbs of Sydney and were wondering what the costs were with renting any buying, you can search the list like this: The scenarios you can investigate using this tool are pretty much endless. In the vast majority of locations it remains more affordable to rent a home than it does to service a mortgage. Broadly it is the unit markets where mortgage payments tend to be the closest or more affordable than rental payments. Similarly, at least within the capital cities, it is generally the outer ring suburbs that typically show the most suburbs that are more affordable to buy a home than rent one. Importantly we would encourage prospective buyers to undertake their own investigations. Every person’s circumstances are unique and the figures presented above are a guide only. There are always going to be differences across individual properties.

Which city has the most expensive land?

In real estate there is no truer commodity than vacant land. Houses and units inherently show a qualitative bias; the value of a house or unit is influenced by various factors such as the size of the home, the state of repair, the architecture, the attributes of the home such as number of bedrooms and bathrooms and whether the home has value added components such as a swimming pool or shed. The value of vacant land, on the other hand, is primarily influenced by geographic context and land area. Sure there are other factors which can affect land value such as the council zoning and the shape of the land parcel, however compared with a dwelling it is much easier to quantify and compare land values across regions. A simple way to do this is to use median land prices, however a median land price only shows the typical price for which a block of land sells; this measure takes no account of how big or small the block of land is. A much better way to measure the value of land is based on a rate per square metre. To illustrate this point, using the median land price measure shows Sydney to be the most expensive land market in the nation. Based on sales over the past twelve months, the typical block of land in Sydney sold for $283,500. Using a rate per square meter measure it is a different story. On this basis, Perth is the most expensive vacant land market with the typical vacant block selling at the rate of $555 per square metre. Sydney is the second most expensive market at $547 per square metre and somewhat surprisingly, Adelaide is the third most expensive at $486 per square meter despite having the second most affordable median sale price . The difference really comes down to the size of the blocks being sold. The median land area for vacant land sales in Adelaide is the smallest of any capital city at just 375sqm. So… despite being the most affordable mainland capital city based on median prices, on a rate per square metre basis, Adelaide land is actually relatively expensive. Conversely, the most densely populated capital city, Sydney, still has the third largest median land area across the major capitals at 544sqm. From a development perspective, why not reduce the typical land area to maximise the development yield and improve housing affordability. The reason probably comes back to the constraints of council zoning and town planning regulations. The small lot sizes in Adelaide may come as a surprise, however the production and development of small lots is likely to become more evident across the other capital cities over time and is partly due to a state government program whereby developers have to include a proportion of affordable housing within most new developments. Smaller lots and smarter housing design is a fairly straight forward mechanism to combat housing affordability and to improve density around primary working nodes and transport corridors. The trend towards smaller lots is evident across all of the capital cities but not to the same extent as what small lot housing has been embraced in Adelaide. The important part of shrinking lot sizes to make housing more affordable is to ensure that there are enough parks and recreational facilities close by to cater to the needs of those home owners.

Capital city home values continue to rise during August

Over the first seventeen days of August we have seen dwelling values across the combined capital cities rise by 0.3%. The growth trend over the month has been modest as can be seen from the graph below , however, unless we see deterioration in the daily readings over the next fourteen days we are likely to see another positive month of value change in August. Similar to the June RP Data-Rismark Home Value Index results, it looks like the August value improvements are relatively broad based. Across the major capital cities the only city to record a fall in values over the month to date has been Perth where values are down -0.9%. If the trend continues we are likely to see a third month running where dwelling values have improved across the combined capital city markets, a pretty good indication that market conditions have moved through the bottom of the cycle. Although home values have continued to increase over the month it is important to note that the rate of growth has slowed. Values rose by 1.0% in June, 0.6% in July and the August result looks set to be inline or slightly lower than the growth in values in July. With no interest rate cuts over recent months it will be interesting to see whether the slowing continues or momentum builds as we enter the Spring Selling Season.

Housing market reaches bottom of the cycle… maybe.

The Australian housing market peaked during October 2010 and since that time dwelling values have fallen by 5.9% 7.4% to the May 2012 trough across the combined capital cities index based on the RP Data-Rismark Home Value Index to the end of July. Over the same twenty month ‘post peak’ time frame, the US housing market had recorded a 10.2% fall, UK prices were down 22.5% and New Zealand had seen a 9.1% fall. Tracking the path of decline from the market peak paints an interesting picture and highlights the differences in the speed of decline and path of recovery across each of these markets. After home prices peaked in the UK August 2007 the rate of correction was much more rapid than what was experienced in the United States where the market peaked much earlier April 2006 . Based on the Halifax index the market reached its trough 20 months after the market peak. Values were down 22.5% overall and fell at the compounding annual rate of 1.3%/month. The UK market staged a short lived recovery over the second half of 2009 into early 2010, however prices have remained fairly stable since then and as at June 2012 were 19.4% lower than the 2007 peak. The US housing market, on the other hand has seen a more gradual and prolonged decline. House prices started slipping backwards way back in April of 2006 setting off a chain of events that ended up throwing the world into absolute financial chaos. Based on the CoreLogic House Price Index, US house prices fell by 30.8% 1.0%/month over 35 months before the decline trend showed some comparative stability. The next 35 months saw US home prices fall by 0.6%/month on average reaching the lowest point on record over the month of February 2012, a full 33.7% lower than the market peak. The trend across New Zealand has been similar to that of the UK in the sense that the market reached the bottom of the cycle 19 months after the market peak, down 7.4% from peak October 2007 to trough April 2009 , based on the PropertyIQ House Price Index. Since that time prices have risen a further 8.4%. The local ‘peak to trough’ trend line is of course much shorter. The Australian market peaked in October 2010 and if we continue to see values remain either stable or increase, the bottom of the market would have been May 2012 which is 19 months after the market peak. That’s a similar time frame to what was experienced in both the UK 20 months and New Zealand 18 months . Potentially June 2012 will be the signpost that pointed to a market stabilisation with the RP Data-Rismark index recording a 1% rise in home values over the month of June and 0.6% rise in July. June also marked the month where a variety of other indicators showed a positive result; retail sales, dwelling approvals and housing finance commitments all showed better than expected outcomes. The labour force data released yesterday showed unemployment remained stable at 5.2%, interest rates are low and potentially might move lower and consumer confidence has shown a mild improvement and is expected to move higher. Other market metrics are also pointing in the right direction. Homes are taking a shorter number of days to sell, vendors are discounting their prices less and the auction clearance rate has been averaging above 50% across 2012. Of course it’s early days yet – another positive Home Value index result for August should firm up the notion that the market exited the correction and his moving into recovery. Based on the daily RP Data-Rismark index movements over the first ten days of August up 0.2% August is on track for another rise.

Housing market recovery remains precariously balanced

The July 2012 results of the RP Data-Rismark Home Value Index were released earlier this week and the results showed capital city home values rose by 0.6% over the month and by 0.2% over the three months to July. The growth in capital city home values over the month followed a 1.0% increase in home values over June 2012. It is important to note that the improvement in home values over July were nowhere near as broad based as the improvements in June with Sydney 1.2% and Melbourne 1.4% driving about 99% of the rise even though Darwin values were up 6.5% over the month, due to the size of the city it contributes a bit less than one percent to the combined capital city aggregate weighting responsible for the monthly improvement. The methodology used to calculate the RP Data-Rismark Home Value Index was called into question by some media commentators following the release of our June 2012 results. It is important to note that those results showed a 1.0% increase in home values over the month however, they indicated that home values were still down by -1.2% over the quarter and by -3.6% over the year. An analysis of index results for June from two other major providers Australian Property Monitors APM and the Australian Bureau of Statistics ABS shows that the RP Data-Rismark figures are actually indicating a more conservative measure of the housing market than both of these providers, albeit our measure is a much more timely indicator of market conditions. It’s worthwhile having a look at how the two indices RP Data-Rismark and ABS compare. The graph below tracks the movement in capital city house values/prices on a rolling quarterly basis ABS only produces an index for houses . The two methodologies are quite different; RP Data-Rismark results are calculated using a hedonic regression method which aims to compare apples with apples by utilising attribute data of properties such as the number of bedrooms, number of bathrooms, land area etc. Both APM and the ABS use a stratified median index which aims to overcome compositional bias in the market by grouping similar regions together to calculate price changes. The ABS methodology only looks at established houses and excludes new houses whereas the RP Data-Rismark and APM methodologies include units and new sales. Additionally, the RP Data-Rismark series produces an all dwellings index which combines houses and units to provide an overall view of value movements across each capital city. As you can see from the above graph, the RP Data-Rismark Home Value Index results for houses and the ABS stratified median series tend to track one another fairly closely over time. The RP Data-Rismark Index tends to pick the turning point in the market somewhat earlier than the ABS Index which can be attributed to the hedonic methodology as well as the more timely market measure. According to the RP Data-Rismark Home Value Index, capital city house values fell by -1.4% over the three months to June 2012 while APM’s index rose 0.4% and ABS index rose by 0.5%. Over the 12 months to June 2012, the RP Data-Rismark Home Value Index recorded an annual fall of -3.8% compared to falls of -1.6% and -2.1% respectively. It is important to remember that the June results of the RP Data-Rismark Home Value Index were available a full month before the ABS figures in fact we reported a month-on-month rise of 0.6% over July the same day as ABS were reporting the quarterly figures for June and almost a month before the APM results. Of course being the most timely and the first to report changes in housing market conditions always comes with a risk of criticism, however, our figures, although positive over the months of both June and July, have been nowhere near as strong as other measures in the market place. The results for June and July 2012 have been quite strong with capital city home values increasing by a total of 1.6% over the two months. It is our belief that the improvement in market conditions can mostly be attributed to to the fact that variable mortgage rates are 100 basis points lower than since the cash rate started falling in November last year. Improved affordability is beginning to have some positive flow through on the housing market. From here it will be interesting to see whether or not the positive results, at least at a macro level, can be sustained. There are still a range of barriers in place that are likely to stymie the speed of a market recovery. Buyers are still light on the ground, with the number of home sales at lower levels than last year we estimate national house and unit sales were 14% below the five year average and 4% lower than a year ago along with other factors such as the low growth in housing credit, a high household savings ratio and greater levels of pessimism than optimism by consumers it is difficult to reconcile how this growth can continue. Additionally there is the fact that effective supply levels remain high; despite a fairly consistent reduction in total listing numbers, the total number of homes available for sale remains significantly higher than what would be considered normal. Other indicators are supporting the green shoots theory. Retail sales were up more than expected in June, dwelling approvals have shown some life, the average number of days it takes to sell a home is reducing and vendors are now discounting their initial asking prices by less. The trends are pointing in the right direction, however the signs of a recovery are quite fresh and as we have seen on several occasions since the start of the GFC, conditions can change quite quickly. Another positive month-on-month result in August will provide more confidence that a housing market recovery is underway. Looking at the daily movements in the RP Data-Rismark Home Value index over the past seven days to 03/08/2012 shows the combined capitals index is up by 0.5% over the week, mostly being driven by a rise in Sydney and to a lesser extend Brisbane and Melbourne. Let me know what you think, can the early signs of the housing market be maintained? If so why and if not, what factors will hold back the market?

Housing market recovery remains precariously balanced

The July 2012 results of the RP Data-Rismark Home Value Index were released earlier this week and the results showed capital city home values rose by 0.6% over the month and by 0.2% over the three months to July. The growth in capital city home values over the month followed a 1.0% increase in home values over June 2012. It is important to note that the improvement in home values over July were nowhere near as broad based as the improvements in June with Sydney 1.2% and Melbourne 1.4% driving about 99% of the rise even though Darwin values were up 6.5% over the month, due to the size of the city it contributes a bit less than one percent to the combined capital city aggregate weighting responsible for the monthly improvement. The methodology used to calculate the RP Data-Rismark Home Value Index was called into question by some media commentators following the release of our June 2012 results. It is important to note that those results showed a 1.0% increase in home values over the month however, they indicated that home values were still down by -1.2% over the quarter and by -3.6% over the year. An analysis of index results for June from two other major providers Australian Property Monitors APM and the Australian Bureau of Statistics ABS shows that the RP Data-Rismark figures are actually indicating a more conservative measure of the housing market than both of these providers, albeit our measure is a much more timely indicator of market conditions. It’s worthwhile having a look at how the two indices RP Data-Rismark and ABS compare. The graph below tracks the movement in capital city house values/prices on a rolling quarterly basis ABS only produces an index for houses . The two methodologies are quite different; RP Data-Rismark results are calculated using a hedonic regression method which aims to compare apples with apples by utilising attribute data of properties such as the number of bedrooms, number of bathrooms, land area etc. Both APM and the ABS use a stratified median index which aims to overcome compositional bias in the market by grouping similar regions together to calculate price changes. The ABS methodology only looks at established houses and excludes new houses whereas the RP Data-Rismark and APM methodologies include units and new sales. Additionally, the RP Data-Rismark series produces an all dwellings index which combines houses and units to provide an overall view of value movements across each capital city. As you can see from the above graph, the RP Data-Rismark Home Value Index results for houses and the ABS stratified median series tend to track one another fairly closely over time. The RP Data-Rismark Index tends to pick the turning point in the market somewhat earlier than the ABS Index which can be attributed to the hedonic methodology as well as the more timely market measure. According to the RP Data-Rismark Home Value Index, capital city house values fell by -1.4% over the three months to June 2012 while APM’s index rose 0.4% and ABS index rose by 0.5%. Over the 12 months to June 2012, the RP Data-Rismark Home Value Index recorded an annual fall of -3.8% compared to falls of -1.6% and -2.1% respectively. It is important to remember that the June results of the RP Data-Rismark Home Value Index were available a full month before the ABS figures in fact we reported a month-on-month rise of 0.6% over July the same day as ABS were reporting the quarterly figures for June and almost a month before the APM results. Of course being the most timely and the first to report changes in housing market conditions always comes with a risk of criticism, however, our figures, although positive over the months of both June and July, have been nowhere near as strong as other measures in the market place. The results for June and July 2012 have been quite strong with capital city home values increasing by a total of 1.6% over the two months. It is our belief that the improvement in market conditions can mostly be attributed to to the fact that variable mortgage rates are 100 basis points lower than since the cash rate started falling in November last year. Improved affordability is beginning to have some positive flow through on the housing market. From here it will be interesting to see whether or not the positive results, at least at a macro level, can be sustained. There are still a range of barriers in place that are likely to stymie the speed of a market recovery. Buyers are still light on the ground, with the number of home sales at lower levels than last year we estimate national house and unit sales were 14% below the five year average and 4% lower than a year ago along with other factors such as the low growth in housing credit, a high household savings ratio and greater levels of pessimism than optimism by consumers it is difficult to reconcile how this growth can continue. Additionally there is the fact that effective supply levels remain high; despite a fairly consistent reduction in total listing numbers, the total number of homes available for sale remains significantly higher than what would be considered normal. Other indicators are supporting the green shoots theory. Retail sales were up more than expected in June, dwelling approvals have shown some life, the average number of days it takes to sell a home is reducing and vendors are now discounting their initial asking prices by less. The trends are pointing in the right direction, however the signs of a recovery are quite fresh and as we have seen on several occasions since the start of the GFC, conditions can change quite quickly. Another positive month-on-month result in August will provide more confidence that a housing market recovery is underway. Looking at the daily movements in the RP Data-Rismark Home Value index over the past seven days to 03/08/2012 shows the combined capitals index is up by 0.5% over the week, mostly being driven by a rise in Sydney and to a lesser extend Brisbane and Melbourne. Let me know what you think, can the early signs of the housing market be maintained? If so why and if not, what factors will hold back the market?

units or houses?

Nationally, 58% of flats, units and apartments are owned by investors. That is quite an amazing statistic, especially when you compare that with detached houses where only 21% are investor owned. Across the capital cities the proportions are even higher. Darwin tops the list with 70.6% of all units being rented followed by Brisbane where 70.2% of all units are rented. The lowest proportion, 60.3% in Sydney, is still significant. I would presume Sydney’s proportion is probably lower due to the city having the highest house prices more owner occupiers choose units over houses thanks to the lower entry price , as well as the fact that Sydney is the most mature unit market in the country. The high rate of investor ownership of apartments begs the inevitable question… why? Similar to owner occupiers, it partly comes back to price points. The unit market generally offers a lower buy in price investors face affordability hurdles too! than detached or semi-detached homes. Based on median selling prices across the combined capital cities over the June quarter, units are 12% or $59,000 more affordable than houses. The gap is widest in Sydney where unit prices are almost 23% or $139,000 lower than house prices. Another valid reason is the fact that rental yields have historically been higher for units compared with houses. The latest RP Data-Rismark indices show unit yields across the combined capital cities are currently at 4.9% compared with 4.2% for detached houses. In fact, across every capital city, rental yields on units are higher than yields for houses except Darwin where both are at 6.1% which are the highest rental yields across the capital cities . Finally, it is often the case that units are located in more popular locations for both renters and owner occupiers. The majority of unit developments are located close to transport networks, major working nodes and retail amenity. The high proportion of investors really doesn’t come as a surprise!

Which Australian suburb is most popular with investors?

Based on figures from the 2011 Census, the proportion of dwellings which are rented has remained fairly consistent across Australia over the past decade. Rented dwellings comprised 27.6% of all occupied homes back in 2001; ten years later the proportion had risen by only slightly more than one percentage point to 28.7%. The Census data shows the biggest shift in dwelling tenure was seen in homes that are fully owned and homes that have a mortgage. The proportion of homes that are owned outright fell from 39.7% of all occupied private dwellings in 2001 to 31.0% in 2011. Conversely, the proportion of homes that are owned with a mortgage rose from 26.5% in 2001 to 33.3% in 2011. The Census provides some fascinating insights about the trends and geographic spread of renters. Considering that most rental accommodation is owned by private investors, analysing this data also provides an insight about where property investors have been most active in 2011, 71.5% of all rented dwellings were privately owned, 9.4% were rented from the Government and 2.0% were rented from community or church groups. A further 6.7% of renters fall into the ‘other landlord type’ classification or did not respond to this question in the Census . Nationally, the proportion of dwellings occupied by renters stands at 28.7%, however there are difference from region to region. The largest states, New South Wales and Victoria, show a bias towards capital city investing with 31.6% of Sydney dwellings being rented compared with a lower 27.6% of dwellings outside of the capital city. Similarly, 27.2% of Melbourne dwellings are rented compared with 24.5% outside of the capital city. That trend is reversed in the mining states where investment is more popular outside of the capital cities, probably due to the high yields and capital appreciation that has been evident across the resource driven regions in both of the these states. Regional Western Australia accounts for the largest proportion of dwelling occupied by renters apart from regional Northern Territory which is influenced by the large number of Government supplied rental housing at 35.3% compared with 27.6% across the Perth market. The margin is much slimmer in Queensland with 33.4% of regional Queensland dwellings being rented compared with 33.0% in Brisbane. Of the capital cities, Darwin shows the largest proportion of investors with 41.9% of all occupied dwellings being rented. Brisbane, at 33.0% of all dwellings, is the second most popular capital city for investors. Getting down to a more granular level, the Census suburb classifications show exactly where rental housing/investment is more or less popular. The results also provide an indication as to where social housing is most heavily concentrated. The tables below show the top ten suburbs across each capital city based on the highest proportion of rental dwellings. We have included median house and unit prices as well as typical rental yields to provide an indication about prices and gross returns in the suburb ‘n.a.’ indicates the suburb has recorded fewer than 10 house or unit sales or fewer than 10 rental observations over the past 12 months . It is also important to understand whether the high proportion of renters is being driven by market forces or by social housing; for this reason we have included a summary of the proportion of rental dwellings privately and non-privately owned. It is clear to see from some of the suburbs on the list how predominant social housing is in some areas. For example, the Sydney suburbs of Claymore 97.9% , Airds 96.2% and Daceyville 92.6% show extremely high levels of non-private rental housing i.e. government or community/church rented . High proportions of non-private rental dwellings are also evident across the northern regions of Adelaide and eastern areas of Hobart. The benefits of integrating social housing throughout the community rather than establishing social housing ‘enclaves’ is well documented; these examples are a stark reminder of the town planning principals that were prevalent several decades ago. It is important to point out that some regions showing a high proportion of non-private rental dwellings are influenced by other factors such as military bases and mining sites. What is even more interesting is drilling down on the Census data to show exactly where the most popular suburbs for investment/renting are located. The table below shows the top 50 suburbs around the nation that have the highest proportion of renters where at least 75% of the dwellings are privately rented i.e. dwellings where the landlord is the Government or a community/church group comprise 25% or less of all occupied rental dwellings . Based on these parameters, Brisbane’s Fortitude Valley is the most popular ‘investor/rental’ suburb in the nation with 70% of all occupied dwellings being rented, followed by Canberra’s city centre 69.7% and the Perth suburb of Northbridge 69.3% . Of the top 50 list, 40% of the suburbs are located in Sydney, 14% are in Brisbane and 10% respectively in Melbourne and Perth. Unit dwellings are clearly the most popular dwelling type for investors, with many of the suburbs in the top 50 list recording fewer than 10 house sales over the past year this is why a median price or rental yield is not recorded for houses in some suburbs . Yields for units tend to be well above average in most of these suburbs, highlighting the attractive investment conditions.

Not quite the â

There was a great deal of speculation before the release of the 2011 Census that the average household size would actually rise across Australia due to the population growing at a faster rate than dwelling construction. The logic was that we might start to see more families under one roof as families look for ways to cope with housing affordability, kids were staying at home longer with mum and dad and the birth rate was on the rise. The results came as a bit of a surprise; the average household size remained steady at 2.6 persons per dwelling; the same average as what was recorded in 2006 and in 2001. Looking at the data, it is clear that several factors have provided some counterbalance that has kept the household size steady. Firstly, the rise in couple families without children +20.3% between 2001 and 2011 , one parent families +16.8% between 2001 and 2011 , lone person households +16.9% between 2001 and 2011 well and truly grew at a faster pace than couple family with children households +8.7% between 2001 and 2011 . Another reason for the steady average household number can be attributed to the rise in one and two person dwellings. Between the 2001 Census and 2011 Census one person dwelling have increased in number by 16.9% and two person dwellings have increased by 17.5%. In contrast, households with three persons occupying the dwelling have increased by a smaller 13.8% and four person dwellings have increased by 12.9%. A further insight comes from the number of new dwellings which have been constructed. The number of separate houses has increased by 14.0% since the 2001 Census, while unit dwellings have jumped by 26.4% and semi-detached homes such as townhouses have increased in number by 28%. The rise in medium and high density dwellings will have pulled the average household size down. As always though, there are areas that have bucked the trend. The Australian suburb with the highest average household size is Welshpool, located in the Canning council of Western Australia where there are, on average, 7 people per household. While this may seem extreme and it is! , there are only 17 people living in the suburb of Welshpool and they all live in what the Census glossary describes as ‘A house or flat attached to a shop, office, factory or any other non-residential structure is included in this category’. Considering Welshpool is primarily an industrial suburb, this comes as no surprise. Applying some filters to the data set provides a much more interesting and realistic view on Australia’s household composition. Looking at only those suburbs within the capital cities that have a population of 100 people or more shows the largest average household sizes are located primarily across Sydney’s Western Suburbs. As can be seen in the top 20 table below, the vast majority of suburbs with at least 3.6 persons on average per household are located in the outer suburbs of Sydney. Inherently, most of the suburbs with a large average household size show a predominance of detached dwellings as opposed to units or semi-detached homes which tend to be smaller and have fewer bedrooms. Once again, no surprises that these areas area also predominantly occupied by families with kids. What came as somewhat of a surprise to me was the fact that overseas migrants don’t seem to play as large a role as previously thought in pushing average household sizes upwards. There was some speculation that the surge in overseas migrants may be another factor pushing household sizes higher under the false logic that many migrant families have larger families. Eight of the 20 suburbs outlined above actually show a proportion of overseas born residents to be lower than the Australian average of 30.2%. From city to city the average household size trends vary slightly. It is interesting to note that the most affordable capital cities Hobart and Adelaide appear to have smaller household sizes than the larger capital cites Hobart and Adelaide both show an average household size of 2.4 persons, the lowest of any capital city . It stands to reason that lower home prices in these cities aren’t driving more people to live under one roof. Looking at all the suburbs nationally where the average household size is greater than or equal to 4 persons there are 100 of them provides another interesting insight about our nations household composition. Of those 100 suburbs where the average household size is 4 persons or more, only 8 have an aboriginal population that is less than 50% of the overall population. It is well documented that aboriginals have larger household sizes and the 2011 Census shows the average household size for households with an aboriginal person have an average size of 3.3 persons compared with the national average of 2.6 persons. Potentially the 2011 Census marks a turning point for household composition in Australia. Although we are likely to see kids staying at home for longer and potentially more persons under one roof in an effort combat housing affordability, in the same sense we are likely to continue to see more lone person households and couples without kids that will drag the average down as well. More families are choosing to live in units and townhomes, once again in an effort to find more affordable housing but also with the aim of living closer to where they work and play. Will the average household size rise over the coming year? We might need to wait until the 2016 Census is delivered to find out.

corrections and Q&A

The RP Data-Rismark Home Value Index results were released earlier this week revealing a 1 per cent jump in dwelling values across Australia’s combined capital cities. The rise comes on the back of a -1.4 per cent fall in May and brings the cumulative decline in home values to -1.2 per cent over the June quarter and the first half of 2012. Capital city dwelling values have fallen by 6.5 per cent since their peak back in October 2010. The June rise of 1 per cent has thrust the index methodology back into the spotlight with one commentator in particular making incorrect claims about the indices accuracy and reliability. Based on these comments and the media attention they have attracted it is probably timely to provide a refresh on how RP Data, together with Rismark International compile the daily Index and address some of the miscommunications that have been given some airplay over the week. As a first point, it is important to note that the RP Data-Rismark Index is the only private measure of housing market conditions that has been independently peer reviewed you can see the results here . Additionally, the methodology is completely transparent with several white papers available describing the technical detail behind the index calculation. It is fair to say that these papers are a hard read for someone without a high level statistical knowledge; this index is a sophisticated measure that uses complex mathematical formulas to produce the results. The description of how the indices are produced is inherently complex. It is hard to take the assaults on the Index credibility seriously when it has the support of Government and private agencies that are well qualified to assess the reliability and accuracy of the results. As you can see from the official chart pack delivered by the Reserve Bank of Australia this week, the RP Data-Rismark Home Value Index is the only measure of housing market conditions referred to. Additionally the Index is widely quoted by Australia’s leading economic commentators much more so than other index measures. It is worthwhile noting that the RP Data-Rismark Index shows a 98.6% correlation with the annual returns reported by the ABS House Price Index which is published quarterly. Of course, over shorter periods, an index which uses information about the locations and attributes of the properties which have sold will capture shorter term market movements which are missed by other methods. While we agree this is a reliable and useful index it suffers in timeliness the June results won’t be available until August 1 , excludes sales other than detached houses, and doesn’t have the granularity of a monthly or for that matter, daily measure of market conditions. It will be interesting to take note of the June results from the ABS when they are released; my bet is that the outcome will be remarkably similar to the RP Data-Rismark result which showed a 1.2% fall over the three months ending June. Why are RP Data and Rismark computing a daily index? The Australian housing market is worth an estimated $4 trillion; that’s three times larger than the value of all stocks listed on the ASX and three times larger than all superannuation assets in the country. This is Australia’s largest asset class by far and it is important that we have the most sophisticated measure available to understand how values are changing from period to period. The daily measure, for the first time ever, provides insights about the intra month value movements and a greater understanding of the risk and volatility of the housing market; home values do not move smoothly from month to month, there is market volatility. The daily reporting of the index also opens up opportunities for financial markets allowing people to gain or hedge exposure to Australia’s largest asset class. The daily provision of the index is an essential component is establishing a tradeable mechanism. The daily index was designed specifically to track the risk and return profile of a diversified property portfolio and enable financial markets to use the index as benchmark for trading. The ASX has selected the RP Data-Rismark Index, after completing their due diligence on which index and index provider is the best placed, for the basis of trading in Australia. Below are some of the typical questions and answers that we have been fielding since the daily index was released a special thankyou to Dr. Matthew Hardman who heads up Rismark’s research team and was the principal architect of the daily index methodology . How can the small number of sales on one day tell you how much the whole market has changed? By themselves, they don’t. We don’t throw away the previous day’s sales. A house that sold yesterday or last week has almost as much relevant information as a house that sold today. The time lag of previous sales is taken into account statistically via the hedonic imputation method. It gives us the best estimate of the value of our market portfolio, based on all the available historic information. But you don’t know about every sale as soon as it occurs. While some sale prices are reported the day of the transaction, others take weeks to arrive in the database. Does this make the index less accurate? We record all sales and use them as the data arrives in our database. We use statistical methods to account for the timing difference between the sale date and the date we receive the information. If we receive information about a sale one week after it has occurred, we use that sale to update our current view of the market, mathematically taking into account that the sale occurred one week ago. The information in that sale is still relevant to the current state of the market and our model incorporates it. All indices must have a mathematical method for dealing with the sales data which arrive after the actual sale date. The hedonic imputation method is the most effective in doing this. What if interest rates rise suddenly? This should dampen property prices. How will the index account for events like this? The index will react when it receives sales information showing sufficient numbers of sale prices higher or lower than those expected by the previous day’s model which did not know about the sales . It cannot react until given this information because it will have no evidence to cause it to. If the index has been falling for the last several months, but has risen over the past few days or weeks or vice versa , does this mean the market is turning around? No more or less than if it happened in the stock market. All financial market price series have natural volatility. Prices can fluctuate over shorter periods, while showing a longer term trend up or down. If you want to gain a sense of whether or not the momentum in a property market really is changing, it is important to look at the trend over longer time intervals, such as the last quarter or last six months and filter out the short term noise or volatility which occurs in all markets. Is the downward / upward trend starting to flatten? Is the flat trend starting to turn up / down? Will the index be impacted if only less expensive properties sell over a given period? Will it show a fall in the market? Preventing the index being “tricked” like this is one of the main strengths of the hedonic method. It is important for the index to distinguish between Lower observed sale prices due to a larger number of lower value properties selling. Lower than expected sale prices of those particular properties which have sold. Only the latter is demonstrable evidence of a downward market movement. Indices which do not control for the attributes and locations of the properties which are observed to sell and which cannot compare an expected sale price with an actual one are much more likely to either over or underreact to market movements, because they cannot distinguish compositional bias in the sales sample from genuine market movements. Some indices revise as more sales data comes in. Why doesn’t this one? The indices give the best estimate of the value of a diversified investment portfolio, using all the information available at the time of publication. Each day this information is updated on average by 1,400 transactions which in turn inform the next day’s best estimate. From testing, errors in the index are expected to be only a few basis points. Indices which only use transactions which occur during the measurement month or quarter and revise as additional data pertaining to the particular month or quarter arrives, never have an ability to convey the current state of the market. Not only do buyers and sellers of individual homes want to understand the best estimate of the current state of the market, it is essential for market participants wishing to settle contracts over the market portfolio.

The top 20 most ‘crowded’ suburbs across Australia

Where can you find the most people packed into one suburb? According to the latest Census data, look no further than the inner Sydney suburb of Elizabeth Bay. This suburb covers about one quarter of a square kilometre of prime Inner Sydney real estate and, according to the latest Census figures, is home to 5,093 persons which works out to be about 2 persons per 100 square metres of land. The second most densely populated suburb in the country is right next door at Rushcutters Bay, with a comparatively sparse population density of 1.5 persons per 100 square metres. Nineteen of Australia’s top twenty most densely populated suburbs are located in Sydney. The one exception is Melbourne’s Southbank which ranks at number 19 in the population density stakes. The table below shows the top 20 suburbs across Australia based on the highest population density on a rate/sqkm: Interestingly, third on the top twenty list is the comparatively outer lying suburb of Wentworth Point which is located on the Parramatta River about 16km from the Sydney CBD. The suburb was gazetted in 2009 and was previously part of the suburb of Homebush. Having such a high population density outside of the inner city is quite uncommon for an Australian city particularly outside of Sydney , however, as urban renewal projects and brownfield developments spread further away from the city centres, a greater level of population density in the middle ring suburbs is likely to become more common. The spatial patterns of population density are generally centric to the inner city and follow the path of key transport infrastructure. The trend is quite clear on the thematic maps below which include a 1km train station buffers overlay. It makes sense that higher population densities will follow the established transport corridors; land along these routes is generally zoned for higher densities. As transit oriented developments continue to gather pace I am quite certain we will see higher population densities spreading to key transport nodes located further away from the city centres.

302,565 reasons why demand for housing is rising

Quarterly population growth data was released earlier this week by the Australian Bureau of Statistics ABS for the December 2011 quarter. The data highlighted that over the 2011 calendar year, Australia’s residential population increased by 302,565 equating to a growth rate of 1.36%.In both raw number and percentage terms the annual population increase was the strongest since the 12 months to March 2010 313,529 and 1.44% . On an annual basis, population growth has now increased over the past three quarters and is up 20.3% from its recent low. Population growth remains at levels well above average; the 302,565 person increase in population over the year is 22.5% higher than the long-term average increase of 246,973 persons each year. Across individual states, population growth was strongest in raw number terms in: Victoria 75,425 , New South Wales 70,982 and Western Australia 67,420 . In percentage terms, population growth was fastest over the year in Western Australia 2.9% followed by the Australian Capital Territory 1.8% and Queensland 1.5% . Perhaps most interesting is the sharp slowdown in population growth in Queensland. Over the 12 months to December 2008, Queensland’s population grew by a nation leading 101,205 persons or by 2.4% only Western Australia 3.4% and Northern Territory 2.6% recorded a stronger percentage increase in population growth . Over the past 12 months, Queensland’s population grew by 66,493 persons -34.3% lower than December 2008 and the rate of population growth has fallen to 1.5%. As the graph below shows, all components of population growth have slowed but the fall away in population growth can largely be attributed to the ongoing slowdown in interstate migration and a rapid slowdown in overseas population growth which has impacted the Queensland figures. The trends have changed significantly for interstate migration over recent years. New South Wales, Victoria and South Australia have, for a long time, been typically losing population to the other states and the movements have largely been into Queensland. These trends have now largely reversed. Although Queensland still acquired a nation-leading 9,608 residents from interstate, this was well below the 26,854 person average increase over the past 20 years. Conversely, New South Wales still lost -16,104 residents to interstate last year however; this figure was down from a long-term average of -18,530 persons. In the remaining states the net interstate migration compared to the long-term average was: Victoria 3,329 vs. -5,274 , South Australia -2,325 vs. -3,251 and Western Australia 8,460 vs. 2,017 . Overall this data shows that residents are showing less propensity to move interstate and the rise of Western Australia is once again linked to the strength of the mining and resources sector. When looking at net overseas migration across the major states it is clear that overseas arrivals show a preference to live in New South Wales and Victoria and likely Sydney and Melbourne . Net overseas migration has certainly slowed recently as a response to a change in policy by the Federal Government however; it has started to rise once more over recent quarters. The resources boom in Western Australia is having a noticeable affect with that state attracting more overseas migrants over the year than Queensland for the first time since 1999. More up-to-date data relating to long-term overseas arrivals and departures suggests that the rebound in population growth is set to continue, fuelled by an ongoing surge in net long-term and permanent overseas arrivals. The data shows that in April 2012, there were 274,060 net permanent and long-term overseas arrivals which was 35.4% higher than at the same time year. These figures certainly indicate that population growth is likely to continue to increase substantially over the coming quarters. With population growth once again increasing this could create more social and political issues. Data released by the ABS this week showed that dwelling commencements continue to show no bounce despite the fact that population growth has been above the long-term average level since March 2005. Population growth creates additional demand for housing and essential services. Given the Federal Government has cut spending to return the Budget to surplus it is difficult to see how essential services are going to be delivered to cater to the increase in population growth. As a result, I would expect the population growth debate to become a political issue once again over the coming year.

Is the housing market set to make a comeback?

My short answer to that question would be maybe/sort of but the long answer is much more insightful. Consumer sentiment data for June released by Westpac and the Melbourne Institute this week showed that overall confidence remained quite weak however, the time to buy a dwelling index increased by 8.2% This sub-index of the broader Consumer Sentiment Survey does show some volatility, so we would need to see a few months of positive trend before relying on this indicator . It appears that the lower interest rate environment is having a more positive impact on respondent’s perception of the property market and the ongoing weakness in equities markets is also probably helping. Each quarter the consumer sentiment survey asks the question about the wisest place to save. In June, 25% of respondents felt that real estate was the wisest place up from 18.6% of respondents in March. Again, this data seems to suggest that lower mortgage rates are making real estate a more attractive investment prospect. Outside of the consumer sentiment data we have seen the New South Wales Government hand down their State Budget and it offered some attractive incentives for first home buyers and purchasers of new homes. Specifically the incentives which start on October 1 are: $15,000 first home owners grant for new homes priced up to $650,000. This reduces to $10,000 from January 2014. Stamp duty exemptions for purchases up to $650,000 with the exemptions gradually phasing out between $550,000 and $650,000. A $5,000 new home grant for all non-first home buyers of new properties up to $650,000 and new vacant land up to $450,000. Other states also continue to offer incentives to purchase as detailed below: Vic – stamp duty has been cut by 20% in 2011 with the cut increasing to 50% in 2014. Qld – stamp duty discounts of up to $7,000 for new homes from July 1st WA – no stamp duty payable on first home purchases under $500,000 and expenses of up to $2,000 are reimbursed for purchases of established homes only NT – concessions on stamp duty are available on the first $540,000 of the value of the home for first home buyers The available incentives coupled with the lower interest rate environment and the -7.4% fall in capital city housing markets are likely to attract some first home buyers back in to the market, particularly if we get additional interest rate cuts in the coming months as many economic commentators expect. Even with an anticipated improvement in buyer numbers it is difficult to see how there will be a return to substantial growth in home values when you consider: The amount of housing stock available for sale is currently 7.7% higher than at the same time last year and 35% higher than the five year average. The volume of house and unit sales is both -9% lower than the same time last year and -9% lower than the five year average. Consumer sentiment shows that overall respondents remain more pessimistic than optimistic. Private sector housing credit has increased by just 5.3% over the 12 months to April 2012, remaining at historic low levels. National accounts data shows that over the March 2012 quarter households were saving 9.3% of their income. Until recently the household savings ratio had been steadily declining since the mid 1970’s however, it has remained above 8% since the March 2009 quarter. So getting back to the initial question posed, I can see the housing market making a comeback in terms of an increase in transaction activity and perhaps some slight improvement in values in certain markets. However, I don’t see how, in light of how consumers are acting, we will see a return to robust growth in home values at a time when consumers are largely taking on new debt. Let me know what you think, is the market about to make a comeback or do you think lower interest rates and first home buyer concessions will all be in vain and we are in for more of the same conditions.

Will the gap between the cash rate and mortgage rates come back to ‘normal levels’? Not likely in the near future.

Up until December 2007 the gap between variable mortgage rates and the Reserve Bank’s cash rate was 180 basis points; a gap which hardly changed between 1997 and the end of 2007. Since the onset of the GFC the only consistency between the variable mortgage rate and the cash rate has been a widening gap which reached a highpoint in May of this year at 330 basis points which is approaching double what the historic norm used to be. Without doubt the cost of bank funding has risen since the onset of the GFC. If you’re interested in the topic of bank funding and how their costs have changed I can recommend reading this Bulletin Banks’ Funding Costs and Lending Rates from the Reserve Banks’ Cameron Deans and Chris Stewart which was released in March this year. The bulletin provides a comprehensive summary of the key factors which have pushed up bank funding costs since the GFC and highlights that as at March the costs of funding aren’t currently a great deal lower than during the peak of the GFC. Importantly, the banks are now sourcing less of their lending funds from overseas. In fact, based on the March analysis from the RBA, more than 50% of Australia’s bank funding now comes from domestic deposits while short term debt and long term debt markets both comprise about 20% of funding originations. The reliance of the banks on deposits is likely to be even greater by now, as the trend is clearly upwards and recent GDP data highlights that households continue to show a preference for saving around 9% to 10% of their income. As Australia’s banks seek more funding from local sources and strive to become less reliant on overseas funding, the competition for deposits is likely to heat up. That means higher term deposit rates which translates to higher domestic funding costs for the banks. Unless the banks are willing to see their margins shrink, I think we can expect higher deposit costs as well as overseas cost pressures to continue forcing the gap between the cash rate and mortgage rates further apart. So it doesn’t look like there will be any lessening in the gap between mortgage rates and the cash rate, at least over the short term. Even if we see the cash rate fall a further 75 basis points as Westpac’s chief economist Bill Evans has predicted taking the cash rate down to 2.75% , mortgage rates will still be higher than when the cash rate reached 3.0% between April and September 2009. The average standard variable mortgage rate reached a low point of 5.8% back then. To receive that level of monetary stimulus we will need to see the cash rate drop do 2.5% and we will need to see the full rate cuts be passed on by the banks. That is unlikely. Based on the average bank cuts provided in May, which was about 74% of the cash rate cut, we will need to see the cash rate fall to around 2.0% to see standard variable mortgage rates fall to their recent lows recorded in 2009.

Why haven’t the number of home sales and dwelling approvals moved in line with population growth?

With the release of the latest building approvals data from the Australian Bureau of Statistics this week for April 2012 we are seeing no signs of improvement for the home building sector. The lack of activity has a significant multiplier effect across the economy; not only is it those linked directly to the construction sector which suffer due to lower levels of construction but also retailers and service providers. The slowdown isn’t only being felt in new housing, the number of established houses and units being sold are also tracking below average. Although new construction and sales of existing properties has been trending lower for many years now, Australia’s population has continued to grow. On an annual basis between the March 1994 quarter and the September 2011 quarter, Australia’s population has increased by 274,917 persons each year. This increase in population also increases the requirement for homes in which to house these new individuals. Population growth is currently 16.3% above the long-term average highlighting that despite population growth well below peak levels, it is well above average over recent times. Looking at the annual volume of house and unit sales across Australia over the same period highlights this disconnect more specifically. Annual sales volumes peaked over the September 2003 quarter with 617,962 sales for the year. Ever since that time sales volumes have trended lower and as the previous chart shows, population growth has increased over that period. Over the period from March 1994 to March 2012 the Australian housing market has averaged 472,504 sales each year. This figure is -24% lower than the peak market activity however, it is -19.3% higher than the volume of sales over the 12 months to March 2012. Transaction volumes have been below the long-term average since September 2010. As already mentioned it hasn’t only been the decline in sales of existing homes which has been heading in the wrong direction in recent years but also the number of approvals for new dwellings. Dwelling approvals peaked over the 12 months to September 1994 with 193,754 new homes approved for construction over the year. Over the 12 months to March 2012 144,594 new dwellings were approved for construction which was -25% lower than the historic peak but also -9.1% lower than the long-term average of 159,043 approvals each year. If the housing market was acting efficiently and affordability factors and government interference played no part you’d anticipate that sales volumes should have been increasing over time along with building approvals as the population has continued to grow. Of course this has not been the case. A restrictive supply of residential land, the slow process of gaining approvals for new development and the various government fees and charges associated with new development which are ultimately passed on to the purchaser have all contributed to a falling rate of new construction and fewer sales transactions. Of course these aren’t the only factors, availability of credit for housing, the greater propensity for households to save rather than spend, housing affordability issues and taxes on moving such as stamp duty have also contributed to the persistent insufficient supply of new housing and a lower volume of home sales. The most worrying factor is that population growth is already at a level well above the long term average and the more up-to-date overseas arrivals and departures data from the ABS shows that net long term arrivals are staring to increase once more which suggests population growth is set to accelerate over the coming quarters. Of course, households are responding and we are seeing average household sizes increasing after they have trended lower for much of the last century and we are seeing children stay in the family home for longer. In my opinion it would be good if we could see an action plan from all levels of government as to how we can tackle these issues. We see many politicians come out and make bold statements about whether they believe in population growth or not and that is an important debate however, it is unlikely that our population will not grow. What is an equally, if not more important debate, is how we are going to provide the necessary amount of housing to our population at an affordable price point whether it be to rent or to buy for all sectors of the community. Housing is the responsibility of all three levels of government, with local government’s approving development proposals, state governments determining where development can take place and federal government to some degree managing population growth. Consultation and coordination across all three levels of government is imperative to effectively manage housing supply. It’s not just a housing undersupply which is apparent in Australia it is an undersupply of housing at an affordable price point and that is an issue which is going to be far more difficult to correct. I would like to hear your feedback and what you believe can be done to fix this problem.

Who’s moving where and why.

Population movements are an important element of housing demand; more people means more demand for housing. With Australia’s rate of population growth slipping from a high of 2.2% or 467,300 new residents over the year to December 2008 down to 1.4% 319,600 persons over the year to September 2011, there has clearly been a fall in housing demand. While the slowdown in population growth is a national phenomenon, there are still plenty of regions around Australia where, at least according to estimates from the Australian Bureau of Statistics, population growth remains quite rapid. As can be seen from the table below which shows the council regions around the country with the largest number of new residents over the past five years, Queensland continues to attract a large number of new residents. In fact many of the council regions that comprise South East Queensland rank quite high in the top council regions list for population growth over the five years to June 2011. The regions showing a population deficit are all rural locations, many of which have been recording a fall in population for some time. Each of the regions featured in the top 15 list below is recording a population lower than what was recorded not just five years ago, but ten years ago. Of the 565 council regions around the country, 153 or just over a quarter of them have recorded a population decline over the past decade. Moving down to a more granular basis, at the suburb level there are some interesting trends. Almost 60 per cent of the top 30 suburbs recording the highest population growth over the past five years are located across in Melbourne and 20 per cent are located around Perth. The only regional suburbs to market the top 30 list for suburb level population growth over the past five years were located on the Gold Coast note that ‘regional’ suburbs are considered to be any outside of the capital city statistical division boundary . Four of the five suburbs which have recorded the largest number of new residents between 2006 and 2011 are located across the Melbourne fringe. The suburb of Pakenham has seen the population increase by 14,247 new residents over the past five years. Over the 12 months ending June 2011 the population increased by slightly more than 10 per cent. The outer Melbourne fringe areas including the council regions of Wyndham, Melton, Casey, Whittlesea, Cardinia are arguably one of the better examples of how a long term planning strategy around land release, amenity development and infrastructure provision can be successfully implemented. The planning foresight extends back to the Kennett era and is probably one of the main reasons why new dwelling activity around Melbourne’s growth corridor has been so much more in alignment with population growth compared with other capital cities. Additionally, when you look at land prices across the outer Melbourne fringe, thanks to Government policy that makes it easier and cheaper for land to be released and developed, Melbourne land prices are generally more than $100,000 lower than comparable locations in Sydney. The top thirty suburbs for population growth across regional markets were mostly located at the Gold Coast 30% of the top 30 list and the South West of Western Australia which includes areas such as Harvey, Mandurah and Capel 17% of the top 30 list . To provide some further insights into the spatial patterns of population growth around the country and cities we have provided a series of thematic maps below. The population growth corridors are clear, generally following the path of rail or road infrastructure highlighting the importance of connectivity . Interestingly, Melbourne and Perth are the only capital cities to show more than 2,500 new residents within the inner city suburbs over the past five years, suggesting inner city densification has slowed down in the other capital cities.

What’s more important…? How much of the RBA’s 50 basis point cash rate cut the banks have passed on or which bank actually has the lowest interest rates?

There has been a great deal of hype around how Australia’s banks are deviating from the historic norm of adjusting their mortgage rates in line with the Reserve Bank of Australia cash rate moves. Two weeks ago, when the RBA slashed the cash rate by 50 basis points and the Big 4 banks passed on only 37 basis points on average , the public outcry went up a notch. I can absolutely understand that there would be a reaction. Anyone with a mortgage is going to be very interested to know about changes to their cost of servicing that debt. What is a bit more difficult to understand are the attacks on the banks based on how much of the rate cut was or wasn’t passed on. Take the example of the National Australia Bank as a case in point. NAB were heavily criticised for passing on only 32 basis points of the 50 basis point cut. What’s more important though is the fact that despite NAB providing the smallest portion of the rate cut amongst the Big 4, their standard variable mortgage rate remains the lowest at 6.99%. Sure, they passed on less of the rate cut in May but they were already providing loans at a more competitive variable rate which probably results in slimmer margins for them for the risk of lending money to an individual for a home loan. The largest portion of the rate cut to be passed on by the Big 4 was CBA with a 40 basis point drop, bringing their standard variable rate down to 7.01%. Westpac passed on 37 basis points and are now offering a 7.09% standard variable rate and ANZ, the last of the majors to announce their variable rate, provided a 37 basis point cut which will result in a 7.05% variable rate. Looking at the recent housing finance data, variable rates are becoming less in favour; so consumers should be watching fixed mortgage rates as well. Based on the housing finance commitments data from ABS for March, the proportion of new housing finance commitments on fixed rate loans has been trending upwards since August last year. The proportion of new loans on a fixed rate in March was 14.9% which is the highest reading since April of 2008. Clearly it is important for consumers to be vigilant. Comparing interest rates across each of the banks can be difficult because of the different types of loan packages and products on offer as well as discounts that apply and so forth. At the very least it is worthwhile looking through the headlines to examine the actual applicable interest rates not just the extent to which the banks have moved their rates in response to the cash rate.

Negative gearing the choice of the nation

The Australian Tax Office ATO recently released taxation statistics for the 2009/10 financial year. The data had a lot of good information, some of which was touched on in last week’s blog however, this week we will be specifically looking at rental income and deductions associated with property investment. Over the 2009/10 financial year there were 1,751,679 individuals that received rental income owned investment property . The number had increased by 3.5% from the previous financial year. Of these 1,751,679 individuals, 1,110,922 individuals or 63% made a loss on their rental income; the remaining 37% of individuals turned a profit on their rental properties. Of those 63% of investors that had made a loss on their rental income, the typical loss was $9,132 over the year or $176/week. The most concerning sign is that individuals that earn less than $6,000 a year are carrying a loss of $207/week with only those on an annual salary of more than $180,000 carrying a greater loss each week $399 . It is difficult to determine what this actually means however, you could assume that a portion of those on incomes of less than $6,000 p.a. are self funded retirees. Of course a portion of these people are likely to not be self funded retirees either. If the current housing market conditions persist and these people are essentially making no annual income having a negatively geared property is of limited benefit and they may in fact be looking to sell these homes in an already soft market. Even for those that are self funded retirees, if they have no personal income there is no benefit to them having a negatively geared property asset. Somewhat worrying is the fact that 825,284 investors making a loss on their rental income are earning $80,000 a year or less. These owners are typically making a loss of $8,111/year $156/week . For most of those in the lower income brackets the need to negatively gear a property to offset their tax is typically lower than those on a higher income. This leads me to believe that many have got into investment housing initially for the taxation benefits but obviously with a view to experiencing capital gains and the subsequent positive cash flow benefits in the future. The statistics also show that 285,638 persons 26% making a loss on their rental property are earning more than $80,000 a year. These individuals recording a tax loss on their rental property are typically losing $12,082 a year or $232/week. The news is much more positive for those investors that are achieving a profit from their rental property. The typical owner with a net rental income of more than or equal to $0 is making $160/week from their property as opposed to the -$176/week loss many others are making. The results highlight that most property investors are negatively geared. Of course some will be quite happy to be negatively geared with the cost offsetting tax elsewhere while others, particularly those nearing retirement or at retirement, will be hoping the property starts to turn a profit in the near future. Given the current economic and housing market conditions, it seems as if these investors will be reliant on a pick-up in rental growth to propel them to positive gearing rather than capital gains. This is the reason why investors that are interested in purchasing in the current market must be careful and should focus on buying for long term capital gains while maximizing their rental return or even positive gearing rather than short-term capital gains.

The big end of town… Australia’s wealthiest and poorest postcodes

The Australian Taxation Office has recently released their annual set of Taxation Statistics you can see the whole report here for the 2009/10 financial year. This is always a fascinating read shame about the time it takes to be published though , particularly the tables which provide an insight about average taxable income across each of Australia’s postcodes. I’ve provided a summary of the top earning postcodes below across both the capital cities and regional markets as well as those capital city postcodes where mean incomes are the lowest. We’ve also put together a bunch of thematic maps which are probably the best way to highlight the wealth trends across the capital cities. The top earners are the usual suspects, mostly clustered around Sydney Harbour, the Western Suburbs of Perth and a few bayside/inner eastern suburbs of Melbourne. Nationally there are 47 postcodes with a mean taxable income of more than $100,000; that’s 11 more than recorded across the previous financial year. More than half 57% of these high income postcodes are located in Sydney, 21% are in Melbourne and 15% are in Perth. Canberra and Brisbane showed only one postcode each recording a mean taxable income of at least $100,000, while the only regional postcode made the high earners list: 3441 which is home to the Macedon Ranges suburb of Mount Macedon. The highest income postcodes outside the capital cities are typically located in resource rich areas like Queensland’s Bowen Basin and the Western Australia’s Pilbara. The lowest income capital city postcodes are primarily located in the outer fringes of Melbourne and Adelaide with these locations comprising 40% and 35% respectively of the top 20 list for lowest capital city mean taxable incomes. Even though these postcodes have comparatively low taxable incomes, you can see that each one has recorded an increase in mean taxable income over the most recent financial year.

Welcome back below average mortgage rates

With the low CPI reading earlier this week, a drop in the cash rate next Tuesday is pretty much a done deal. The question is now will the RBA cut the cash rate by 25 or 50 basis points? According to financial market expectations based on the ASX cash rate futures yield curve , the cash rate is likely to fall by 50 basis points by the June RBA meeting. In fact, the yield curve is pointing to a 100 basis point rate cut by years end. According to the RBA, the standard variable mortgage rate at the end of March this year was 7.4%, just 6 percentage points higher than the ten year average which is 7.33%. Even if lenders don’t pass the full rate cut on as most expect they will not , it is safe to assume that next Tuesday we will see variable mortgage rates fall below the 10 year average once again variable mortgage rates were below average between December 2008 to April 2010, a period of significant house value appreciation . Lower mortgage rates are certainly a positive for the housing market. Affordability has already improved on the back of lower dwelling values values are down 5.3% across the combined capital cities since peaking back in October 2010 and the two rate cuts in November and December last year. Of course housing affordability will improve further after a rate cut. Will the rate cut be enough to inject a confidence boost in the economy? Probably. Of course it depends on other factors, particularly how labour market conditions pan out and any announcements in the federal budget that affect the household balance sheet. Overall it makes sense that we should see some gradual improvement in the consumer mindset which will have a positive flow on for retail sales and property sales.

Vacant land market weakest in more than a decade

The Housing Industry Association HIA in association with RP Data released the December 2011 quarter Residential Land Report this week and it made for pretty sobering reading. As the report states, over the past five quarters land sales have bounced around the bottom rather than showing any sign of improvement. Over the quarter, residential land sales across the six mainland states fell by 0.8% with 10,479 sales. The level of sales activity over the December quarter was 2.7% lower than over the previous year. Despite the fact that there was no improvement in sales activity for residential land, values have continued to rise over the quarter. The weighted median residential land price increased by 1.7% over the quarter to $193,171 and across the capital cities, the increase was larger at 2.8% for the quarter. Across the capital city markets analysed, median prices increased over the December 2011 quarter in each market except for Melbourne where they fell by -1.1%. Across the other capitals the quarterly increases were largest in Adelaide 14.1% followed by Brisbane 3.9% , Hobart 3.8% , Sydney 3.6% and Perth 3.1% . Hobart had the highest median lot size of the capital cities analysed over the quarter at 665m2 while median lot sizes in Adelaide were the lowest at 375m2. Based on the median land price and median land size, vacant land in Sydney is the most expensive on a rate/m2 basis at $533m2, slightly higher than Perth $527m2 . On a rate/m2 basis, Hobart land enjoys a significant discount $225m2 compared to other capital cities with Brisbane having the second cheapest value at $398m2. Over the 10 years to December 2011, the rate/m2 on residential land has increased at a significant rate across each capital city. The compound growth rate over the past 10 years is detailed below for each city: Sydney – 5.4%pa Melbourne – 11.7%pa Brisbane – 12.9%pa Adelaide – 14.4%pa Perth – 13.7%pa Hobart – 16.5%pa Interestingly, if you compare the compound growth rate for land prices over the period to growth in overall house values it appears that the land component is becoming much more expensive while the value of the house is becoming comparatively more affordable. Listed below are the ten year compound growth rates for capital city houses: Sydney – 3.9%pa Melbourne – 7.3%pa Brisbane – 8.3%pa Adelaide – 7.9%pa Perth – 9.9%pa Hobart – 9.7%pa These figures lend weight to the argument that excessive charges on new development are inflating the cost of purchasing homes, particularly new homes. So too is the limited supply which is highlighted by the fact that although the volume of transactions has collapsed we continue to see an increase in the value of vacant residential land. Overall, it looks as if the supply side constraints in the new land market are going to persist over 2012. Building approvals data which is available to February 2012 showed that the number of detached houses approved for construction 7,214 was at its lowest level since October 2011 and was -18.2% lower than the 10 year average level. As yet there has been no significant or sustained improvement in these figures, in fact they have been trending lower since the year 2000. With successive interest rate cuts delivered in November and December of last year and probably more cuts to come over the coming months, we may see some improvement in the volume of transactions in 2012. However, despite the fact that volumes are at such low levels, median prices continue to rise highlighting that the limited supply is leading to increased prices. A supply side response is therefore likely to result in lower levels of growth in values or potentially a reduction in the price of vacant land. Let me know what you think, what should or could be done to improve the affordability of vacant land?

The Reserve Bank is in a real bind

Following a raft of economic data which has come out recently I felt it was important to reflect on this data. It is obvious that the Reserve Bank RBA is currently in a very tough predicament. While much of the data is proving to be quite negative and providing a clear case for interest rate cuts, every now and then other pieces of data highlight that perhaps things aren’t so bad. Most notable of these data releases was the labour force data which despite most economists expecting an increase to the unemployment rate it remained at 5.2% and the participation rate actually increased. As most people will know, official interest rates are currently sitting at 4.25%. Now over the past 20 years, the cash rate has sat at an average of 5.15%, much higher than its current setting. Although the cash rate is at above average levels, standard variable mortgage rates are sitting at 7.4% which is fairly close to the 20 year average level 7.35% . In recent years the major banks have sought to de-couple mortgage rates from official interest rates. As a result, we now have a situation where the official cash rate is almost 100 basis points below the long-term average however; mortgage rates are sitting at average levels. As a result, the amount by which the RBA is able to influence repayments on our largest asset class housing has been lessened over recent years. Looking at the RBA website, their official role is detailed at this link. A lot of the data suggests that we are pretty close to full employment and that we still enjoy economic prosperity and welfare. However, many would argue that the current high currency is providing instability. Although these are stated as their official role, in their agreement with Federal Government this ostensibly means keeping inflation between 2% and 3% over the economic cycle. So looking at inflation and keeping in mind new data will be out later this month, headline inflation is currently recorded at an annual rate of 3.0%. The RBA’s preferred measures of ‘underlying inflation’, the trimmed mean and weighted median are both well within the target range, recorded at 2.6%. The most recent data available shows that headline inflation is at the top end of the target range but it is falling and underlying inflation is right around the middle of the band. Obviously the RBA is concerned about inflation and with good reason. Glenn Stevens was made Governor of the RBA in September 2006 and since December 2006, headline inflation has been recorded at an average of 3.0%, right at the top of the target band. More concerning is the fact that the RBA’s preferred measures have been recorded at an average of 3.2% trimmed mean and 3.5% weighted median . Given this, it is no real wonder that the RBA decided not to cut interest rates this month. The RBA’s track record of hitting their inflation target has not been strong and they want to be as sure as possible before making any decision. As I see it, it is fairly clear cut that another interest rate cut is required to help the economy, particularly if you take just a quick look at some of the recent negative economic data releases: GDP – Australia’s economy continues to grow however, it is growing below the long-term trend Property values – despite a stabilization over the first quarter of 2012, they are down -4.4% over the year Consumer sentiment – the index continues to fall with pessimism outweighing optimism and the index is -10.2% lower than at the same time last year. Business conditions – improving but still not particularly strong Building approvals – continue to weaken and are -15.2% lower than they were at the same time last year Housing finance data: When refinances are removed the value of finance commitments has risen by just 1.7% over the past year The number of non-refinance commitments remains at low levels and has increased by just 3.6% over the year Retail trade – remains quite sluggish having increased by just 2.0% over the past year Growth in demand for credit by the private sector remains benign: Total credit has risen by just 3.5% over the past year Housing credit has risen at an historic low rate of 5.3% over the year Of course, times have changed in the Australian economy; consumers are saving again and credit isn’t as freely available as it used to be. Although the Australian economy hasn’t entered into a recession it certainly seems that our mind set has changed and we are at least trying to be less reliant on borrowed money. What that is likely to mean is that property values, building approvals, housing finance, retail trade and credit demand will grow at levels lower than those we have become accustomed to. In saying this, just because the consumer mindset has changed it doesn’t mean we have to have a recession. In my mind, we will see an interest rate cut next month as long as inflation is within the target range. However, I don’t envy the RBA’s position, although a lot of the economic data looks bad they have been caught out before. The significant growth in the mining sector is boosting the overall economy, the unfortunate thing being that most of us aren’t reaping these benefits. Factors such as falling property values and lower levels of construction feed back in to consumers showing less inclination to spend which in-turn feeds back in to lower levels of consumer and business sentiment. If we aren’t careful it could also lead to higher levels of unemployment and lower levels of economic growth or even a recession. Let me know what you think. Was the RBA right to leave interest rates on hold and do you think they will do so again next month?

Population centralization…the Australian way!

The Australian Bureau of Statistics ABS recently released regional population statistics for the year to June 2011. These figures provide much more detailed statistics on population growth than the quarterly figures provided by the ABS and they allow a more in-depth analysis of population growth trends. Over the year to June 2011, the country’s population is estimated to have increased by 1.4%. The rate of population growth across the capital city markets 1.6% has eclipsed growth rates in regional areas of the country 1.2% . The figures show that of Australia’s estimated population of 22,618,294 persons, 14,500,754 persons lived within the capital cities. This equates to 64.0% of the population residing in one of the eight capital cities. In fact, the five largest cities in the country Sydney, Melbourne, Brisbane, Perth and Adelaide accounted for 60.9% of the country’s population. Since 1996, there has been a steady increase in the proportion of the country’s population that is living in the capital cities. Across Australia, it is estimated that 8,117,537 persons live outside of the capital city markets. Across the country there is 53 non-capital city Statistical Divisions and approximately 45% of those persons living outside of the capital cities live in the ten most populous of these regions. Across each individual state except for Queensland 45.3% and Tasmania 42.4% the majority of residents live within the capital city. Even though Brisbane and Hobart don’t have more than 50% of the state population, they do still have the largest proportion of the population across all regions of the state. Of all the states, other than the Australian Capital Territory, Western Australia is the most centralized state with 74% of residents living in Perth. The other states which are heavily centralized include Victoria 73.6% , South Australia 73.2% and New South Wales 63.4% . Western Australia has been the fastest growing state over recent years and when looking at the regions with the greatest percentage growth over the most recent 12 months, Western Australian regions feature heavily. Although population continues to grow, the rate of increase has slowed markedly over recent years with only eight regions, five of which are in Western Australia, recording population growth of 2.0% or more over the year. Overall, the results highlight that Australia’s population remains heavily centralized with more than 60% of residents living within our five largest cities and these five cities are the only ones throughout the country that have a population in excess of 1 million persons. Given that the capital city markets tend to enjoy higher wages and have better job opportunities it is no surprise to see that so many residents choose to live in the major capital cities. In regional markets, the population is most centralized within those coastal regions adjoining the capital cities. This result indicates that residents that choose to live outside of the capital city tend to remain close. This is due to the fact that they can still commute to the capital city for work and these areas also tend to have a much more adequate supply of infrastructure including: roads, schools, retail, health and essential services. Especially when compared to those non-capital city regions in more rural areas of the country.

Mortgage stress…What mortgage stress?

For most people, the Reserve Bank of Australia’s bi-annual Financial Stability Review is a tough read. For anyone interested in the housing market however, the section on household balance sheets pages 41 to 46 is essential reading. Of particular interest is the analysis on mortgage arrears across Australia and the comparisons with other countries. The percentage of mortgages more than 90 days in arrears are a reasonable barometer of household mortgage stress; or what seems to be in the case of Australia, a lack thereof. Across the entire pool of mortgages nationally the report based on data from the Australian Prudential Regulation Authority shows that slightly less than 0.6% of housing loans are 90 days or more overdue. As the graph shows, the level of mortgage arrears has been trending upwards since 2003 and has recently shown an improvement, falling from 0.7% in mid 2011. International comparisons put this measure into perspective. The percentage of non-performing loans are the highest in the UK at just below 7% and the upwards trend is continuing , while the percentage in the Euro area is approaching 6% and the US shows an improving trend with non-performing loans now around the 5% mark. From state to state it can be seen the trends are somewhat different however, it should be noted that these figures are based on securitised mortgages only and they represent around 10% of all mortgages. Based on these figures, the resource rich states of Western Australia and Queensland are showing the highest rates of mortgage arrears. According to the RBA this is likely due to loans which originated between 2006 and 2008 “towards the end of the period of rapid housing price growth in those states which was followed by falls in prices”. It can be seen from the applications for property possession which are a leading indicator for loan defaults, that each of the states is likely to show an improvement in arrears rates going forward. It’s clear from the graph below which shows the regions with the highest housing loan arrears rates that most of the repayment pain in concentrated across the mortgage belts and areas with higher rates of unemployment. Even these regions aren’t showing an arrears rate above 1%. Overall, the findings show that the vast majority of Australians are responsibly paying down their debt. In fact, based on the most recent Household, Income and Labour Dynamics in Australia HILDA Survey, the RBA Review highlights that “many borrowers are repaying substantially more than required” based on their mortgage contracts. Additionally, the RBA Review suggests that the rate at which borrowers were making excess repayments on their mortgages increased over 2011. The RBA also suggests that the reduction in lending rates in 2011 coupled with the fact that most borrowers don’t change their regular repayment amounts when interest rates fall provides an additional buffer to offset any potential future setbacks to their income. The latest Financial Stability Review provides an endorsement to stability and resilience of the Australian housing market. If arrears rates were surging, as they did in the US, UK and Euro area there would certainly be some alarm bells ringing. In fact, the opposite is true and the leading indicators are suggesting arrears rates are likely to improve over the year.

Where can you buy a home under $300,000?

RP Data’s Property Pulse report released this week provides a comprehensive segmentation of median house prices by suburb across the capital cities. The research results showed that just 7.1% of capital city suburbs have a median house price less than $300,000. The lowest proportion was Canberra where there wasn’t a single suburb with a median house price under $300,000. Melbourne recorded just 2.6% of all suburbs with a median under $300k, Perth recorded 3.8% of all suburbs, Sydney 4.2%, Darwin 5.4%, Brisbane 13.1%, Adelaide 11.0% and Hobart had the highest proportion of suburbs at 41.0% with a median price under $300k. To provide a more granular analysis, I thought it would be interesting to look at where the most sales houses and units were occurring under the $300,000 mark. Interestingly, when you break the analysis down to a finer level like this, based on actual sales rather than median prices, across the country the results are a little bit different but still highlight the low proportion of very affordable properties in some locations . The table below shows the proportion of properties that have sold since January 2011 to now where the sale price was under $300k: No surprises that the regional markets offer much more affordable price points, as do the smaller capital cities of Hobart and Adelaide. Importantly, around 10% to 15% of all dwelling sales across the larger capital cities have transacted at price points under $300,000, highlighting the fact that affordable housing stock does exist… you just need to know where to look. It also helps if you don’t mind a long commute into the CBD and/or owning an apartment rather than a house. The tables below show the top 20 suburbs across both the capital cities and the regional markets of each state and territory based on the number of dwelling sales recorded at a price under $300,000 since January 2011.

First home buyer activity eases but still in line with the long-term average

The January housing finance data was released this week and it showed, as predicted, a slowdown in activity by first home buyers in January 2012. There are a couple of points to note about these results: The fall in volumes was anticipated given the removal of first home buyer stamp duty concessions in the country’s largest housing market, New South Wales; and The figures are not seasonally adjusted so you typically see a sharp slowdown in January each year due to many buyers and sellers being on holidays The data shows that the number of first home buyer finance commitments fell by -21.6% over the month however, non-first home buyer finance commitments to owner occupier volumes fell by a slightly lower but similar -18.7% over the month. At this time of year it is much more telling to look at the proportion of first home buyers compared to all owner occupier finance commitments. Over January 2012, there were 8,172 owner occupier finance commitments to first home buyers which equated to 20.3% of all owner occupier finance commitments. It was also right in line with the five year average proportion 20.4% and it was much higher than the 16.2% of all owner occupier finance commitments in January 2011. It’s also telling to look at the difference in the number of first home buyer finance commitments this January compared to last year. The number of first home buyer commitments in January 2012 were 44.7% higher than what was recorded in 2011. On the other hand, non-first home buyer finance commitments in January 2012 were only 10.1% higher than the previous year. At an individual state level the proportion of first home buyers increased across all states and territories except for New South Wales and the Australian Capital Territory over the past month. The proportion of loans to first home buyers in January 2012 varied from 14.0% in Tasmania to 23.0% in the Northern Territory. At the same time in 2011, the proportion of first home buyer loans varied from 13.1% in South Australia to 18.2% in Western Australia. Across each state except Tasmania the proportion of first home buyers in January 2012 was higher than in 2011. We certainly aren’t expecting first home buyer volumes to come roaring back in 2012 however, activity has been improving on the back of an improved affordability scenario. Next month’s data should start to provide more clarity about any trend that is developing with regard to first time buyer activity. We would expect that lower property values and higher rental rates which is what we are currently seeing is likely to attract more first home buyers into the market. The exception of course is likely to be New South Wales with much of the demand brought forward due to the incentives for first home buyers that were in place in late 2011.

Will Australia’s rate of economic growth improve in 2012?

The Australian Bureau of Statistics ABS released the National Accounts for the December 2011 quarter this week. The results continued a downwards quarter-on-quarter trend in weaker economic growth across Australia. Gross Domestic Product GDP is defined as the total market value of goods and services produced in Australia within a given period after deducting the cost of goods and services used up in the process of production but before deducting allowances for the consumption of fixed capital. Essentially it measures the size of the Australian economy and measures whether the domestic economy expanded or contracted. Over the December 2011 quarter the economy grew by just 0.4% after increasing by 0.8% in the September 2011 quarter. Over the 2011 calendar year, the economy grew by 2.3%; a rate of growth which is below the long term trend of 3.4%. A recession is technically defined as two consecutive quarters of negative economic growth. As the above chart highlights Australia hasn’t recorded a recession since the June 1991 quarter the recession we had to have according to Paul Keating . Over the past 20 years, the average annual rate of economic growth has been recorded at 3.4%, as you can see economic growth is currently more than a full percentage point below this 20 year trend. In fact, the annual rate of economic growth has consistently been below this trend level since the December 2007 quarter, four years ago and right before the onset of the Global Financial Crisis GFC . One of the many reasons why economic growth has been slower since the onset of the GFC can be attributed to the increase in the household savings ratio. The latest data shows that the household savings ratio is currently sitting at 9.0% and although the ratio has eased somewhat in recent quarters it remains at much higher levels than what has been recorded over recent years. Over the past 20 years, the household savings ratio has been averaged 4.5% indicating that current household savings levels are double the long-term average. As mentioned, economic growth has been below average since the December 2007 quarter and since the December 2007 quarter, the household savings ratio has averaged a much higher 8.8%. Obviously, there are many other factors that impact economic growth however, if households are saving money rather than spending money there is a flow on effect right across the economy; lower demand for retail and manufactured goods and lower demand for housing purchase and construction . The table below highlights how certain industries have really felt the effects of the slowdown since the onset of the GFC and subsequently since Australian’s started saving more. Although certain industries have shown very low levels of expansion over the period, others – more essential sectors of the economy – have continued to expand. Overall, less spending by Australian households has flow on affects right across the economy. It also appears that a greater level of saving is a direct contributor to lower levels of economic growth. There are other factors to consider such as the higher Australian dollar and the weakness emanating out of other international economies to consider as to why economic growth has been slower. In stating this, it appears that industries such as accommodation and food services, manufacturing, real estate and retail are likely to continue to underperform until such time as Australian consumers once again show a preparedness to spend their disposable income. Recent forecasts from the Reserve Bank within their latest Statement on Monetary Policy suggested that annual GDP over the December 11 quarter would be 2.75%, higher than the 2.3% recorded. Their forecasts also show that they expect that GDP will grow between 3% and 4% on an annual basis to the June 2014 quarter. Given that their recent forecasts have been a little high and they have commented that the Australian economy is growing at a trend rate when it hasn’t been we’d like to find out from you how you think Australia’s economy will perform over the next few years.

Dispelling the myths about our new Index methodology

RP Data along with our strategic partners Rismark International released two world firsts this week; the world’s first genuine “daily” house price index suite, which will cover all the major cities and the national market. the world’s first house price indices that track the change in the value of the overall asset class rather than simply tracking changes in the performance of just those properties that transact. Obviously this is a new way to measure housing markets and as such there are a lot of questions around how we can produce such a high frequency / low volatility measure which is just one day in arrears. The points below explain how the index is calculated and how we, together with Rismark International, produce the most timely home value index ever. The methodology used is an improvement on our existing hedonic methodology. It provides a more accurate measure of the housing market by utilising what is known as a hedonic imputation methodology the previous methodology was an adjacent period hedonic calculation . Although these measures are both calculated using a hedonic regression methodology there are significant fundamental differences on how the results are calculated. The hedonic method allows us to understanding the value associated with each attribute of a property ie, land area, living area, bedrooms, bathroom, location, view, car parks, etc. we observe selling. As such we can then ‘impute’ the value of dwellings with a given set of known characteristics for which there is no recent sales price by observing the characteristics and sales prices of other dwellings which have recently transacted. It then follows that changes in the market value of all residential property comprising an index can be accurately tracked through time. The most important difference is that the new methodology is calculated based on the entire housing market, not just those properties that transacted over the reporting period. Previously we would bundle all the transaction data we had collected over a month and calculate the index results using data from only those homes that had transacted in the period. We previously did this by observing only sold properties in a given month and used the hedonic method to separate price changes associated with the differences in the composition of the various properties trading month to month from those changes associated with variation in the underlying residential property market value. Whereas, the new imputation method ‘imputes’ the value of all properties utilizing all know data up to the date of calculation The annual volatility measurement of the new imputation based index is about the same as the previous adjacent period measurement. Thanks to the daily frequency, for the first time ever we can now see intra-month movements of dwelling values. The ‘new’ index imputes the value of every Australian home each day taking into consideration every single data point we knew about the housing market at the point in time of calculation. Factors such as lot size, the number of bedrooms and bathrooms, car spaces and whether the home has a swimming pool or view are some of the hedonic attributes factored into the analysis. Based on a flow of around 1,400 new transactions received each day as well as a constant flow of new attribute data our most accurate view of the imputed value of the property market is updated each day. Unlike the previous methodology, the new imputation methodology does not get revised. Because the index is calculated using every data point available on the day, each day the index value updates it is incorporating the full set of attribute and transaction data available. Time variables are applied such that less recent sale information is benchmarked up to today using our knowledge of the most recent sales. While the most recent sales have the greatest influence on the change in the index, all of the information received on a given day include sales we’ve just learned about which may have occurred a few weeks ago is important in calculating the daily value. An important requirement of the design of the index and its subsequent audit, was that the index be an accurate reflection of current market conditions. The daily index which is being published is not seasonally adjusted. Given that the Index has been designed to be tradeable more on this below , the absolute change in dwelling values is the preferred measure. We are currently undertaking a review of the seasonal adjustment method used. A seasonally adjusted series will be available to our subscribers and we will be publishing a seasonally adjusted analytical series within our monthly summary in the coming months once our review is complete. The index is designed for high frequency publication to facilitate trading liquidity. The Australian Securities Exchange ASX is a partner in this project and their intention is to build tradeable products from this Index. Note that these products are not yet available and will be subject to regulatory approval. The daily updates are available at both the ASX web site and at www.rpdata.com. The daily index is only able to be produced due to RP Data’s enormous investment in aggregating and collecting data and with a significant investment in processing infrastructure. RP Data spends more than $10 million dollars each year on data collection. The production of the indices each day takes approximately eight hours of processing time overnight on very fast servers. Imputing a value of every Australian property and calculating the change in those values overnight simply wasn’t possible several years ago. Unlike any other house price indices that are commercially available, our Index has been independently audited by both Alex Frino and KPMG. Additionally the technical papers can be viewed here. Please post any further questions you have and we will endeavour to answer any further questions.

Jobs remain heavily centralised within the capital cities

We have suggested several times on our research blog that, as a nation, Australia needs to see more geographic diversity in the labour market. A wider geographic distribution of full time employment opportunities would imply a lessening in demand pressures in capital city housing markets and an improvement in regional demand levels where housing affordability is generally less of an issue. An analysis of the latest detailed release of labour force data from the Australian Bureau of Statistics shows there has been virtually no change in how the geographic distribution of full time jobs has been divided between the capital city and regional locations of each state. Since 1978 when the ABS series commences the proportion of full time employment located in the capital cities has been between 65% and 67%. Across the states, Victoria shows the highest concentration of full time labour within the capital city 75.5% of full time jobs are located in Melbourne . Western Australia and South Australia aren’t far behind, with 73.4% of full time jobs located within Perth and Adelaide respectively. Queensland and Tasmania have a much higher level of geographic dispersion in the labour market with 47% of full time jobs in Queensland being located within Brisbane and 43% of Tasmania’s full time work force located in Hobart. The percentage of jobs within the capital cities are roughly equivalent to the proportion of population residing within the capitals as would be expected… the population is going to be most concentrated where the jobs are and vise versa . While the capital cities are always going to the economic and financial centres of the country, a focus on jobs creation outside of the capitals needs to be long term strategy. There are a lot of challenges that need to be overcome in order for jobs to spread outside the capitals; arguably a high speed transport network or the lack thereof is the most obvious one, but there needs to be a lot of other infrastructure such as health care and educational facilities. As we pointed out in a previous blog, most of Australia’s largest companies insist on being headquartered in a capital city. In contrast, in the USA many of the most significant US based corporations are located in some of the smaller cities. A good example is Omaha, Nebraska which accounts for just 0.3% of US population and is home to 5 of the top 500 companies in the US. We need to see more leadership from the Federal and State governments in establishing regional labour markets by locating Government departments outside the capital cities and creating the infrastructure framework required to lure private business away from the traditional business centres.

New mortgage commitments setting the scene for improved buying activity

The number of housing finance commitments continued to improve in December, rising 8.7% over the quarter according to the seasonally adjusted series from the ABS released this week. The adjusted figures for December were the highest since March 2010; a strong sign that a degree of health is returning to the housing market; at least at a national level. Looking at the state by state data provides a clearer understanding of where most of the activity is occurring. New housing finance commitments were up a stunning 19.6% in New South Wales and 13.9% in Western Australia. The Northern Territory also showed a strong improvement with total commitments up 20.6%, however the series is much more volatile than in the larger states. Looking specifically at New South Wales, where housing finance commitments comprise just under one third of all commitments nationally 32.9% ; up from just 26.9% two years ago. The very large majority of new commitments are related to established dwellings 90.4% compared with just 5.5% for the construction of new dwellings and 4.1% for the purchase of new dwellings. The buyer types have swung quite dramatically towards first home buyers, with this segment of the market comprising 26.4% of all owner occupier commitments in December up from a recent low of 15.8% in September earlier in the year . In fact, first time buyer finance commitments were up 76.1% in December 2011 compared with December 2010 compared with a 2.4% rise in non first home buyer commitments. The significant rise of first time buyers highlights the affect of stamp duty exemptions the New South Wales Government provided over the September quarter and in all likelihood we will see the number of first timer loans fall away sharply over the first few months of 2012. First home buyer’s aside, my view is that we are likely to see housing finance commitments continue to show modest improvements over the coming months. New mortgages excluding refi’s went as low as 28,131 in February 2011 – a level not seen since May 1995. Mortgage commitments correlate very well with housing sales; and with transaction levels running around 15% below the five year average towards the end of last year, an improvement in selling volumes will be very much welcomed by the industry.

100 suburbs with the highest gross value of home sales

The real estate industry is doing it tough. Transaction volumes last year were about 13% lower than 2010, 26% lower than 2009 and 33% lower than the recent highs of 2007. A slightly larger decrease applies to real estate agent commissions, due to the fact that agents are generally paid based on percentage of the sale price; falls in home values have compounded the pain already caused by slow market conditions. Based on the total value of sales in 2011, which were down 18.3% compared with 2010; agent commissions are likely to be down about the same amount. At the same time, according to the latest IBISWorld Real Estate Industry report, the number of people employed in the industry has fallen by around 1,800 over the past year after rising by 940 employees in 2010/11. The reduced number of agents suggests the commission pie needs to be cut into fewer slices, which is likely to have eased the income fall on a per agent basis. In fact, the report suggests that income per employee in the real estate industry hasn’t change a great deal over the past four years, remaining around $59,000 since 2008 after generally trending down since 2002. For real estate agents or agencies looking for what are potentially the most lucrative markets around the country, the below table outlines the top 100 suburbs across the country based on the gross value of combined house and units sales. Clearly the level of competition needs to be assessed in these markets, however the list makes a good start. More than half of the list shows a median house value higher than $1 million dollars, highlighting the fact that prestige markets attract significant commissions; but keep in mind that sales volumes in many of these areas tend to be lower so competition for income is generally tight. Another interesting observation is the change in rankings over the past five years I’ve included rankings based on the total value of sales last year, in 2010 and five years ago . Suburbs such as Kew Melbourne ,Castle Hill Sydney and Paddington Sydney have moved into the top ten; Paddington has seen the biggest shift, five years ago the suburb was ranked 27th based on the gross value of sales. Areas of the Gold Coast have slipped down the rankings due to falls in both value and volumes, however Surfers Paradise remains in the top ten slipping from the number two position five years ago . Hope Island is the second Gold Coast suburb to make the list at number 70 ranked 9th nationally five years ago , while Southport is now ranked 86th after previously being the 7th highest grossing suburb five years ago. Outside of the capital cities and Gold Coast, Port Macquarie recorded the highest gross value of sales last year and is ranked 21st no change over last year and five years ago . The suburb of Orange has shown a surge upwards in the rankings, moving from 137th nationally five years ago to 54th last year. PDF document: Top 100 suburbs, total value of house and unit sales

The gap between variable and fixed interest rates has just passed a historic peak. Is it time to fix?

An interesting fact in the latest Australian Bureau of Statistics Housing Finance data was the continued trend towards fixed rate loans. The data showed that over the month of November 11.1% of borrowers opted for a fixed rate mortgage; that’s the highest percentage of fixed rate commitments since June 2008. It’s interesting in the sense that rate cuts were widely anticipated prior to the first actual cut in November; in fact speculation that interest rates could potentially fall started as early as July 15 when Westpac’s Bill Evans made the call that rates were likely to start heading south –by August Bill’s early call was more widely accepted. Why then was the proportion of fixed rate loans still increasing? Likely the answer comes back to consumer conservatism and the desire for certainty in mortgage payments. Another reason for the upswing in fixed rate mortgages comes back to the widening gap between variable and fixed rate loans. In November, the average interest rate on a three year fixed loan was 6.4% compared with the average variable rate of 7.55% – a gap of 1.15 percentage points which is only slightly lower than the October 2011 gap which was 1.3 percentage points the largest positive gap on record . We would need to see more than four standard ie 25 basis points rate cuts fully passed on by the banks for the variable rate to get this low. Clearly many borrowers saw the value in locking their mortgage into a fixed rate when the variable rate was so much higher. Of course the cash rate and variable rate has been cut twice since the start of November and by January the average standard variable rate was 7.3%. The average three year fixed rate has fallen to 6.35% – a slightly narrower gap of .95 basis points. With further speculation about rate cuts over 2012 financial markets are predicting rates will fall by almost another 100 basis points by the end of this year we may find that fixed rates slip a bit further yet. It’s interesting to look back at how consumers chose to structure their loans during the 18 months leading up the GFC. At the time housing values were surging firstly in Perth, then in Brisbane, Melbourne and Adelaide , interest rates were accelerating upwards and the absolute severity of the looming GFC simply wasn’t on the radar. More than a quarter of new housing loans were locked into a fixed rate contract just before the peak of the interest rate cycle average variable interest rate peaked at 9.6% in July/August 2008. Those that fixed their rates at this time were soon to be sorely disappointed because rates took a swift diver to historic lows from September 2008. That large hump of fixed rate mortgages have been expiring and continue to work their way through the refinance process – one of the reasons that refinance activity has been consistently trending upwards up 12.5% on a year ago based on the November ABS data . So the big question is, for prospective home buyers, would you opt for a fixed or variable rate mortgage?

How has the rate of decline in the Aussie housing market measured against the US, UK and NZ?

Based on CoreLogic’s House Price Index HPI , it’s been 69 months since the US housing market peaked. Since the national index for ‘single family combined homes’ reached its high point back in April 2006, US home prices have fallen by 32.8%. The first three years of US home prices coming down could be characterized as a reasonably steep downwards trajectory. Using a compounding growth rate, between April 2006 and April 2009 the annual rate of decline averaged 11.4% or 30.5% overall. Most of the home value destruction was over and done with in the first three years directly after the market peaked. Home values have come down a further 1.9% year on year on average since that time. Note, if you would like a complete run down on the US housing market, you can’t go past the ‘Market Pulse’ report from CoreLogic January’s report was released last week . Similarly, in the UK based on the Halifax Index the initial period of decline showed the steepest trajectory with home values falling by 10.5% per annum over the first 24 months post peak. Using Property IQ’s House Price Index for New Zealand we can see a similar trend with the steepest trajectory of decline being recorded across the first 16 months after price peaked down 9.6% over that period or 7.7% on an average annualized basis . Looking at Australia, while there isn’t a long time series of data since the market peaked back in October 2010, values are down 3.8% in total 3.5% on an average annualized basis . The downwards trajectory in Australian dwelling values fits reasonably closely with the US trajectory over the same 13 month time frame US prices were down 4.4% over the first thirteen months post peak compared with the 3.8% fall in the Australian market . Six months later the US market was recording falls of 1-2% month-on-month as the US banking sector imploded, unemployment and mortgage defaults rose swiftly and the GFC spread around the world. If the November results from the RP Data – Rismark Hedonic Index remain consistent November month on month result was +0.1% s.a. and we see another flat result for December, it may provide the best indication yet that the Australian housing market is flattening out. The risk of a US style housing meltdown are looking increasingly remote. The key factors to watch will continue to be interest rates and the labour market data. With inflation tracking lower than expected, speculation about further rate cuts is likely to improve market sentiment. In balance, unemployment is ticking upwards and the banks are looking unlikely to pass on any cash rate cuts in full. Overall I think we can expect market conditions to remain reasonably flat over the first six months of 2012 at least.

Finance approvals increase along with values in November…better times ahead?

The volume of housing finance commitments to owner occupiers increased for the eighth consecutive month in November, up 1.4% over the month and 4.6% over the year. Of course, from a housing market perspective it is important to separate owner occupier commitments for refinances and non-refinances. Refinances create business for banks and mortgage brokers whereas for real estate agents and those in the construction industry non-refinance commitments are most important. Housing finance commitments, exluding re-fi’s to owner occupiers, increased by 2.5% over the month and it was the seventh time in the last eight months commitments increased. Refinance commitments on the other hand fell for the second month in a row, down 2.5% over the month. It would appear that the surge in refinance activity that has occurred since the middle of 2010 is now abating. Over the year, non-refinance commitments have increased by just 1.0% while refinances are 12.5% higher. Despite the fact that there is some positive movement in non-refinance loans, commitments for the construction of new dwellings continues to disappoint, down -0.4% for the month and down -6.3% over the year. While finance commitments for new construction fell, commitments for the purchase of new dwellings rose by 1.9%, the second successive monthly increase and commitments for the purchase of established dwellings increased by 1.6%, the eight consecutive monthly increase. While the number of commitments for the purchase of established dwellings has increased by 7.1% over the year, commitments for the purchase of new dwellings has fallen by -11.7%. The weak housing finance data for new dwellings highlights the challenges developers and builders are facing as the market continues to focus on existing housing supply rather than new housing stock; an issue which probably relates to price sensitivity and a preference for living closer to the city within established neighbourhoods. Additional data highlights that the number of first home buyer finance commitments is trending higher. In November, first home buyers accounted for 20% of all housing finance commitments with 10,136 commitments. The 20% share of the owner occupier market was the highest proportion since February 2010 and the 10,136 commitments was the greatest volume since December 2009. Just 9 months ago the proportion of first time home buyers in the market was below 16%. Across individual states, the number of first home buyer commitments was the highest since October 2009 in New South Wales, December 2009 in Queensland, Western Australia and the Australian Capital Territory, January 2010 in Tasmania and September 2010 in the Northern Territory. The result suggest that the lower interest rate environment and the fact that home values have been falling for most of the last 12 months is encouraging a greater number of first home buyers into the market. In terms of the value of finance commitments, there has also been an increase over the month with commitments up by 2.1%. The value of owner occupier commitments rose by 2.2% compared to a 1.8% increase in investor finance commitments. Total commitments excluding refinances rose by 2.8% over the month, the largest monthly increase since September 2009. The increase in the value of finance commitments to go along with the increase in volumes and is a welcome development for housing market participants. Overall, the results highlight that the interest rate cut in November had a positive impact on demand for housing finance. The impact of the cut has also been reflected by the first positive monthly movement in home values 0.1% since December 2010 and a 6.3% monthly increase in consumer confidence however, it did nothing for retail trade with figures flat over the month. From here it will be interesting to see whether the improvement gathers pace as the November rate cut was followed by a further interest rate cut in December and the prospect of more cuts in 2012. Undoubtedly rate cuts, plus the fact that home values have been in decline for much of 2011 improve housing affordability and make buying a more attractive prospect. Not to mention that over the past 12 months rental accommodation has become more expensive with capital city rental rates up 5.0% over the year. However, despite the December rate cut, consumer confidence fell in December by -8.3% which indicates that lower interest rates alone may not be enough to lure consumers back to their old spending patterns. With consistent reporting of the weak European economy weighing heavily on the attitude of respondents, many felt that the economy and their finances were going to be in a weaker position over the next one to five years. If these feelings are reflected throughout the community demand for housing finance may remain at low levels despite the recent improvement. In which direction do you think housing finance is headed from here?

Will the resources sector continue to ‘boom’?

Well, the experts certainly think so. If you have any interest in the resources sector, arguably the best source for information is the Bureau of Resources and Energy Economics BREE . Their most recent forecast for the 2011/12 financial year is a 15% increase in the value of Australian energy minerals and metals over the previous year, bringing the total value to over $200 billion which is a record for export earnings. The number and value of advanced resources projects is at an all time high with most of these projects located in Queensland 31 and Western Australia 40 . Additionally there are a further 404 ‘less advanced’ projects that are either undergoing feasibility study, awaiting approval or awaiting final investment decisions. These include 14 proposed LNG developments which have the potential to add 75 million tones to Australia’s annual LNG production capacity. BREE also point out that there are 15 less advanced iron ore projects which have an estimated capital expenditure of $1 billion or more. In their ‘Resources and Energy Quarterly’ for December, BREE outline their forecasts for the sector and acknowledge there is some risks based on the global economic woes, specifically European sovereign debt and the liquidity crisis. Additionally there has been some weakening in the spot prices for key commodities such as iron ore and metallurgical coal. The bulk of the demand for mineral and energy commodities will continue to be supported by China, India and other non-OECD economies. Within the OECD, demand for Australian commodities is likely to be strongest in Japan where the infrastructure spending post earthquakes and tsunami will be high. Economic growth is likely to slow across our major export markets China GDP is projected to ease to 9%, India’s economic growth is expected to slow to 7.5% and Japan’s economy should increase by 2.3% however BREE have suggested the improved economic conditions in the ASEAN countries, where GDP growth is expected to be around 5.5%, should offset any slowdown in export growth. Growth across the sector will be accompanied by employment growth. The size of the mining industry work force increased 19% during 2010/11 and is up by more than 170% over the past decade. BREE is forecasting improved performances in the volume and value of key Australian commodity exports. Exports of iron ore, which is Australia’s largest commodity market, is forecast to increase by 13% in volume and 11% in value. The export of metallurgical coal, the second largest commodity export, will rise by 7% in volume and 13% in value. Based on the above information it looks like the resources sector will continue to benefit from ongoing demand for Australian commodity exports. A direct benefit will continue to be seen in those housing markets that are closely tied to each of the respective commodity markets and the major service centers that provide essential services and a large component of the labour force to the mining regions. Mining related investments are of course very sensitive to movements in commodity prices and global demand; however there doesn’t appear to be any cracks emerging in these markets just yet. The indirect benefit, of course, will be seen in robust local economic conditions and a continuation of the two speed economy. The most recent forecasts from the RBA show GDP growth at 4% by June 2012 before easing to 3-3.5% by December 2012 and underlying inflation tracking around 2.5% to 2.75%.

How much more finance for housing is there likely to be over the next 12 months?

The Australian Bureau of Statistics ABS released its monthly housing finance numbers for October this week which provided some interesting reading. Broadly speaking, the results are split by investment finance commitments and owner occupier commitments. For the owner occupier commitments the ABS publishes data which shows both the volume and value whereas for investment they only publish the value. Although ‘volume’ provides a better measure and is not affected by compositional changes in the type of stock transacting like the ‘value’, both provide a good insight into how the market is performing. In terms of the volume of owner occupier finance commitments, these increased by 0.7% over the month and by 6.3% over the year. The volume of owner occupier finance commitments increased for the seventh successive month in October. At RP Data we like to drill down further into the data, looking at the volume of refinance commitments which create no new transactions and the volume of non-refinance commitments more reflective of a property transaction . In October, refinance commitments fell by -1.8% however, they are 17.8% higher over the year. On the other hand, non-refinance commitments rose for the eighth successive month and increased by 2.0% in October. Over the year, total growth in non-refinance commitments has been fairly limited at just 1.2% however, over the last eight months the volume of commitments has increased by 10.6%. The data shows that in recent months non-refinance activity has grown however, over the last 12 months the growth in owner occupier finance commitments has almost entirely been driven by refinancing activity. If we focus on the total value of housing finance commitments we see that the total value fell by -2.5% over the month with owner occupier finance commitments falling by -1.2% and investment finance commitments down -5.5%. Once we remove the value of refinance commitments, the total value has fallen by a lower -2.4% over the month. Over the past 12 months, the total value of finance commitments have fallen by -0.7% with owner occupier commitments up 3.5% and investment commitments down -9.3%. When refinances are removed from the data, the total value of housing finance commitments have fallen by -5.4%, slightly greater than the -4.0% fall in capital city home values over the same period. Over the last decade, the total value of housing finance commitments has increased at an average annual rate of 5.9% while over the same period, capital city home values have increased by 6.4% annually. Over the same period, the total value of housing finance commitments excluding refinances have increased at an average annual rate of 4.7%, growing more slowly than both capital city home values and total housing finance commitments. Clearly the availability and growth in housing finance has contributed to the growth in property values over the past decade. Since the beginning of 2009, capital city home values have increased by a total of 13.2% however, growth in housing credit has been much more limited. The total value of housing finance commitments has increased by a total of just 2.7% since the start of 2009 almost three years and when refinances are excluded growth is again much lower at just 0.7%. Despite the fact that the volume of housing finance has been picking up over recent months it does not look as if there will be a rapid expansion in credit for housing over the coming year. The European sovereign debt problems look as if they will persist at least during the first part of the year, likely resulting in limited credit availability. Australian households are continuing to take a cautious approach saving 10% of their disposable income and the latest results of the Westpac-Melbourne Institute Consumer Confidence Survey show that 34.9% of respondents believed that the wisest place for savings was either a bank, building society or credit union with a further 26.6% believing that paying down debt was the best way to save. Overall, these options accounted for 61.5% of responses. Clearly the typical consumer knows that their debt levels are high and the responsible thing to do is have less debt. In light of these figures, I would suggest that the growth in housing finance may increase a little further but it will likely take some time until we see the value of housing finance commitments growing at an annual rate of around or in excess of 5% annually oncemore.

Property values down, retail struggling, Europe in debt, but our economy continues to grow

It seems there has been a raft of bad news of late with property values falling, limited growth in housing finance, lower levels of consumer confidence, limited retail activity, low levels of housing construction and Europe in the midst of a debt crisis. However, despite all the bad news stories, the Australian Economy has continued to grow over the past year and has now not been in recession since the June 1991 quarter, 20 years and one quarter ago. The Australian Bureau of Statistics released Gross Domestic Product GDP figures this week for the September 2011 quarter. GDP measures the market value of all goods and services produced within an economy over a certain period. In essence, it identifies whether or not an economy has grown or contracted over that period. Over the September quarter, GDP increased by 1.0% following a 1.4% increase in the June 2011 quarter. Over the past year GDP has increased by 2.5%. Over the past decade, GDP has recorded average growth annually of 3.0% so in light of the overall state of the world’s economy the figure is quite good. The GDP data showed that consumers are continuing to act in a cautious manner with households saving 10.1% of their disposable income. This is an improvement on the 9.1% they were saving over the last quarter and continues the trend of households saving more since the onset of the Global Financial Crisis. In the years preceding the crisis Australian households were saving very little, in fact over the past decade households have saved an average of just 4.6% of their disposable income. Although savings are below their recent peak of 12.4% in December 2008 they remain at levels not previously seen since the mid to late 1980’s. The data also highlighted that disposable incomes are growing, having increased by 6.0% over the 12 months to September 2011. Clearly much of the growth in disposable incomes is being saved as highlighted previously. Although many Australian’s feel as though they are doing it tough, and undoubtedly some are, disposable incomes have grown at an average of 4.1% over the past decade indicating that disposable income growth is currently at above average levels however, Australians are generally choosing to pay down debt and save rather than spend. In light of this many Australians likely feel as if we have less money due to the fact that we are paying off debt and saving at rates we haven’t done so in many years so in effect it feels as if we have less money. Although households continue to save, the growth in disposable incomes is leading to growth in household consumption. The GDP figures reveal that household consumption is continuing to grow, up 1.2% over the quarter and 3.8% higher over the year. Household consumption has grown at a rate above the decade average of 3.4% over the past 12 months. The data also revealed that the expenditure on dwelling investment fell by -2.9% over the year but was up 0.9 percent over the quarter. The fall in dwelling investment over the year is reflective of weak new dwelling construction activity, falling property values and lower sales activity. While investment in dwelling construction has been extremely low, non-dwelling construction investment has surged, up 24.4% over the quarter and 32.7% on an annual basis. Overall, the GDP data highlights that the economy is continuing to grow however, consumers continue to take a cautious approach. In light of the ongoing volatile global economic conditions this is certainly not a bad approach and getting debt levels back to a manageable position is a good idea. The data also highlights the ongoing weakness of the housing construction sector. While consumers continue to act in a cautious manner it seems unlikely that there will be any substantial turnaround in housing construction activity nor is it likely that property values will show any significant growth.

154 capital city suburbs with a median house value under $300,000

There are plenty of affordable housing options across Australia’s capital cities; in fact there are 154 suburbs where the median value of a house is less than $300,000. Adelaide suburbs comprise the majority of these ‘uber’ affordable locations, comprising 28% of the list. Brisbane suburbs rank a close second at 24% of all capital city suburbs with a median value under $300,000, followed by Sydney at 18% then Hobart comprising 16% of all suburbs. note we are using median values in this analysis – RP Data values every residential property across the country each week using an automated valuation methodology – the median value provides a better indication than a median price about true value of properties within a suburb rather than simply the median price of any homes that have transacted over the analysis period . So why aren’t first home buyers and low income families rushing into these markets? Well these suburbs are generally cheap for a reason and demand to live in these locations can be low. Often they are plagued with social issues and high crime rates, they are poorly serviced by transport options, the homes are interspersed with industrial land uses or the suburb is simply far removed from any working node, retail amenity or essential infrastructure such as schools and health care. Sometimes the suburb simply has a bad reputation based on what the suburb used to be like before it gentrified; reputations and stigma can be a hard thing to shake. The full list of suburbs where the median value is below $300,000 is included at the end of the post. The typical argument to improve housing affordability revolves around ensuring the Government releases a sufficient supply of strategically located land that is well connected with transport infrastructure and is associated with essential amenities. While there have been some areas around the country where housing supply has been sufficient, for the most part Australia remains an undersupplied housing market the National Housing Supply Council report is due for release shortly which will provide a much anticipated update to their housing supply report last released back in April 2010 . Moving away from the supply side debate, perhaps another idea to improve the housing affordability situation in Australia is to focus some efforts on improving the liveability within some of the more strategically located suburbs that currently feature low housing prices. The Brisbane SCIP Suburban Centre Improvement Projects program is a good example of how a Local Government can work with local businesses to improve the streetscape and outlook of a suburb’s commercial and retail heart. The outcomes from this programme rely on financial commitments from local stakeholders together with Government funding and in most instances the benefits of the investment well and truly outweigh the costs. Infrastructure spending is another solution. Opening up affordable suburbs that aren’t currently well serviced by public and private transport infrastructure increases demand for housing in these locations. New roads, rail and busways are expensive and considering the frugal nature of Federal and State budgets at the moment we can’t expect a great deal of improvement here apart from those projects already underway. Prospective home buyers seeking an affordable option would be wise to check out local infrastructure plans and projects and examine the housing markets along the path of these projects. Another course of action is to look at medium and high density housing options. Clearly more and more buyers are turning to apartments and townhomes as an alternative to detached home for the more competitive price points. Across the combined capital cities the difference between the median house price and median unit price is a substantial 11% or $50,000. Finally, if you are using median prices or values as a guide to help your initial property search, don’t forget that medians are simply the middle price or value. There are equally as many homes with a value lower than the median as there are homes with a value higher median. Many prospective buyers don’t consider a particular location because the median price is too high, forgetting that there are likely to be homes priced available at prices well below the overall median. A good idea may be to look at the range of sales over the past 12 months, that way potential purchasers can analyse the whole gamut of properties which have sold over the period. Housing affordability is a complex issue, and with the Government seemingly reluctant to make any serious commitments to improving housing supply or come up with any new ideas about how to tackle the situation as Caryn Kakas from the Residential Development Council pointed out in the Financial Review yesterday, the Government has no forward looking housing policy there needs to be some strategic consideration of other alternatives. Capital city suburbs with a median house value under $300,000 Suburb City Median Value Avg distance to GPO 1 GAGEBROOK Greater Hobart $140,382 16.km 2 HERDSMANS COVE Greater Hobart $145,846 15.5km 3 CLARENDON VALE Greater Hobart $169,487 9.4km 4 ELIZABETH NORTH Adelaide $172,044 26.km 5 BRIDGEWATER Greater Hobart $177,684 17.4km 6 ELIZABETH GROVE Adelaide $184,414 22.2km 7 DAVOREN PARK Adelaide $185,576 27.km 8 RISDON VALE Greater Hobart $187,829 8.1km 9 SMITHFIELD PLAINS Adelaide $193,682 28.7km 10 PRIMROSE SANDS Greater Hobart $197,200 27.6km 11 ELIZABETH DOWNS Adelaide $201,884 26.7km 12 ELIZABETH PARK Adelaide $208,486 25.1km 13 NEW NORFOLK Greater Hobart $213,719 25.1km 14 ELIZABETH Adelaide $215,514 23.7km 15 ELIZABETH SOUTH Adelaide $215,947 22.1km 16 CHIGWELL Greater Hobart $216,455 10.6km 17 ELIZABETH VALE Adelaide $221,744 20.8km 18 MUNNO PARA Adelaide $222,095 29.9km 19 ELIZABETH EAST Adelaide $223,373 23.5km 20 GOODWOOD Greater Hobart $223,952 6.8km 21 GAWLER WEST Adelaide $226,525 37.9km 22 ROKEBY Greater Hobart $229,308 8.7km 23 WILLMOT Sydney $230,879 41.6km 24 JOHNSTON Darwin $231,591 17.9km 25 CARLTON Greater Hobart $233,142 25.2km 26 TREGEAR Sydney $233,974 40.7km 27 WARRANE Greater Hobart $235,328 5.3km 28 HACKHAM WEST Adelaide $236,868 25.1km 29 LETHBRIDGE PARK Sydney $237,408 40.5km 30 RUSSELL ISLAND Brisbane $237,604 41.2km 31 SALISBURY NORTH Adelaide $237,869 20.3km 32 RIVERVIEW Brisbane $239,591 23.1km 33 WOLLERT Melbourne $240,202 22.3km 34 SMITHFIELD Adelaide $240,779 28.1km 35 LEICHHARDT Brisbane $240,930 33.7km 36 GAILES Brisbane $241,201 19.4km 37 BASIN POCKET Brisbane $241,743 29.5km 38 CLAREMONT Greater Hobart $243,433 12.3km 39 ONE MILE Brisbane $243,518 33.8km 40 MILLGROVE Melbourne $244,994 61.2km 41 BLACKETT Sydney $245,169 39.1km 42 LAMB ISLAND Brisbane $246,361 38.8km 43 WHALAN Sydney $249,067 39.1km 44 MELTON SOUTH Melbourne $250,386 36.5km 45 EMERTON Sydney $250,708 39.7km 46 CAROLE PARK Brisbane $251,797 18.4km 47 BERRIEDALE Greater Hobart $254,438 10.5km 48 O’SULLIVAN BEACH Adelaide $254,974 24.1km 49 GLENORCHY Greater Hobart $255,488 7.km 50 HUNTFIELD HEIGHTS Adelaide $256,225 26.3km 51 CHRISTIE DOWNS Adelaide $257,171 24.3km 52 MELTON Melbourne $257,523 36.9km 53 HACKHAM Adelaide $257,859 24.8km 54 EVANSTON GARDENS Adelaide $258,392 35.7km 55 SALISBURY DOWNS Adelaide $258,884 17.4km 56 SILKSTONE Brisbane $259,808 29.1km 57 BRAHMA LODGE Adelaide $260,273 17.5km 58 MORNINGTON Greater Hobart $260,628 5.6km 59 ANDREWS FARM Adelaide $260,643 28.4km 60 NORTH BOOVAL Brisbane $261,602 27.8km 61 GOROKAN Sydney $262,023 73.4km 62 BURTON Adelaide $262,083 20.4km 63 BUNDAMBA Brisbane $262,361 26.4km 64 PARA HILLS WEST Adelaide $263,230 14.4km 65 TIVOLI Brisbane $263,432 28.9km 66 LANG LANG Melbourne $263,562 72.8km 67 NOARLUNGA DOWNS Adelaide $263,816 26.9km 68 SHALVEY Sydney $264,293 40.km 69 SAN REMO Sydney $265,491 78.1km 70 BIDWILL Sydney $265,727 39.km 71 WOODRIDGE Brisbane $266,206 19.3km 72 EVANSTON Adelaide $266,857 36.4km 73 DERWENT PARK Greater Hobart $267,033 6.km 74 PARALOWIE Adelaide $267,310 18.9km 75 DIGGERS REST Melbourne $268,271 30.5km 76 BLACKSTONE Brisbane $268,921 28.1km 77 MANNERING PARK Sydney $269,032 85.1km 78 CHURCHILL Brisbane $269,664 33.5km 79 CHARMHAVEN Sydney $269,689 75.6km 80 MACLEAY ISLAND Brisbane $270,353 36.1km 81 SALISBURY PARK Adelaide $270,500 19.5km 82 GAWLER SOUTH Adelaide $270,802 37.7km 83 LOGAN CENTRAL Brisbane $271,597 21.1km 84 DODGES FERRY Greater Hobart $271,673 23.7km 85 SALISBURY EAST Adelaide $271,930 17.km 86 GOODNA Brisbane $272,134 21.1km 87 WARRAGAMBA Sydney $273,132 55.7km 88 EAST IPSWICH Brisbane $273,206 29.2km 89 KINGSTON Brisbane $273,521 22.3km 90 CANTON BEACH Sydney $273,917 73.2km 91 SALISBURY Adelaide $274,416 18.4km 92 BOOVAL Brisbane $274,547 28.4km 93 ROSEWOOD Brisbane $274,567 46.9km 94 REYNELLA Adelaide $275,183 20.km 95 EAGLEBY Brisbane $275,337 31.6km 96 REDBANK PLAINS Brisbane $277,599 25.8km 97 BADGER CREEK Melbourne $277,752 52.7km 98 EASTERN HEIGHTS Brisbane $278,033 30.7km 99

Housing demand set to increase on the back of higher population growth

22,771,649. That’s the estimated total of Australia’s population. According to the Australian Bureau of Statistics there is one birth every 1 minute and 46 seconds and an Australian dies every 3 minutes and 40 seconds. Every 2 minutes and 44 seconds there is another international migrant crossing the Australian border. Overall the Australian population increases by one person every 1 minute and 31 seconds. Population and more importantly, the change in population, is intrinsically linked with housing demand. To put it simply, more people means more homes. Unfortunately, for such an important indicator, we only see quarterly updates of Australia’s population estimates at a macro level ie national and state . More geographically granular updates are released only annually. Additionally, there is a long time lag for updating population data. The official estimates at a state and national level are currently up to date as at March 2011 with the June quarter estimates due to be released on December 19th. As can be seen from the graph below, total population growth has eased since peaking back in the March quarter of 2008 +0.63% over the quarter – note that there is some seasonality in population growth and Q1 typically shows a higher rate of growth than other periods . Part of the slow down can be attributed to the migration cuts brought in by the Federal Labor Government the migration intake quota was virtually halved . Additionally we have seen a swift rise in the number of permanent and long term departures from Australia which has only recently started to reverse. In fact, based on the more timely migration data released by the ABS migration data is released monthly, about a month and a half in arrears – so quite a timely data set in comparison with the demographic statistics report which is quarterly and released about six months in arrears we are now seeing an ongoing trend of higher net migration rates; fewer residents leaving and more new or returning residents arriving. The migration data is also quite seasonal, with spikes being recorded during February and July each year. On a rolling annual basis, the September results for net migration were the highest since August 2010. This is likely the result of the improved migration intake, with the Federal Budget announcing a 10.5% uplift in the skilled migrant intake and a 7.4% increase in the number of migrant families. The trend of fewer long term and permanent resident departures is also helping to drive the net migration figures upwards. Almost without doubt, as the ABS progressively release the new demographic data for the June and September quarters of this year we will see an improvement in population growth figures. Theoretically the uplift in population growth should translate to greater housing demand; so we should start seeing that reflected in some improved dwelling approval and commencement figures. That will be a welcome development by the residential building sector where the latest construction data from the ABS showed the value of residential construction was down 3.9% over the year.

When is an auction not an auction?

With auction clearance rates consistently tracking between 45% and 50% since April this year it begs the question, why take a property to auction when you have less than a 50% chance of selling via this process? Melbourne, Australia’s largest auction market, has typically shown a slightly higher clearance rate than other cities, however even in Melbourne the clearance rate has remained below 55% for all but three weeks since the beginning of May and we haven’t recorded a clearance rate higher than 50% for seven weeks. Despite the fact that clearance rates remain weak, across the combined capital cities there were almost 1,900 capital city auctions undertaken last week the highest number of auctions since the last week of May earlier this year . Clearly the auction process under the current market conditions is no longer about the auction itself. It’s more about the marketing process and subsequent post auction deliberations. An auction inherently encourages a buyer to play their cards. A registration to bid is essentially an expression of interest in the property. The bidder has revealed in no uncertain terms they have an interest in purchasing the home – it’s much more difficult for a real estate agent to measure buyer commitment outside of the auction or tender process. With clearance rates this low for this long, most vendors should appreciate when they embark on an auction campaign their chances of selling ‘under the hammer’ are not high. A good real estate agent should be preparing for the post auction campaign from the absolute beginning of the auction process. With private treaty sales typically taking close to two months to sell within the current market, obviously a fairly large number of vendors believe that a 50:50 chance of selling under the hammer is still worthwhile. Even if the sale is unsuccessful at auction at least they obtain some gauge of buyer interest for their property and can work towards a sale post auction with a vetted pool of buyers.

More home loans for less

The Australian Bureau of Statistics ABS released housing finance data for the month of September this week and in this week’s blog post we are going to dissect what is happening with average loan amount being committed to by borrowers. On an annual basis, the average loan size fell by -0.6% over the 12 months to September 2011. This represented the largest annual fall in the average home loan size since February 2001 -3.8% . The average first home buyer loan size increased by just 0.2% over the year and non-first home buyer average loan sizes fell by -0.8%. The fall in the average loan size for non-first home buyers was the first annual fall since February 2001 -2.3% . There is a fairly strong correlation between the decline in average loan sizes and the fall in capital city home values. As mentioned the average loan size is down -0.6% over the year and over the same period, capital city property values have fallen by -3.4%. The graph below tracks annualised growth of both measures over a long period and it shows that there is a correlation, albeit that the slowdown in growth of the average loan size tends to precede the decline in property values. The link between the two measures is obvious, if property values are lower, theoretically the amount that purchasers have to borrow to purchase should also be lower. Across most states we are seeing that the average home loan size is also falling in fact, only Victoria, South Australia and Tasmania have recorded an increase in the average loan size over the year. It is important to remember that home values have fallen across each capital city over the past year, ranging from a -1.2% fall in Sydney to a -9.1% fall in Hobart. When breaking the data out by first home buyer and non-first home buyer loans it seems that although first home buyers are showing a below average level of activity, in most states they have been prepared to borrow a greater amount to enter the housing market. The average first home buyer loan size has increased in each state except for New South Wales -1.8% and Queensland -3.6% . Non-first home buyers are proving to be less inclined to borrow larger sums than they were a year ago with the average loan size only increasing in Victoria 3.2% , South Australia 2.2% and Tasmania 1.4% over the year. Overall, the fall in the average loan size across the country reflects the overall mindset of consumers, one of caution and debt avoidance. Retail trade is slow, property values have fallen, property transactions are 13% below average, consumers are showing low levels of confidence and households are saving and paying down debt at levels not seen since the mid 1980’s. It will be interesting to see over the coming months and year what impact the initial interest rate cut will have on average loan sizes. If further rate cuts do occur we may see the average loan size grow once more due to the housing affordability improvements achieved through a lower interest rate environment. This would of course be counterbalanced by the weak consumer mindset as previously highlighted

Low dwelling approvals are bad news for housing supply

After a brief surge in August, the number of dwellings approved for construction in September fell by 13.6% August approvals were up by a revised 10.7% – a result that was primarily influenced by a large fall across the ‘non-house’ category which is comprised of mostly apartments and semi-attached dwellings such as terrace homes and townhouses. The non-house sector is generally quite volatile or ‘lumpy’ due to the affect of large scale development approvals from month to month. Non house approvals spiked upwards by 28% in August then plummeted in September by a larger 32%. Looking at dwelling approvals across the public sector, it is clear that Government led dwelling approvals led the way for higher dwelling approvals. Public approvals spiked upwards between early 2009 and late 2010 as can be clearly seen in the graph above. At the peak, public sector approvals accounted for a record 16.1% of all dwelling approvals. The September approvals data shows public sector activity has fallen back to slightly below 2 percent of all approvals. The overall figures point to a very weak construction sector. The total number of dwellings approved in September on a seasonally adjusted basis was the lowest in more than two years. That doesn’t create much hope for new home starts over the coming 6 to 12 months. The low dwelling approval figures also aren’t going to help combat the supply issues that persist, particularly in New South Wales and Queensland. From state to state the steady decline in dwelling approvals is quite clear, as the graphs above show. The only state where dwelling approvals were higher than the ten year average based on a rolling 12 month summation was Victoria where land supply and dwelling approvals have been flowing much more freely compared with other states. It is almost certain we will start to see the net overseas migration numbers start to increase when the September quarter population data is released by the ABS on the back of a higher migration quota and increase in temporary work visa’s as announced in the Federal Budget . Whether we see a supply response in the dwelling approval figures is yet to be seen, however considering the more timely nature of the approvals data compared with demographic updates, an upswing in approvals and dwelling construction doesn’t yet seem to be on the cards.

Housing costs show the largest quarterly rise in the September CPI

Its worthwhile having a closer peek at the ‘new look’ CPI figures just released by the ABS- particularly, how have the components of the housing category contributed to price rises. The September quarter data was the first time the 16th series of CPI has been publicly released the 15th series was phased out in June . The new series provides a seasonal adjustment for those components of the Index that are affected by seasonal factors. There are plenty of other changes as outlined in our previous blog here that have been made to the CPI methodology. The new series should provide a more accurate measure of price movements. The 16th series also includes two new sub-categories: ‘New dwelling purchase by owner-occupiers’ previously this was simply ‘house purchase’ and the less relevant ‘Household textiles’ category. The headline inflation reading for the year ending September was up 3.5% 3.7% in June . More importantly, the trimmed mean and weighted median recorded an annual change of 2.3% and 2.6% respectively which is right in the middle of the Reserve Bank’s comfort zone. The lower than expected inflation data provides the strongest hint yet that interest rates are potentially on the way down. As can be seen from the graph below there are a wide range of produce categories experiencing both significant price rises as well as price falls. Fruit costs were up 66% over the year, followed distantly by automotive fuel which where prices had gained 14.1%. At the other end of the spectrum was the dramatic fall of 20% in the Audio, visual and computing equipment category – great time to be buying a new TV or computer! Looking specifically at the ‘housing’ category of the Consumer Price Index which holds the largest weighting of all categories at 22.3% , prices were up 4.2% over the year. Rather than ‘housing prices’ in the conventional sense of the term, it is primarily the utility items that are contributing to the largest increases across the category; electricity prices are up 12.5% the fourth largest rise of any category over the year , water and sewerage are up 8.6% and gas/household fuel costs are up 6.0%. The purchase price for a new home is up just 1.8%, the lowest component within the housing category. Rents are up 4.6% which approximately corresponds with our monthly rental data. Looking forward, the soft inflation figure is good news for the housing market. Interest rates are likely to be, at the very least, stable if not falling as early as Melbourne Cup day most economists are suggesting rates will fall by 25-50 basis points on the first Tuesday of November . We are likely to see further improvements in consumer confidence and business confidence readings on the back of the latest inflation figures, which in turn should spark some confidence back into the housing market.

The ups and downs of the multi-speed economy

We’ve commented quite a few times recently on how the low volume of homes being transacted across the country is creating tough conditions across the real estate sector. Transactions volumes nationally are running about 11% below the five year average. The good news is that national sales volumes have shown some subtle improvements over the three months to July and are likely to show further improvements from the low base as the year progresses. At a more granular level, an analysis of council regions LGA around the country shows that less than 10 percent of Australia’s LGA’s have recorded a higher number of sales over the June quarter this year compared with the five year average. The tables below summarise the top and bottom 20 regions based on June quarter sales volumes compared with the five year average benchmark. Volumes are tracking above average in many of the resource intensive locations while it is primarily a combination of lifestyle markets, outer fringe housing markets and the inner Melbourne unit market where sales volumes are running at levels significantly below what might be considered ‘normal’. The Pilbara’s Port Hedland, where the median house price is $775,000 and rental yields are averaging 13%, tops the list for percentage uplift based on June quarter sales compared with the five year benchmark. Second is the Bowen Basin coal mining region of Isaac, followed by the Upper Hunter region which is also synonymous with coal and natural gas extraction. The trends at the other end of the spectrum are more diverse. The transaction numbers for Queensland’s Lockyer Valley and Ipswich are still likely being affected by the severe flooding from earlier in the year. Melbourne’s inner city unit market is showing transactions to be down 48% compared with the five year average which may be attributable to the combined effects of a slowdown in the local market as well as lower overseas student numbers. Lifestyle markets along the Queensland coast such as Cairns, Whitsunday, Gold Coast, Cassowary Coast, Fraser Coast and Sunshine Coast are all prime examples of how the sea change has pretty much come to a standstill resulting in few transactions around these coastal regions. The results highlight how the multi-speed economy is influencing housing markets particularly from a resources and lifestyle market perspective. How long these trends persist is anyone’s guess, however clearly the resource driven markets are intrinsically linked to commodity prices and resource demand while any improvement across the key lifestyle markets is dependent on uplift in buyer demand for holiday/retirement homes and improved prospects for a rental return and capital gain which may start to once again attract investors.

Who’s got the biggest?

When it comes to land area, size matters. Or at least it used to. More recently, with affordability pressures from a buyer’s perspective, yield pressures from a development perspective and urban management from a policy perspective, we have seen an extended trend towards smaller blocks of land across each of the capital cities. The trends are actually counter intuitive in some ways. The capital city with the smallest median area for land sold over the year to July is Adelaide, where established house prices are the most affordable of any mainland capital city. The typical block of land sold across Adelaide over the 12 month period was just 380sqm compared with median land sizes closer to 600sqm in Sydney, Melbourne and Brisbane. In Sydney, where housing prices are generally the most expensive of any capital city, the median land area has diminished by less than 5 percent over the past five years from 602sqm in 2001 to 574sqm in 2011 Adelaide’s median land area has reduced by 37%, Perth’s by 23%, Melbourne’s by 17% and Brisbane’s by 14% . The typical block size has hardly moved at a time when buyers are becoming more and more price sensitive. The differences in land area from city-to-city and development-to-development are worth noting. With such a broad range in land sizes, comparing simple median selling prices can be misleading. A rate per square metre measurement is likely to be more appropriate. As an example, based on a rate per square metre measurement, the most expensive land across the State Capitals is actually located in Perth where the median selling price on a square metre basis is $529. Sydney is second highest at $490/sqm, followed by Adelaide where land is selling at $465/sqm – that’s 9.7% higher than Melbourne prices and almost 20% higher than Brisbane’s on a rate per square metre basis. On a simple median price basis Adelaide land looks to be around 7% lower than what is selling in Melbourne and Brisbane. In my view, smaller blocks of land are a smart strategy. Smaller land allotments tend to be cheaper for consumers and they maximise the development yield for strategically located land such as sites close to major population centres and transport connections. Smart home design should maximise the land use while still retaining some private ‘green space’ on the property. There needs to be some balance of course; small allotment estates need to provide for open space and recreational areas where yard space is being sacrificed. This is generally the case in any master planned community or quality development. Prospective buyers are likely to overlook those land releases and housing estates that don’t strike this balance. Why hasn’t Sydney ventured further down the path of smaller housing allotments? I’m not sure, but would suspect it relates to local town planning regulations rather than any lack of buyer demand or developer motivation to release smaller housing blocks into the market.

The pre-stamp duty surge

We’ve just updated our month to month models for transaction volumes and the results for Queensland are certainly interesting. Most Queenslanders would be aware of the stamp duty changes that were brought in with the latest Budget announcement earlier in the year: from the first of August owner occupiers would no longer benefit from stamp duty concessions, resulting in an additional purchase cost of around $6,575 in stamp duty payments see our blog that outlined changes around the country here . We estimate that Queensland sales volumes jumped by 33% over the month of July as owner occupier buyers surged into the market to avoid the additional stamp duty expense. The surge in buyer numbers suggests that buyer confidence may not be as low as many thought. A saving of around $6,500 is a substantial incentive particularly when coupled with the First Home Owners Grant of $7,000. However the surge came at a time when the threat of higher interest rates was still quite real; it was only mid July when Bill Evans broke ranks and predicted rates were set for a fall and at the time his comments weren’t widely accepted! . Other factors are providing a better outlook for the Brisbane housing market. The magnitude of declines across the Brisbane housing market has eased. In fact, the latest RP Data-Rismark Home Value Indices for Brisbane showed the quarterly change over the three months to August was the second highest of any capital city. The result was still negative, at -1.3%, however it was a substantial improvement from the falls being recorded earlier in the year, the worst of which was seen over the March quarter when values were down 3.0%. We have also been seeing the ‘value gap’ between Brisbane and the other major capitals expanding. Brisbane house prices are now 21.2% more affordable than Sydney’s and 11.2% more affordable than Melbourne prices. The gap hasn’t been that wide between Brisbane and Sydney since mid 2007 and the current price gap between Brisbane and Melbourne hasn’t been this wide since late 2003. This renewed affordability proposition may be attractive enough to entice more interstate migrants across the border interstate migration into Queensland over the March quarter of 2011 was at the lowest level since 1981 . While Brisbane home values have been falling dwelling values are down 7.4% from the March 2010 peak , rental rates have been showing modest improvements. The result is now that rental yields are well above the combined capital city average at 4.7% and 5.3% respectively for houses and units the highest yields of any capital city outside of Darwin and Canberra . The higher yields and low vacancy rates 2.2% across the inner city and 2.6% across the remainder of Brisbane according to the OESR rental vacancy report . While capital gains are likely to be a long way off, the foundations of the Brisbane property market are looking quite firm. In all likelihood we will see transaction volumes fall away in August when the updated figures are available early next month, however with interest rates potentially on their way down as early as Melbourne Cup day, the potential for a more sustained improvement in buyer numbers across the Queensland market may be close to hand.

Mortgage delinquencies on Residential Mortgage Backed Securities RMBS rise over the past year according to Moodys

Ratings Agency Moody’s released their annual Mortgage Delinquency Report this week which showed delinquencies have increased over the year as consumer confidence dipped, property values fell and global economic conditions weakened. According to the report, the analysis in this report was performed on over $117.6 billion worth of mortgages which are included in Moody’s-rated residential mortgage backed securities RMBS portfolios. They represent about 10% of Australian’s $1.1 trillion mortgage market and are considered a suitable proxy for market trends. It is important to note that the RMBS market is a small fraction of the overall mortgage market with the vast majority of home loans originated and maintained through bank funding. In most instances RMBS are undertaken by second tier banks and building societies. Nevertheless, the report does highlight some important trends. The report states that the national delinquency rate has increased to 1.67% between March 2010 and June 2011 from 1.36%. The table below indicates the performance of markets by delinquency classification. As you can see, the number of poor and very poorly performing regions has increased from just seven in 2010 to 28 regions currently. Despite these figures clearly highlighting growth in delinquencies, the vast majority of regions 37 are performing satisfactorily or better. The table also highlights that there is 11 regions performing extremely poorly and these regions are detailed below. New South Wales and Queensland account for 10 of the 11 very poorly performing regions. The New South Wales results are reflective of the weak property value growth conditions persistent since early 2004 despite strong growth recently and in Queensland it is reflective of the extremely weak recent performance of coastal markets. Overall the report highlights the weakness currently occurring in the housing market however, it is important to note that it refers to only a small portion of the overall market and is reflective of loans occurring away from the big 4 banks. In some instances, by no means all, these loans may have been offered to applicants that had been considered inappropriate for a home loan by the major banks. The report does echo broad trends however, given it is based on a sample of just 10% of the market and loans originated away from the 4 major banks I suspect it may be overstating delinquency rates somewhat. In saying this, I do believe the trend is correct with a greater number of mortgages falling delinquent. Let me know what you think about these findings?

The geography of jobs

Having a job is pretty high on the list of household priorities. Also high on the list is having a degree of confidence that you are going to keep your job into the future and that you are going to be paid a fair amount. With Australia’s unemployment rate at just 5.1% it’s reasonable to assume that most of us have a job; for 94.9% of the population that appears to be the case. The situation can be very different from region to region however. The regional trends in unemployment are often overlooked for the headline figures. Nationally the rate of unemployment is 5.1% however once you move outside the capital cities the rate of unemployment tends to be higher. In fact, across every state unemployment rates are higher in the regional markets compared with the capital city except for South Australia . The Department of Education, Employment and Workplace Relations DEEWR, http://www.deewr.gov.au provides a quarterly update of labour market trends at the Statistical Local Area SLA level which provides a pretty decent granular view of how employment and unemployment are tracking. The lists below show the top 50 SLA’s for the highest and lowest rates of unemployment around Australia. The maps below the tables show the trends geographically across each capital city and surrounding regions. The trends speak for themselves so I wont provide a great deal of commentary, suffice to say the labour market conditions across the outer fringes of the capital cities and the regional lifestyle areas tend to be considerably worse than other areas. The resource intensive locations are clearly employment hotspots and the inner city locations where housing prices and the cost of living are generally higher also show low levels of unemployment.

What does the recent improvement in consumer confidence mean for the Australian housing market?

The relationship between consumer confidence and housing market activity is a topic that we often comment on in relation to the housing market. The importance of a positive consumer mindset is simple; for a prospective buyer to make a high commitment purchase decision like buying a home they need to have a base line level of optimism about their job security, their ability to service a mortgage and the prospects for the housing market. To illustrate the importance of consumer sentiment in the home buying decision making process we can show the correlation between sales volumes and consumer confidence. The trend in consumer confidence and national sales volumes has shown an 84% correlation since the start of 2008. There is also a lagging correlation between mortgage rates and consumer confidence, as can be seen in the graph below. Generally, when interest rates are falling consumer confidence will show an improvement and vice versa. The big question at the moment is where consumer confidence is heading from here. In August, the Index published by Westpac and the Melbourne Institute was getting close to the lows seen back in late 2008 when the GFC was in full swing. The September figure, which came through earlier this week, showed an 8.1% improvement in the confidence index, perhaps marking the turning point for this important indicator. The ‘Time to Buy a Dwelling’ Index, which is a subset of the Consumer Sentiment Index showed a strong bounce over September, improving 14.3% over the quarter and 16.4% over the year. This component of the Index has bounced back to levels not seen since September 2009, the month prior to interest rates commencing their tightening cycle. Interest rate stability and the prospect of rates potentially falling may see confidence continue to improve. If the cash rate does actually come down, as the financial markets and a growing number of economists are expecting may be the case, we may see a more significant improvement in the Consumer Sentiment data when it is released each month. In balance, any significant or swift rise in consumer optimism is likely to be tempered by any further softening in labour market conditions or deterioration in global/local economic conditions. Uncertainty surrounding both these factors is likely to continue to provide some counter balance to improvements in the consumer mindset.

An uplift in buyer activity may be just around the corner

The housing finance data released by the Australian Bureau of Statistics each month generally provides a reasonable insight into how demand is tracking across the Australian housing market. To put it simply, most people buying a home need to obtain finance. The trend in housing finance commitments, which is collected by APRA and covers at least 95% of all housing finance commitments across Australia, has been reasonably flat over the first seven months of 2011 after trending down from a recent peak back in September 2009 the month prior to interest rates commencing their tightening cycle . The seasonally adjusted value of both owner occupier and investor loans in July 2011 excluding refinances was down by about 20% from the September 2009 peak. Looking at the value of housing commitments by buyer type and purpose highlights some of the trends across the Australian housing market. Broadly, the owner occupier market has remained more active than investors, with the value of owner occupier loans commitments ex re-fi down by 1.6% over the 12 months to July and investor loans are down 9.0%. The recent trends across the various segments of owner occupier lending are all quite similar. Apart from a substantial increase in home loans being refinanced the value of housing loans being refinanced was close to 30% higher in July 2011 compared with July 2010 , the value of loans for new home construction, the purchase of a new home and the purchase of an established home have all remained reasonably flat over the year to date. The month to month movements in housing finance has seen loan values improve from the recent lows however. Owner occupier loans are up 5.9% between March and July of this year, while investor loans are up 3.1% between the April low and July this year. Investors now equate to 38.2% of the value of all housing finance commitments excluding loans being refinanced. Investor loans have shown a greater level of decline compared with owner occupiers, which is typically the case when market conditions move out of the growth phase; investor numbers tend to taper as capital growth leaves the market. Higher yields, more stock to choose from and improved buying power hasn’t been enough to attract a large number of investors back into the market. With interest rates looking stable and economic growth showing some improvement we may gradually see some improvement in housing finance numbers which ultimately points to an improvement in transaction volumes which were tracking about 17% below the five year average nationally in June. We are likely to see more new listings enter the market as we move into Spring, so an uptick in buyer activity would be a very welcome event for anyone looking to sell their home.

Household income growth stalls over the 2009/10 financial year

The Australian Bureau of Statistics ABS released their bi-annual Household Income and Income Distribution data for the 2009/10 financial year this week. This is an exciting release from the ABS aren’t they all! because the data only comes out once every two years and provides a valuable update about household income, where income is derived from, how income is distributed and how much more income we are all receiving or not receiving . The most notable information contained within the release is that disposable household incomes were lower in 2009/10 than they were over 2007/08. The 2009/10 data shows that equivalised inflation adjusted disposable household income fell from $859/week in 2007/08 to $848/week in 2009/10. This represents a fall of -1.3% and it is the first fall in household incomes over the past 14 years. Although the fall is not a large one, it is important to put it into context. Between the 2000/01 financial year and 2009/10 financial year, household incomes have risen by a total of 40.2% or an average annual rate of 4.2%. Between the 2005/06 financial year and 2007/08 financial year incomes rose by 16.4%. Following the 16.4% increase in incomes during the two years to 2007/08, they fell by -1.3% to 2009/10. Obviously during the most recent period the world experienced the Global Financial Crisis GFC which resulted in a slowdown across most developed economies. Although Australia didn’t fall into a recession during this time, unemployment rose to as high as 5.8% so people did lose their jobs , bonuses were typically slashed and many employees found it difficult to negotiate salary increases. This largely explains why household disposable incomes fell in inflation adjusted terms during this period. It also signals why consumers are so cautious currently, they have relatively less money in their pockets and the world’s economic woes continue, particularly in Europe and North America. Focusing on home owners and those with a mortgage as opposed to those renting shows households that are currently paying off a mortgage have a greater disposable income. The figures for equivalised household incomes are as follows: Owner without a mortgage – $793/week Owner with a mortgage – $957/week Renters – $729/week The data also provides average gross household incomes which indicate that as at the end of the 2009/10 financial year the average household with a mortgage had a weekly income of $2,238/week. That equates to an annual household income of $116,376. Disposable incomes for those with a mortgage are typically 21% higher than those with no mortgage and 31% higher than those people renting. The number of households with a mortgage rose from 35.1% in 2007/08 to 36.2% in 2009/10 while households without a mortgage fell to 32.6% from 33.2% and rental households declined to 28.7% from 29.7%. Undoubtedly the strong increase in property values during recent years has resulted in fewer households owning their home outright. The most recent data shows that 32.6% of households are owned outright however, this figure has been trending lower since 1995/96 when 42.8% of households were owned outright. With more households than ever having their properties mortgaged it is no wonder consumers are nervous. Until recently the RBA was suggesting that interest rates were going to have to rise in order to make room for the mining boom. Although this talk has tempered somewhat recently, with the vast majority of mortgagees on a variable mortgage any change to interest rates has an instant impact on homeowners, of which a greater proportion have a mortgage than ever before. Overall the data provides an important insight into the consumer’s mindset. Households had less disposable income in 2009/10 than they did two years previous and they may still have less. More households have a mortgage than ever before and as a result there is increasing interest rate sensitivity. Finally after the impact of the GFC many more households are aware that bad news emanating from countries external to Australia can impact significantly on Australian households.

Million dollar home sales continue to fall away

Premium housing markets around Australia are leading the downturn with home values across the most expensive segments of the capital city housing markets down by 5.6% over the 12 months to June compared with a 1.2% fall at the most affordable end of the market and a 1.5% fall across the ‘middle’ priced suburbs. The drops, which are based on the RP Data-Rismark Stratified Hedonic Home Value index yes… a bit of a mouthful , come after premium housing markets recorded higher than average gains during 2009 and 2010. Over the year to June 2010 values in the top end housing market were up 12.2% compared with a rise of 7.8% at the most affordable end, and during the peak of the market year to Feb ’10 annual growth was recorded at 19.5% across premium homes compared with 10.2% across the most affordable homes. It is clear based on the volume graphs and tables below that demand for premium housing has fallen away at a more rapid rate than standard housing; however some cities are being harder hit than others. The largest declines at the top end have been recorded in Perth where values are down 12.8% over the year. Brisbane has also seen a marked decline in premium home values, down by 10.9% over the year. The number of million dollar home sales tells the story. Based on the June data, there has been a larger than average fall away across the million dollar segment of the market. The most significant falls in the number of transactions are in Brisbane and the surrounding coastal markets of the Gold Coast and Sunshine Coast where volumes are down by around 60% compared with the five year average. Perth, which has the largest prestige market outside of Sydney and Melbourne, is showing a drop of close to 30% in volumes compared with the average. Melbourne million plus transactions are down by 20% while Sydney’s million plus transactions are down by the lowest margin of 11.4%. As can be seen in the summary table, the largest drop in transaction volumes can be seen in the million plus unit market. This can be partly attributed to settlement periods for new developments off the plan purchases which have not settled are not included , but is probably more symptomatic of a slowdown in the luxury apartment market. Historically, the premium housing market has been quite sensitive to changes in other asset classes and business drivers. The volatility in the equities markets together with the slowdown in business confidence and global economic uncertainty are all likely to be drivers of the slowdown in premium housing demand.

Auction sales becoming less popular

Auction clearance rates across the major capital cities have held fairly steady around the fifty percent mark since late last year. During the height of the market back in 2009, as many as 80% of auctions were clearing. That was just before the first interest rate rise was announced, and from that time clearance rates trended downwards in line with the market slow down. Back during the GFC clearance rates fell as low as 42% across the combined capital cities, so the auction results being recorded currently aren’t far off that mark. The lowest clearance rate recorded during the year so far has been 43% in late April. Auction volumes have also fallen away during year; over the past four weeks we have recorded 4,607 auctions across Australia’s capitals compared with 5,245 auctions over the same period last year. With the housing market in the doldrums and only half of the auctions being held clearing, it is logical to assume that fewer vendors are selling their home via an auction campaign. Based on rough calculations, around 24% of homes being sold in June were taken to auction while during the same period one year prior the figure was up around 30%. The key to a successful auction in this depressed market comes back to ensuring an appropriate marketing campaign is in place and the reserve price is set realistically.

How many homes are available for sale around Australia?

Well the question may seem straight forward but the answer is anything but. Counting the number of homes being advertised for sale accurately is a pretty complex process. Properties around Australia are advertised across multiple channels including a variety of web portals, newspapers and free press. Homes are even advertised for sale on ebay or simply by a sign in the front yard. Across each of these channels there is generally little standardisation of address formats which makes de-duplicating the data quite an involved task. As of last week RP Data are tracking 263,684 unique houses and units that are currently being advertised for sale around the country. We collect the listings data via a formal arrangement with Australia’s largest property portal, realestate.com.au as well as by keying the classified ads from each of the major newspapers around the country. Once this process is completed it would not be uncommon to have three or more separate advertisements for each property. The next stage in the process is to de-duplicate the dataset. We do this by normalising all the address strings this is a complex process in itself for each listing and then matching the normalised listing data to a central ‘ownership’ database – essentially a list of unique addresses for every property across the country. We also need to allow for the fact that not every property is advertised consistently every week. For this reason our listing counts are based on a rolling four week period. Essentially this means that if a home has been advertised at least once over the past four weeks it will be counted as an active listing. Further segmenting the data, we can classify a home that has not been advertised for sale within the past 365 days as a ‘new’ listing – all other advertisements are classified as ‘re-listings’. Add the two together and that is our ‘total’ listing number. It’s important to point out that some properties do fly under the radar. For example, homes that are not advertised individually will generally go uncounted. This generally includes new housing estates and new high density unit developments which are selling ‘off the plan’. RP Data’s measurement of listing volumes saw a recent peak at 285,073 unique listings across the nation, with 136,271 48% of those homes located within the capital cities. The recent peak was recorded over the four week period ending June 12 and since this time national listings volumes have fallen by 7.5% nationally and 7.6% across the capital cities. The downwards trend in listing numbers can be attributed to a slowdown in the number of new listings together with a small improvement in transaction volumes over recent months. Effective supply levels remain well above the highs seen back in 2008 however, highlighting that vendors have a lot of competition when it comes to selling a home.

The rate hike we didn’t have

The interest rate ‘hold’ decision earlier this week marks nine straight months of flat rates; the most stable interest rate environment for five years. Anyone would be forgiven to raise an eyebrow at that; the spectre of an interest rate rise has been lurking since at least March when the core inflation reading bottomed out and headline inflation once again moved above 3%. In many ways, speculation about rising interest rates has virtually the same effect as the cash rate actually rising. Consumers remain cautious about taking on higher levels of debt and are less willing to make high commitment purchases such as housing, investment or big ticket retail items. The latest statement from the Reserve Bank following the interest rate hold decision isn’t likely to help with confidence levels. The tone of the statement you can see it here ratcheted up a notch this month following a reasonably dovish tone in July. While the RBA highlights that downside risks to the international economy have increased, consumer appetite for credit is very subdued and GDP forecasts are likely to be revised downwards. Most importantly, the medium term inflation risk which is central to the RBA’s decision making process when it comes to interest rate decisions is still high on the Bank’s agenda. Whether the current weakness in the domestic economy and the uncertainty surrounding key global markets will continue to outweigh higher inflation figures is yet to be seen and further clarity about the Bank’s standpoint will be provided in the Statement of Monetary Policy which is released on Friday August 5th at 11:30. Without doubt the Bank is in an awkward position where inflation is tracking higher while consumer demand is in the doldrums. Higher rates are likely to quell the consumer mindset even further. Interestingly, the financial markets are still pricing in a full 25 basis point cut to the cash rate by January next year see here . Until some greater certainty about the direction of local and global economic conditions becomes apparent, and whether the current economic softness is temporary or more entrenched, the high CPI reading is likely to see a continuation in speculation about interest rates moving higher – the effect will continue to be limited growth in retail spending, lower than average transaction volumes in the housing market and credit avoidan

Latest Aussie housing market update is now on YouTube

Will higher interest rates affect the housing market?

With another interest rate rise seemingly around the corner thanks to the high CPI reading for June, it is worthwhile looking back to see how interest rate rises over the recent past have affected the housing market. The Reserve Bank started lifting interest rates back in October 2009; prior to that, the average standard variable mortgage rate was at a recent historic low of just 5.75%. After seven rate hikes the average variable mortgage rate is now at 7.8% – unmoved since November last year and still well below the peaks seen back in July/August 2008 when the variable rate briefly hit 9.6%. As mortgage rates started to rise from their historic lows back in October ’09 transaction volumes began falling away. Of course other factors were also at play – first time buyers were winding out of the market as the Government stimulus was wound back and affordability constraints were starting to be felt due to dwelling values having risen by almost 10% since the start of 2009. The primary driver of slowing transactions volumes was the expectation that mortgage rates were going to move higher faster. The transaction volume graphs featured below highlight how buyer sentiment has slowed since October 2009. The graphs were featured earlier this week by Robert Harley in the Australian Financial Review ‘Not the end of the world, yet’ – page 46 of AFR July 28 . The five year average trend line has been used to provide a benchmark of what might be considered ‘normal’ market conditions with regards to transaction levels. Since interest rates started rising, transaction volumes have consistently been tracking below the five year average apart from a brief spike in the number of sales over March 2010. At the national level, sales volumes in May were estimated to be tracking about 16 percent below the five year average. Across the capital cities, the deviation from the five year mean is greatest in Brisbane where in May transaction volumes were recorded about one third lower than the normal. Melbourne wasn’t far behind with transaction volumes tracking 29% lower than the five year average. The only capital cities where transaction volumes are about on par with normal conditions are Sydney +2.4% and Canberra +8.3% based on April estimates – May figures volumes are too early to estimate due to the small sample . Adelaide volumes are tracking at 7.8% below the five year average, Perth volumes are 8.7% below, Darwin is 23% below and Hobart based on April data is running 10% below average. With Australian consumers focusing on saving and paying down debt, the prospect of higher interest rates isn’t likely to see any marked improvement in transaction volumes until we start to see a material improvement in levels of consumer confidence. Of course, the housing market is no longer high on the RBA’s list of priorities like it was back in 2009. Inflation is firmly in the cross hairs and interest rates are likely to rise to the detriment of key sectors across the economy including retail markets, lifestyle and tourism and of course housing and finance.

For the economic prosperity and welfare of the people of Australia

On July 27th at 11:30am a very large number of Australians will be flocking to the Australian Bureau of Statistics web site to check out the June quarter inflation numbers. Maybe I’m just growing old and boring, but I can’t recall a time when the quarterly CPI figure had been so eagerly anticipated. The reason everyone is getting so twitchy comes back to interest rates of course, or more specifically, how the Reserve Bank will react if inflation tracks higher. The Reserve Bank has an inflation target where monetary policy is set with the aim of keeping the annual inflation rate between 2-3% over a medium term average. You can see the policy in action in the graph below which tracks inflation over a long time series. The inflation target was introduced in 1993; the effect of this ‘inflation mandate’ is clearly visible from 1993 onwards with inflation rarely straying outside the 2-3% band for any length of time. Together with their inflation mandate amongst others , it’s also timely to point out that the Reserve Bank has a Charter – available for all to read here. The key elements from the Charter are that the Bank’s monetary policy must best contribute to: the stability of the currency of Australia; the maintenance of full employment in Australia; and the economic prosperity and welfare of the people of Australia Keeping within the inflation target range and adhering to the key elements of the Charter are seemingly at odds with each other on this occasion. While headline inflation is will likelyremain above 3% March reading was 3.3% and the underlying rate of inflation is likely to move upwards March reading was probably the turning point at 2.3% , it’s looking to be an increasingly safe bet that the RBA will look through the rises for the sake of the ‘economic prosperity and welfare of the people of Australia’. Essentially, the bank needs to spark some confidence back into the consumer mind set, encourage more spending and assist with improving conditions outside of the resources sector. Further to that, it is fair to expect that the RBA statements will continue the softer line proclaimed in the latest minutes – essentially that the strength from the resources sector and growth in neighbouring Asian economies will continue to be tempered by global economic jitters, weak consumer demand, a slowdown in jobs growth and slow business conditions outside of the resources and services sector. On a related topic, considering the Bank’s reliance on inflation readings to guide monetary policy, it is painfully clear the quarterly measurement of CPI simply doesn’t provide the necessary timeliness or granularity that is essential for making these important decisions that affect every single Australian. You may recall that the Australian Bureau of Statistics recommended a move to monthly CPI measurement in a proposal released back in December last year. The proposal was knocked on the head due to insufficient funding. Costs aside, with so much attention on this key metric and a private sector measure gaining a fair amount of traction TDI Securities/Melbourne Institute Inflation Gauge we may be seeing a similar situation to where the ABS House Price Index has lost most of its relevance, replaced by private sector measures that are more timely, more granular and arguably more accurate. No guesses for which Index I am referring to there… As a side note, the proposal for moving from a quarterly CPI measure to a monthly one was estimated to cost $15 million per annum plus a once off $6 million to produce the report which seems insanely high to me . Compare this with the not so trivial Federal Budget expense item of $309 million to provide pensioners with a $400 set top box or $30 at the shops for those who don’t get one from the Government and you start to question where the priorities lie.

Fixed vs Variable… the vast majority prefer to move with the market.

Over the past few months there has been a great deal of speculation about interest rates and whether we are likely to see another rate rise from the Reserve Bank any time soon. Prior to the most recent RBA meeting, most economists were tipping an August rate rise. The first Tuesday of August is when the RBA would have the June quarter CPI data to deliberate upon and, so the train of thought went, higher inflation would lead to a further rate hike. Well the economic news flowing through has generally been anything buy buoyant. Growth in retail spending has been well below average, the housing market is depressed, the mining boom hasn’t translated to a thriving economy beyond the resources sector and consumers are saving at a rarely seen pace. Based on their latest statement, the RBA appears to be much more inclined to look through any rises in inflation in order to let consumers regroup and hopefully spark some life back into the economy outside of the resources sector. The vast majority of borrowers seem to agree, with just 5.9% of new housing finance commitments being on a fixed basis. Cast your mind back to late 2007 / early 2008, when interest rates were tightening and the consumer mind set was quite positive, the proportion of fixed rate loans were up close to a quarter of all commitments. That trend towards fixed rate loans is clearly visible in the above graph. The majority would have been on three year terms and these terms are now rolling through their expiry period. The fixed loan ‘echo’ can now be seen as a clear upswing in the number of home loans being re-financed. On a quarterly basis, refinanced loan volumes for owner occupiers are up 16.2% over the year to May compared with a 5.2% decline in new home loan originations. The growth in fixed rate loans peaked between November 2007 and March 2008 when the average three year fixed term mortgage rate was as high as 8.95% and inflation was well outside of the RBA’s target range resulting in expectations of further interest rate increases. With the major banks now becoming ultra competitive to attract re-fi customers, advertised bank variable rates are now around the low seven percents – so the attraction to re-finance from a higher rate is quite compelling. Throw in the fact that exit fees are generally covered and the option makes even more sense. Other monthly highlights from the recently released housing finance data were: 4.4% increase the number of owner occupier commitments 6.2% increase in the number of commitments for dwelling construction 4.6% increase in the number of commitments for new dwellings 4.1% increase in the number of commitments for established dwellings 17.2% increase in the number of first time buyer commitments – first home buyers still comprise a lower than average proportion of the owner occupier market at just 15.4% of all housing finance commitments 4.4% increase in the value of investor loans At face value, the rises outlined above look like a positive turnaround in lending activity, however the improvements are off a low base and we will need to see several consecutive months of improving data before we consider this a sign of a recovering housing market. In the context of other indicators which are also levelling transactions volumes have shown some improvement since Jan/Feb, the rate of value decline has slowed since the start of the year, the number of homes available for sale has levelled and the number of new listings being added to the market has tapered . These are all good signs that housing market conditions may be stabilising at the macro level. In balance, consumer confidence has fallen markedly over the last year; until consumers get back into a mindset more geared towards spending rather than saving we can’t expect any recovery in the housing sector.

Economic insights from the Melbourne Institute’s 2011 Economic and Social Outlook Conference

Last week I attended the Melbourne Institute’s 2011 Economic and Social Outlook Conference. The theme of the conference was, ‘Growth Challenge – Riding the Resources Boom to Lasting Prosperity’. The conference was one of the best all-round economic events I have attended with a number of absolute top notch speakers involved. Overall, it was very thought provoking and a good chance to get some insight into the ideas floating around Government, business and academia. In this week’s blog I’d like to highlight some of the most thought provoking comments of the conference in my opinion . Note these aren’t direct quotes however, I have included the names of the presenter’s that made these points: We don’t need to maximize the returns of the mining boom, we need to minimize the risk – Warwick McKibbin The current loose monetary policy globally outside of Australia is a major global economic risk – Warwick McKibbin OECD countries have large and unsustainable levels of debt, they shouldn’t have levels greater than 60% although many do . Although these levels may be sustainable at 0% interest rates, they aren’t at 5% – Warwick McKibbin Australia’s terms of trade are likely to fall due to: global supply responses, withdrawals of global loose monetary policy, a rise in non commodity prices and the global climate response will tax on Australia’s competitive advantage resources – Warwick McKibbin The current boom which has been ongoing since the early part of last decade is Australia’s first ever boom with a floating exchange rate. In previous booms inflation had to rise because the currency couldn’t as did wages – Gary Banks Although employment in the manufacturing and agricultural sector continues to fall, output continues to increase – Gary Banks 3 billion people China and India are effectively undergoing an industrial revolution as we speak – Chris Richardson China’s growth is not a population growth story 1 child policy , it is a story of productivity improvement – Chris Richardson Reform is now much tougher, you can only float the dollar once and can only introduce a GST once – the relatively easy reforms have been done – Chris Richardson We shouldn’t be running a population policy to meet a plan in 40 yrs time. Some sectors would do well under this scenario housing and infrastructure however, most others wouldn’t – Tony Burke We need to determine what is a sustainable rate of population growth that supports business needs but doesn’t undermine the quality of life – Scott Morrison Recent migration wasn’t driven by skilled migration, only 25% was skilled, it is imperative to drive migration toward skilled migration – Scott Morrison The argument about population growth for ageing population is overdone, it defers the challenge rather than addressing it. Labour needs to be more productive and improve the capacity to save for retirement – Tony Burke Payroll tax is basically the only growing source of revenue for State Governments – Joe Hockey Australian’s will embrace tax reform if they believe they will be better off down-the-track, reform needs to be equitable and fair – Joe Hockey The individual states have to be able to raise new revenue and the people that raise revenue tax need to be accountable for spending that money – Joe Hockey Finance regulation was wound back in 1980’s, it is now coming back and banks are heading back to a period of rationing credit, being more choosy who they lend to – Ian Harper Foreign investment in Australia will be the key to increasing quality of life and GDP, funds will have to flow through Foreign Direct Investment – Ian Harper In business you sit down and speak about what is your competitive advantage, I have never done that in Government or in opposition. Australia’s competitive advantage is in: resources, education and agricultural. The Government wants to take away our competitive advantages through a carbon tax resources and the banning of live cattle exports agricultural – Andrew Robb I realize this is a little political but I couldn’t believe that Minister’s aren’t discussing the nation’s competitive advantage Outside of this it is important to also read the major speeches made by Treasury Secretary Martin Parkinson, Tony Abbott and Wayne Swan. In particular, Martin Parkinson’s was a very good speech. Martin Parkinson http://www.treasury.gov.au/documents/2077/PDF/Sustaining_growth_in_living_standards.pdf, Tony Abbott http://www.tonyabbott.com.au/LatestNews/Speeches/tabid/88/articleType/ArticleView/articleId/8162/Address-to-the-2011-Economic-and-Social-Outlook-Conference-Melbourne.aspx Wayne Swan http://www.treasurer.gov.au/DisplayDocs.aspx?doc=speeches/2011/021.htm&pageID=005&min=wms&Year=&DocType

Act now or wait until later… regardless if you are buying or selling you need to be across changes to stamp duty and state level Government grants.

Changes to stamp duty and state level grants will affect the timing of when you buy and sell property. Make sure you are completely across the changes. Stamp duty regulations and availability of grants related to property purchases changed across many of the states in the recently announced budgets, with the changes potentially having a significant effect on purchase costs associated with buying a property. Any prospective purchaser, vendor and industry professional needs to have a firm understanding of how the rules are changing, what the dates are when the changes come into effect and how these changes may impact their purchase or sale timing. For example, owner occupier buyers in Queensland who purchase a home prior to August 1st will save $6,575 in stamp duty based on the owner occupier concessions being scrapped after this date. In South Australia both buyers and vendors needs to be aware that the first home buyers grant will start to be phased out in July 2012. First time buyers purchasing before that time will be $4,000 better off. Prospective vendors with a home that would appeal to first home buyers may consider listing the property well before the cut off when this market is likely to be more active. NSW aside they haven’t released their state budget yet for 2011/12 , significant changes to stamp duties payable and grants available were made in Victoria, Queensland, South Australia, Tasmania and the Northern Territory. As a quick rundown on some of the changes: Victoria: – an initial 20% reduction in stamp duty for first home buyers which will increase over time. For settlement dates on or after 1 July 2011, land transfer duty rates will be reduced for eligible first home buyers purchasing their principal place of residence PPR valued up to $600,000. Land Transfer Duty will be reduced by 20 per cent on 1 July 2011, followed by additional 10 per cent cuts on 1 January 2013, 1 January 2014 and 1 September 2014, totalling a cumulative 50 per cent reduction for settlement dates on or after 1 September 2014. Additionally, the first home bonus and regional bonus will be extended to 30 June 2012, providing first home buyers with a $13,000 bonus for newly constructed homes and an additional $6,500 if the new home purchase is in a regional location. Queensland – owner occupier buyers not purchasing their first home will no longer receive a stamp duty concession after 31 July. Prior to 31 July, an owner occupier purchase of a house for $350,000 will pay $3,500 in stamp duty; after this the rate payable will jump to $10,075. If you are considering buying, it makes a great deal of financial sense to get in before the stamp duty rise kicks in. New home buyers will benefit from a short term $10,000 ‘Queensland building boost grant’ which will be available on newly built homes purchased prior to the start of 2012. The $7,000 first home owner’s grant remains in place. Stamp duty rates have also changed, so make sure you check the latest tables here. South Australia – there are no changes to stamp duty charges, but the state level First Home Buyers Grant will be phased out by July 1, 2013 starting with a halving of the grant on July 1, 2012. Tasmania – there are no changes to stamp duty charges, but the concession available on land purchases for first home builders is no longer available. The concession that was available to first home buyers for established dwellings has also been scrapped in the latest budget. Northern Territory - there are no changes to stamp duty charges, but the NT Government has introduced a ‘BuildBonus’ providing a $10,000 incentive for purchasing or building a new home. Note that the Northern Territory will maintain the concession available to first home buyers and owner occupier buyers. Make sure you understand the rules around dates – do they relate to contract date or settlement date. Also make sure you know where the cut offs lie as there are price limits applicable to stamp duty concessions and grants. Getting a firm understanding of the ins and outs of state level transaction charges and benefits is essential to ensure you are maximizing the timing of your purchase or sale.

Population growth back at 2005 levels

The Australian Bureau of Statistics ABS released the quarterly Demographic Statistics update for December 2010 this week which tracks changes in population. Over the 12 months to December 2010, Australia’s population increased by 1.5 percent, its slowest rate of population growth since the 12 months to December 2005. Despite the lower rate of growth, Australia’s population still increased by more than 325,000 persons over the 12 months. Although the number is well below the 467,000 new residents over the 12 months to December 2008, it is still strong number nonetheless running 2.3% above the decade average . At a national level, population growth is driven by two factors: net overseas migration the number of Australian’s leaving the country for more than 12 months vs. the number of migrants intending to stay in Australia for more than 12 months and natural increase births minus deaths . Over the 12 months to December 2010, the population naturally increased by approximately 154,000 persons while net overseas migration accounted for 171,000 new Australian’s. With population growth slowing, both the level of natural increase and net overseas migration have fallen in recent times. Over the 2010 calendar year, the natural population increase has fallen by -1.8% compared to a -35.2% decline in net overseas migration. On a state-by-state basis, population growth is slowing in each state except for the Australian Capital Territory, with its population growth over the last 12 months the strongest since the 12 months to June 2007. In percentage terms, population growth is strongest into Western Australia 2.1% , the Australian Capital Territory 2.0% and Queensland 1.7% . On the other hand, population growth is slowest in: Tasmania and the Northern Territory both 0.8% . Although population growth is still relatively strong into Queensland, during the past 12 months the rate of population growth was the slowest since the 12 months to March 2000. At a state level, net interstate migration numbers are added into the population equation. Historically, natural increase is strongest in numeric terms within the most populous states and that will continue to be the case. Interestingly, the fertility rate in the Northern Territory is much stronger than all other states and territories. Putting natural increase aside it is important to analyse interstate and overseas migration. The most popular state for overseas residents to settle within Australia has always been New South Wales. Historically, Victoria has tracked quite closely with Queensland however, in recent years it has tracked much more closely to New South Wales, with a greater number of overseas settlers choosing Victoria. This is probably a result of the emergence of Melbourne as a much more important commercial centre in recent years and the relative affordability of housing in Melbourne as opposed to Sydney. All other states continue to attract overseas migrants but at a much lower level than those moving to New South Wales and Victoria. While overseas migrants have always had a preference for New South Wales Sydney and Victoria Melbourne , Australian’s have always had a clear preference for re-locating to Queensland. At its peak during the 12 months to September 1993, Queensland attracted almost 50,000 interstate migrants for the year. Interstate movements into Queensland have been slowing since 2003. Over the long-term, interstate migration into Queensland has averaged more than 27,000 persons annually, over the last 12 months just 7,243 persons migrated to Queensland from interstate, -73% below average. It is no wonder Queensland is attracting fewer interstate migrants, the net outflow of residents from New South Wales is at its lowest level since the late 1990’s and interstate migration into Victoria is at its highest levels since mid 2002. Add to this the lure of the mining dollar in Western Australia and the halting of the sea change migration trend and it is easy to see why interstate migration into Queensland is down so much. Overall, the slowdown in population growth is the result of a targeted Government policy to slow the intake of overseas migrants. With the labour markets remaining tight and wages growing at a rate above inflation it may be necessary to again revisit migration targets on top of the increases announced in the latest budget.

Aussie consumers keep their foot on the brake

Westpac and the Melbourne Institute released their monthly measure of consumer sentiment this week and it showed that confidence amongst consumers continues to wane. The consumer sentiment index fell to 101.2 points in June 2011, its lowest level since June 2009. Despite the fall in sentiment, the index remains above 100 points which indicates that consumers are more optimistic than pessimistic, but only just. The decline in consumer sentiment does not bode well for sales transactions. Historically, as sentiment has fallen so too have sales volumes. Volumes are already particularly weak across the country, sitting -13 % below the five year average. If the measure of consumer confidence remains at these low levels, we would not expect that there will be any significant improvement in sales transaction volumes, subsequently, the prospects for any significant growth in values is also reduced. It is important to note that the index can be quite volatile on a month-to-month basis and is clearly heavily influenced by economic events and releases each month. In saying this, the index has been trending lower since mid 2010. The consumer sentiment index is comprised of a number of other subsets of data which feed into the overall result. A number of these measures were particularly weak during June 2011. The table below details these measures, comparing them to results 12 months ago, two years ago and five years ago. There are only two measures which indicate optimism over pessimism at the moment, they are current conditions and time to buy a major household item. It also seems as if the last 12 months has been particularly hard on families with the index at a very low level 75.9 points . It looks although households believe that things aren’t set to get much better either with their expectations about economic conditions indicating a less than confident outlook for the next 12 months and five years. If there needed to be any further evidence of a conservative and uncertain consumer here it is. Each quarter, Westpac and the Melbourne Institute release further information which details the wisest place for savings. The chart below highlights the results for putting it in the bank, into shares and into real estate. The results highlight the conservative nature of consumers with most believing that the best place to park their money currently is in the bank. With property values having fallen in recent times and the share market both here and abroad well below its peak and showing little growth it is no real surprise that the conservative consumer is focused on saving not spending. Over the 12 months to April 2011 capital city home values have fallen by -1.5%, retail trade is growing at a rate well below headline inflation, housing finance commitments continue to fall as does lending finance. Add to this the fact that consumers are showing a greater propensity to use debit cards rather than credit, everything points to an uncomfortable consumer. Uncomfortable with the economy, the prospect of higher interest rates, debt levels, a hung parliament and really just uncomfortable about the whole state of things. So what will it take for confidence to return? The unemployment rate remains quite low so that should help confidence given that most people that want a job have one. A stable interest rate environment should also help, although rates have been stable for some time, most people expect that they will increase shortly. Consistently strong GDP figures are also likely to help, the RBA is forecasting strong GDP growth over the coming years after a poor first quarter of 2011, and if this comes to fruition we expect it to provide greater economic confidence. Overall, positive economic news would support greater confidence. Does the data reflect your feelings about the economy in general? How long do you think it will take for things to change or is this period of consumer conservatism going to persist for some time? What will it take for consumers to become more confident?

Is the tide starting to turn for the Perth housing market?

Well… not yet based on the fact that home values are still falling, but the underlying fundamentals are starting to look much better compared with other capital cities. Perth home values have recorded the weakest results of any capital city, down 7.1% over the year to April 2011 which also equates with the peak to trough movement in values – Perth home values hit a recent high in April 2010 . Ongoing value falls aside, the market fundamentals within Perth are starting to once again show some promise. Vendor discounting and Time on market The average level of vendor discounting simply the average difference between the initial listing price and contract price of properties sold each month and average time on market the average number of days between when a property is first advertised for sale and the contract date have both leveled in recent times and in fact have shown some slight improvement recently. Perth’s level of vendor discounting is now about on par with the capital city average 6.4% in Perth compared with 6.5% across the combined capitals . The number of days it takes to sell a house in Perth fell from 63 days in March the highest selling time reading since March 2009 to 60 days in April which is 5 days longer than the combined capitals average. The level of discounting and days on market measurements are still above the long run average, implying that buyers are still empowered when it comes to negotiating, however the improved position over recent months may be pointing towards a subtle swing in the balance. At the very least it suggests that vendors are starting to set prices which are more in line with actual market conditions. Number of homes available for sale The number of new listings being added to the Perth market has been trending downwards now since mid April, with the number of new listings advertised for sale over the last four weeks now 22% lower than at the same time last year. The number of homes advertised for sale across Perth over the last four weeks now totals 20,764 which is 19% higher than at the same time last year but 6% lower than two months ago. With fewer new listings being added to the market and a slight improvement in sales volumes see below it looks like supply levels are starting to see some absorption which is a very good sign. Number of transactions Our estimate of the number of home sales has been trending upwards since the seasonal low point in December 2010. Over the month of March 2011 our modeling shows Perth sales volumes were recorded at 3,454 sales in March which is the best transaction result since March one year prior note that transaction data for recent months is modeled based on the normal time lag in receiving the full population of transactions from the Western Australian Government . If the trend of higher sales activity continues while new listing volumes continues to fall or level, we should see the effective supply levels absorbed at a faster rate – a critical success factor if we are to see the Perth market turn around. Perth’s value proposition The gap between median prices can provide a good proxy for relative value. In late 2002 Perth’s median house price was almost 60% lower than Sydney’s. As Perth’s housing boom kicked off and Sydney’s growth rate went into decline we saw a dramatic shift in the relativity between Perth and Sydney house prices. The gap reached its narrowest point in early 2009 when Perth’s median house prices were just 2.3% lower than Sydney’s. Based on the median house price for April 2011 the price gap between Perth houses and Sydney houses stands at 18.3% the median price of a Perth house is 18.3% lower than Sydney’s median house price . Where the natural balance lies is anyone’s guess – Perth’s housing market was arguably well undervalued during the early part of last decade. With the meteoric rise in Perth values between 2004 and 2007 it is clear that values overshot the market and have since been correcting. A 20% gap between Perth and Sydney house prices seems fairly reasonable to me Melbourne’s median house price is 11% lower than Sydney’s and Brisbane’s is 24% lower . Rental yields After a long history of low rental yields due to the fact that capital gains had been well and truly outpacing rental rates, Perth yields have finally returned to the capital city average. Perth houses are now providing a gross rental yield of 4.2% and units are returning 4.9% – both on par with the combined capital city benchmark. Rental yields reached a low point of 3.1% in late 2006 and reached a recent high of 4.8% in early 2009 before deteriorating again as Perth values showed some subtle gains and rental rates dipped. The improved yield environment, together with a long term view on capital gains should eventually provide some encouragement to investors once again viewing the Perth market with a positive outlook. From an economic and demographic perspective, the Western Australian fundamentals are outperforming the other states. The recent ‘State of the State’ report by CommSec ranked Western Australia as having the second strongest state economy after the ACT based on eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements. The resources sector is likely to fuel the local economy further, just as it did across the previous resources boom that kicked off a surging property market. Overall, the market fundamentals in Perth are firming up. Despite what are looking like rosier conditions the Perth housing market hasn’t recorded a positive quarterly growth figure since May last year. With the Perth housing market indicators improving pretty much across the board, the missing piece of the puzzle is likely to be home buyer and investor confidence which remains low across the country. Whether the strong underlying fundamentals of the Perth market see buyer confidence improve in this region of Australia is yet to be seen. As always, we welcome any views from professionals or punters on Perth’s housing market and your views on conditions going forward.

Same amount of pie, just fewer slices

Times are tough in the real estate sector, transaction volumes are down, listing volumes are up and buyers are scarce. Not a great combination when you are trying to sell a property. It stands to reason that fewer property transactions mean less commission for real estate agents. It also means mortgage brokers are establishing less trail, solicitors are involved with fewer conveyances, buyers’ agents have fewer clients, removalists have fewer jobs and pest and building inspectors have less work. The multiplier effect of a property transaction extends to the retail sector where less furniture, white goods and appliances are transacted. And of course the State Government receives less stamp duty which is one of their major sources of tax revenue. Currently, on a national basis, we estimate that over the year to March 2011 there were about 390,000 house and unit transactions our transaction volumes are modeled for the most recent five months due based on the typical lag in receiving the full population of transaction data from the respective state governments . Based on these estimates, the rolling annual transaction count hasn’t been this low since 1997. Over the last five years, the average number of sales on an annual basis has been 480,000; so the current annual figure is tracking about 19% below average. Looking at the gross value of sales, the story hasn’t been quite so bad due to the large capital gains recorded during 2009 and the first half of 2010. The gross value of house and unit sales across Australia over the 2010 calendar year was $207.5 billion which is only 1.5% below the five year average. The gross value of house and units sales on a rolling annual basis peaked over the year ending February 2008 when $249.2 billion worth of house and units sales were transacted across the country. So in short… the lower volume of sales is absolutely affecting the hip pocket of real estate professionals and related industries, however the amount of available gross commission is not far below the five year average. Essentially what this means is the total sales commission available to real estate agents hasn’t changed a great deal from the five year average, but the commission is available across a much lower volume of sales. Same size pie, fewer slices. This scenario is likely creating a great deal of competition amongst agents within the real estate sector. There was an interesting article in the Australian Financial Review today that highlights this point. Written by Ben Hurley and Ruth Liew, the article was headlined ‘Going, going, 10,000 estate agents gone’ and it was featured on the front page and page 55 today Financial Review, June 3 . The article suggests that the number of real estate agents has fallen from around 72,000 back in 2006 based on Census counts to an estimate of 60,000 one year ago and 50,000 currently. The figures are likely to be at least ‘ballpark’ correct – it’s actually difficult to estimate the true number of real estate agents because the registration rules are different from state to state. Competition amongst agents is tough and it’s reasonable to expect that those agents missing out on a slice of the pie are seeking alternative employment. Without doubt, the current real estate environment is a challenging one for the industry. The main game for industry players ‘toughing it out’ in this low transaction market has got to be an absolute focus on maximising market share – how to get more pieces of the pie. Agencies are also probably looking to grow their rent rolls during these lean times. Rental rolls provide consistent income at a time when sales volumes are down and commission is therefore inconsistent. Let us know your experience, and if you are in the industry how are you working towards building your share of the market?

Why Australia needs to drop the obsession with our capital cities

In last week’s blog Tim highlighted that the Sustainable Australia – Sustainable Communities, A Sustainable Population Strategy for Australia Report released by the Department Sustainability, Environment, Water, Population and Communities failed to meet its objective. Tim specifically noted, ‘The objective of the report is to provide strategic guidance for population growth across Australia. While the principals and themes expressed in the report are very sound less urban sprawl, maximization of infill targets, higher densities around key transport nodes and higher levels of population growth in the key regional areas where labour demands are the highest however the report is a complete failure in the sense that it provides absolutely no guidance or measurement about population growth targets or objectives. Without the hard and fast numerical backing for a population strategy, the paper is nothing more than a fuzzy view of how population growth should be managed without any hard and fast guidelines about how the strategy is to be executed, how fast or slow it should occur and what are the measurements of success.’ Below is a column which I wrote before the release of the report which was published in The Australian this week. In light of the release of the Sustainable Australia – Sustainable Communities, A Sustainable Population Strategy for Australia Report last week I think it is quite topical, enjoy! As Australian’s we are so obsessed with our capital cities, in particular Sydney and Melbourne but why? Yes they are the most populous regions and yes parts of the cities are very nice but there are also many parts of the city which do not hold the same appeal. The reason I believe people are so obsessed with our capital cities is due to the fact that generally the employment opportunities are most plentiful in either Sydney or Melbourne or to a lesser degree Brisbane or Perth. Alternatively, you can move to a regional area and work in the resources sector and get paid extremely well. The issue is that the cost of living in most of these cities is significant: housing is expensive particularly in the most desirable areas , public transport infrastructure is largely insufficient and relatively expensive and typically the road networks are also not up to scratch. Yet the lure of the dollar keep Australian’s flooding to these centres. Australia’s capital cities account for approximately half a percent of all of the country’s land mass yet almost 65 per cent of the population live in these areas. A good comparison is the USA, the eight largest Metropolitan Statistical Areas: New York – Northern New Jersey – Long Island Los Angeles – Long Beach – Santa Ana Chicago – Naperville – Joliet Dallas – Fort Worth – Arlington Philadelphia – Camden – Wilmington Houston – Sugar Land – Baytown Miami – Fort Lauderdale – Pompano Beach Washington – Arlington – Alexandria These eight regions had a combined estimated population of 70,831,808 persons as at 1 July 2009. Despite such a large combined population they accounted for just 23% of the country’s overall population. It’s little wonder housing is expensive in desirable areas of capital cities of Australia given there are so many people competing to live in such a small area of the country. Of course there are wide expanses of Australian land which isn’t suitable to live within but there are plenty of areas outside of the major capital cities which are more than suitable in which to live. The thing holding many of these regions back is jobs, decent wages and appropriate infrastructure. Looking once again at the USA, did you know that only one of the top 10 Fortune 500 companies in the USA is actually headquartered in Manhattan? The trouble in Australia is that so many of our largest companies insist on being headquartered in capital city areas and you can understand why. The capital cities are where the population is so as a result, that’s where the employees are. On the other side of this argument the occupancy costs are significantly higher in Sydney than they would be in say Adelaide or Townsville. I suspect that there are some significant cost savings to be made if some of these businesses were set up in regions outside of the capital cities and not just on occupancy costs. In the USA, Omaha Nebraska which is home to an estimated population of 849,517 persons, just 0.3% of the country’s population, is home to five of the top 500 companies in the country including Warrant Buffet’s Berkshire Hathaway . Surely these businesses being headquartered in these less populous regions is a massive shot in the arm for local businesses and the economy. I believe that like the USA we need to spread out a little and Government can start by incentivizing businesses to set up outside of the major capital cities. In fact, Government should be taking the lead and setting up larger regional operations and administration centres located outside of the capitals. From a private sector perspective, I doubt it would be possible to lure too many existing businesses from their CBD headquarters however, what we can start doing is incentivising new businesses to set up their headquarters outside of the capital cities. Not only would this encourage additional investment and employment drivers in regional areas, it would also lessen the stress on capital cities. These regional areas don’t need to be far from the major capital cities however, the cost of living in these areas would be much lower than capital cities. Look at the below examples of the median house prices in capital cities as opposed to nearby regions for the December 2010 quarter: Sydney Statistical Division – $600,000 Newcastle – $390,000 Wollongong – $445,000 Cessnock – $235,000 Wingecarribee – $365,000 Melbourne Statistical Division – $515,000 Greater Geelong – $350,000 Greater Bendigo – $260,000 Ballarat – $269,000 Latrobe – $210,000 Brisbane Statistical Division – $460,000 Lockyer Valley – $336,250 Toowoomba – $320,000 Somerset – $320,000 Gympie – $305,000 Perth Statistical Division – $480,000 Murray – $295,000 Waroona – $297,500 Harvey – $367,500 Canberra Statistical Division – $550,250 Queanbeyan – $441,250 There are also plenty of other viable regions such as: Cairns, Coffs Harbor, Albury-Wodonga, Mount Gambier and Broome to name a few. The issue currently is that there are not enough jobs in these regions to lure working age residents to move to one of any of these regions en masse. Employment opportunities outside of capital cities are the key and the shift must be supported by Government. Without jobs the lure of cheaper housing won’t be enough. Major businesses being located in these areas would help attract people to the area and subsequently increase revenue for the councils as well as increasing the requirement for services and additional business to cater to an increasing population. Even if this initiative was to be implemented it would not be a swift shift away from the capital cities and they would likely continue to account for the majority of the population however, de-centralising can ease costs and provide alternate options. With the cost of living continuing to increase in the capital cities and all Government’s seemingly unable to plan appropriately for future population growth, alternatives outside of the capital cities must be considered. What do you think, are we too capital city centric, should the Government be doing more to encourge investment and jobs outside of the capital cities?

The four pronged plan that will profoundly affect property markets around the country

Over the last two weeks there have been four significant strategic announcements from the Federal Government that are likely to have a profound impact on the Australian housing market. The new membership of the National Housing Supply Council were announced and their first meeting will be held in June of this year with the key objective of undertaking and releasing the third ‘State of Supply’ report which is widely regarded as the bible for measuring the level of housing supply in Australia. The most recent report, which highlighted a housing undersupply of about 180,000 dwellings, was released just over a year ago. You can view the most recent report here and view the media release announcing the new council members here. The National Urban Policy ‘Our Cities, Our Future’ was released by the Department of Infrastructure with a focus on the planning and infrastructure priorities for Australia’s largest cities. The plan accompanies the Federal Budget announcement of $181 million to be devoted towards the Livable Cities and Urban Renewal Program, the National Smart Managed Motorways Trial and the Sustainable Australia-Suburban Jobs initiative. The document and summaries are available to download here and the media release can be viewed here. The population strategy for Australia was released: ‘Sustainable Australia – Sustainable Communities, A Sustainable Population Strategy for Australia’. The report, a year in the making, was released by the Department Sustainability, Environment, Water, Population and Communities. The objective of the report is to provide strategic guidance for population growth across Australia. While the principals and themes expressed in the report are very sound less urban sprawl, maximization of infill targets, higher densities around key transport nodes and higher levels of population growth in the key regional areas where labour demands are the highest however the report is a complete failure in the sense that it provides absolutely no guidance or measurement about population growth targets or objectives. Without the hard and fast numerical backing for a population strategy, the paper is nothing more than a fuzzy view of how population growth should be managed without any hard and fast guidelines about how the strategy is to be executed, how fast or slow it should occur and what are the measurements of success. The report can be downloaded here and the media release can be viewed here. Finally, the Productivity Commission released their ‘Performance Benchmarking of Australian Business Regulation: Planning, Zoning and Development Assessments’ report. The report, which didn’t seem to catch the major headlines for some reason, contains seven recommendations aimed at streamlining the planning and approvals process for new housing and non-residential developments recommendations are contained within the ‘Leading practices document here . The report highlights the inconsistencies of council planning regimes, a lack of any standards associated with the fees and development charges applied to new developments and the amount of land released for urban uses. The report also benchmarks a wide variety of factors between the states and territories such as supply of land, integration of planning and infrastructure, median elapsed time for development approval etc. If the recommendations are accepted and implemented we can expect a dramatic improvement to what is currently a very complex and inconsistent planning and approval regime. Less development cost, shorter approval process, more strategic land use objectives and greater transparency around development costs. The report can be viewed here. The strategies and reports vary widely in their effectiveness and clarity; however the holistic view when all these initiatives are brought together is very positive. Apart from the lack of substance within the population strategy, the reports are strategic in nature and provide a much better direction for the management of population growth, associated infrastructure improvements and land release, required dwelling construction and a better town planning regime that is more standardised nationally. Importantly they provide a national cohesive vision for Australia’s planning environment. The big challenge for the Government is likely to be state and local opposition to some of the strategies which may be viewed as interventionist. Clearly the state and local governments have generally failed to date and in my view it is time the Federal Government takes a stronger and broader role. The other key challenge is going to be execution. There are a lot of interests at play from both a public and private perspective and there are three levels of Government that are going to have to cooperate a lot more than they have in the past. Add changing long held consumer lifestyle preferences to the list of challenges– it is going to be a slow process encouraging more Australians into higher density housing. Affordability factors will play a key role in encouraging this paradigm shift away from detached housing, as will faster commuting times to major working nodes, better access to the necessities of life such as health care, retail facilities and social precincts. How will it all pan out? Time will tell.

Housing remains in the too hard basket at budget time

Once again, some of the key issues affecting virtually every Australian have not been addressed in the Federal Budget. Housing supply, and associated with that, housing affordability has again flown under the budget radar. Is it simply that politicians don’t know how to deal with the issues of land undersupply or is that they don’t have the ability? The housing market is broadly addressed in Budget Paper 1 on page 2.20: Dwelling investment Households also remain cautious with respect to their dwelling investment decisions, with tighter credit conditions further weighing on activity in this sector. In the short term, forward indicators are pointing to continued weakness, with housing finance for new dwellings and dwelling approvals falling in recent months. In the medium term, demand for housing is expected to be supported by low unemployment, solid growth in household incomes and past strength in population growth. However, ongoing supply constraints associated with planning and approval processes and land release restrictions are expected to continue to weigh on dwelling investment growth. So, it’s clear they acknowledge the problem but there is little action. The key points relating to the property market in the budget were: Migration set for an upswing – new target is 185,000, up from 168,700 the year before Mostly focused on regional areas where workers are desperately required Higher population growth means higher demand for housing – the flip side is that the Government continues to ignore the fact that as a country we are not building enough homes to accommodate current rates of population growth, nor are we delivering these homes at affordable price points and with sufficient local infrastructure and amenities. $6 billion allocated to a regional infrastructure fund – most of this will be directed towards projects in Queensland and Western Australia to support the resources sector The ‘Housing and Community Amenities’ provision in the budget has been cut by $1.1b reflecting the conclusion of the housing initiatives introduced as part of the Government’s response to the global financial crisis.. This is primarily related to a reduction in social housing initiatives that were part of the Nation Building and Jobs Plan Payments to support state affordable housing services will be reduced by $1.4b mostly due to the reduction in the Nation Building and Jobs Plan – social housing second stage construction No mention of changes to tax implications for property investors, specifically negative gearing. Let’s hope we see more action from the state budgets when they are released next week, but we won’t hold our breath.

Market slowdown likely to create a hole in State budget revenues

The number of home sales moved upwards sharply in February, increasing from just 23,047 sales in January up to 32,090 in February. The upwards movement is partly seasonal, with the January sales volumes typically lower due to the time of year. The severe weather events recorded during January would have also contributed to a slower than normal property market in January. Despite the improvement over the month, the modeled February results continue to reflect fairly subdued buying activity. The average monthly number of sales during 2010 was 33,980, so the February result is about 5.6% lower than that average. Over a longer benchmark period, the last five years, the monthly average volume of sales is a higher 39,170 sales. Based on this benchmark the current level of market activity is about 18.1% below average. In all likelihood we will see volumes improve slightly in March; the historic trend has generally been that March sees an improvement in sales volumes over February. Over the 2011 calendar year, we are likely to be looking at another sedate year for property sales. Over the 2010 calendar year we are estimating there were about 407,780 home sales which is the lowest annual transaction count since the 12 months ending August 1997. The low volume of sales has an obvious affect on industry players. Real estate agents are seeing less commission, the legal industry are undertaking less conveyancing, banks and mortgage brokers are writing fewer loans. Peripheral industries such as removalists and building and pest inspectors would also be feeling the pinch. What is often less obvious is the multiplier effect the slowdown in property sales has. Most people who buy a home also make significant purchases of new retail goods such as furniture, whitegoods, appliances, and household maintenance items. It’s a reasonable assumption to make that the soft retail sales we are seeing of late are partially related to the slowdown in home sales both of which are of course related to shaky consumer confidence as well . Another sector that is feeling the pain of the housing slow down is Government. Property related taxes are the biggest cash cow for state and local governments, accounting for more than 48% of total tax revenue. Stamp duties comprise just under 40% of this taxation revenue. With budget season just around the corner it will be interesting to see how the State Governments are factoring in the market slowdown when the forecast their stamp duty income.

CPI and housing

The Consumer Price Index CPI for the March 2011 quarter was released this week by the Australian Bureau of Statistics ABS . CPI measures quarterly changes in the price of a ‘basket’ of goods and services which account for a high proportion of expenditure by the CPI population group i.e. metropolitan households . This ‘basket’ covers a wide range of goods and services, arranged in the following eleven groups percentages in brackets indicate the weighting : Food 15.44% Alcohol and tobacco 6.79% Clothing and footwear 3.91% Housing 19.53% Household contents and services 9.61% Health 4.70% Transportation 13.11% Communication 3.31% Recreation 11.55% Education 2.73% Financial and insurance services 9.31% Over the March 2011 quarter, CPI increased by 1.6%, the largest quarterly change since inflation also increased by 1.6% in the June 2006 quarter. The Reserve Bank RBA has a long-term target rate of inflation of between 2% and 3% on an annual basis and will adjust monetary policy primarily interest rates as required to meet this target. Annually, the all groups inflation figure was recorded at 3.3%. Although this figure is outside of the target range, the RBA prefers the weighted median 2.2% and the trimmed mean 2.3% both of which remain well within the target range…for the time being. It is clear from the long term series of ‘core inflation’ that the long gradual fall in CPI growth is likely to be over. We can expect core inflation to rise from here onwards. Looking at the ‘basket’ of CPI items and their quarterly change there has been some significant increases over the quarter. The most substantial increases were recorded for: education 5.7% , health 3.9% , food 2.9% and transportation 2.7% . Meanwhile, falls were recorded for: household contents and services -1.6% , clothing and footwear -0.7% and recreation -0.6% . Both education and health typically record a large seasonal increase during the March quarter of each year. The 5.7% increase in health was the largest increase since the March 2005 quarter. The 3.9% increase in health costs was actually lower than the 4.7% increase during March 2010. Importantly however is the fact that health and education both have a relatively low weighting so have limited influence over the overall result. The 2.9% increase in food costs , the 2.7% increase in transportation costs and the 2.6% increase in financial and insurance services would have had a much more profound effect on the result given they have a much higher weighting. The 2.9% jump in the food component was the largest quarterly increase since a 4.1% increase in June 2006 and transportation costs were up by their largest figure since June 2008 3.1% . The housing component not only has the heaviest weighting of all groups but is also probably the area of which most of our readers are most interested. During the quarter, housing costs increased by 1.3% which was pretty much in-line with the average quarterly increase over the past five years 1.2% . On an annual basis, housing costs are growing at a much faster rate 4.8% than headline inflation 3.3% . However, the latest annual figure is the lowest since 4.8% annual growth was also recorded during the year to December 2007. When looking at housing, it is important to also look at the sub categories. Some of these categories are quite seasonal and, given that, it is important to look at annual changes. On an annual basis the largest increases have been recorded for: water and sewerage 12.8% , electricity 11.7% , utilities 10.6% and property rates and charges 6.2% . Most notable is the fact that these are all costs associated with services related to owning a home, not the physical cost of housing. In fact, the smallest increases over the year have typically been for those items related directly to the physical property: house repairs and maintenance 2.2% , house purchase 2.6% , other housing 2.9% and rents 4.5% . The clear message from the data is that if the cost of owning your own home is currently restrictive, it isn’t so much the increasing cost of purchasing or renting which is stretching budgets, these costs are generally growing at a rate below inflation. Rather, it is the costs of associated services which are really hurting owners and renters. A good example is looking at the average annual increase in costs over the five years to March 2011: Rents – 5.7% Utilities – 9.4% Electricity – 10.1% Gas and other household fuels – 6.7% Water and sewerage – 10.1% Other housing – 3.5% House purchase – 3.3% Property rates and charges – 5.6% House repairs and maintenance – 2.9% Housing overall – 5.1% So when people say that the cost of housing this may be the case however, the ongoing significant increases to the quarterly bills appears to be having a much greater impact on the overall cost of housing. Home owners and potential home owners should be much more focused on the increases in those bills which roll in once a quarter, namely: electricity, water and sewerage, rates and gas bills. Let me know what you think, are you finding that continual increases in your regular bills are creating a strain on household budgets and making it harder to either pay the rent or service your mortgage?

Australia needs more intensity around population density

Australia’s population is getting close to 22.5 million residents of whom about 64 percent live within the nation’s capital cities about 55% live within the big four capitals With such a large proportion of the population living on what is just half a percent of the land mass, you would think Australian population densities would be much higher than that they are. The council area showing the highest population density is Sydney’s Waverley where there are about 7,500 residents per square kilometre the top 20 list of council areas based on population density is below . The Waverley council, which can generally be described as Sydney’s Eastern suburbs Bondi, Bronte, Tamarama, Dover Heights, etc covers 9.2 square kilometers and is home to almost 70,000 residents equating to a population density of 7,508 residents per square kilometre. 60 percent of all home sales in Waverley are unit sales. In fact, 16 of the 20 most densely populated council regions are located across Sydney’s inner regions – the other four are in Melbourne. As an aside, a few reasonable web pages for looking at comparative population densities can be found on Wikipedia List of cities proper by population density, List of the most densely populated country subdivisions, List of United States cities by population density, European Cities proper by population density – note that the time periods and geographic context tend to be non standard which makes comparison’s a bit difficult. Density figures are of course affected by a large range of factors. Of course the composition of housing will affect densities – town planning regimes that allow for taller building heights and a predominance of apartments as opposed to detached homes will clearly create high population densities. The amount of green space in a region, for example, can create the false impression of lower population densities where there is a large amount of parkland. Additionally, the overall area of the region will affect the density calculation. The best example is arguably the Brisbane council region which covers more than 1,300 square kilometers. Due to the wide expanse of land, Brisbane’s population density looks quite low at just 804 persons per square kilometer the Brisbane council region is about 143 times larger in land area than Waverley . At the suburb level, it is a similar trend, with the highest population densities largely confined to Sydney’s inner city and to a lesser extent, Melbourne. The figures provided above highlight that, outside of Sydney, the densification of Australia’s population and built form has a long way to go. From an affordability perspective, densification makes a lot of sense. Across the capital cities, based on median prices, buying a unit is about $65,000 more affordable than buying a house. In Sydney, where the unit market is much more mature, the price difference is a much larger $110,000. Also, from a planning and infrastructure development perspective, the case for higher population densities within the inner city and along established transport spines makes a lot of sense. The high costs associated with building new roads and railways to the greenfield development regions on the city fringe are prohibitive and Governments across all levels have mostly been unable to deliver infrastructure improvements as fast as they are required. We are already seeing a gradual trend towards more medium and high density housing product. In Sydney, sales figures for January 2011 showed about 45% of all sales were attached or semi-attached homes. Melbourne shows about one third of all sales are for units and in Brisbane it’s just over a quarter of all sales. Australian’s love their backyards, but it is inevitable that as affordability pressures mount and transport options around the city fringe become more congested and costly, more residents will consider a higher density housing option.

US housing market not yet out of the woods

Housing market conditions in the US are continuing to struggle, with the CoreLogic House Price Index HPI showing ongoing weakness across the market. The latest results for February were released just recently, revealing a 6.7% annual decline in US home values. US home prices are now 34.5% lower than when the market peaked back in April 2006. A remarkable difference between the measurement of US and Australian housing markets is the capability of US analysts to report on the ‘distressed’ component of the market distressed properties are classified as ‘short sales’ i.e. those transactions where the sale price is less than what is owed on the property and real estate owned REO transactions i.e. a property that is owned by a lender, most often a bank that has taken possession after an unsuccessful foreclosure auction . Removing distressed properties from the equation shows the annual decline is just 0.1%. Excluding distressed sales from the measurement also shows that between the peak of the market to Feb 2011, US home prices are down 21.7% compared with 34.5% when distressed properties are included. The maps below, taken from the recent Core Logic press release http://www.corelogic.com/#home-research tell the story much better from a regional perspective. Other research by CoreLogic reveals that 23.1 percent of all residential properties with a mortgage were in negative equity at the end of last year – that’s 11.1 million borrowers whose home are worth less than what they owe on them. An additional 2.4 million borrowers had less than 5% equity in their home. Looking back at some of the indicators in the lead up to the market peak back in 2006 provides some interesting insights. New home building was rampant. When compared with population growth, which was running just below 1.0% per annum, new home approvals were increasing at the rate of 6.9% per annum. A crude estimate of the oversupply of housing approved in 2004 and 2005 was 1.03 million too many homes in 2004 and 1.12 million too many homes 2005 based on total population growth divided by the avg household size of 2.6 compared with total dwelling approvals . As more dwellings were built, vacancy rates climbed higher, reaching a peak of 11.1% in late 2009 before once again starting to trend down to the current vacancy of 9.4%. Despite the ongoing weakness in the housing market, unemployment rates are starting to show some improvement, falling from a recent high of 10.1% to the current rate of 8.9% unemployed. The US cash rate has remained between 0% and 0.25% for the past two years and most economists are speculating that despite the subtle economic improvements, rates are likely to remain on hold. That should continue to provide some support to an improvement in US housing market conditions however, it makes further stimulation of the economy difficult if conditions deteriorate further. Looking forward, it’s unlikely the US housing market will show any significant improvement until the levels of shadow inventory start to unwind. Shadow inventory is best described as the volume of distressed homes yet to enter the market place. CoreLogic estimates that shadow inventory has fallen to 1.8 million homes down from 2 million homes at the same time one year ago . While the trend is in the right direction, it is going to be quite some time before the supply of distressed properties is absorbed – meaning US house prices are likely to remain cool for some time yet. For anyone interested in the US housing market, the analytics available from CoreLogic www.corelogic.com are one of the best places to start. It is worthwhile noting that CoreLogic has built the largest and most comprehensive U.S. real estate, mortgage application, fraud, and loan performance databases and is a recognized leading provider of mortgage and automotive credit reporting, property tax, valuation, flood determination, and geospatial analytics and services. CoreLogic is currently a 40% share holder of RP Data ASX: RPX

Who’s earning the big bucks?

The Australian Tax office this week released their annual taxation statistics see here for all the data which provides one of the best insights about individual income levels and spatial patterns of wealth around the country. It is worth mentioning the data which was released this week relates to the 2008/09 financial year… quite a delay in getting the data released, but better late than never the data is actually released at about the same time each year . We’ve created a bunch of thematic maps which are probably the best way to highlight the wealth trends around the capital cities. Typically the high income areas are clustered close to the cities and along the coastline with a few exceptions being the postcodes synonymous with acreage homes. The list below shows the top twenty postcodes for the highest mean taxable incomes. Twelve of the highest income earning postcodes are located in Sydney and Melbourne and Perth both feature four postcodes within the top twenty list we’ve also included the postcodes for highest income earners in the other capital cities with their respective national rankings . The highest income postcodes outside of the capitals are almost exclusively located within the resource intensive regions, particularly WA’s Pilbara and Queensland’s Bowen Basin. The buying power of individuals residing in these high incomes locations both capital city and regional areas is very much evident in the high house prices and rental rates evident across these markets. As a few random examples: The highest income postcode, 3944 Portsea, located along Melbourne’s Mornington Peninsula shows a median house price of $1.565m. The highest income postcode in New South Wales, 2027 home to suburbs such as Point Piper, Darling Point and Edgecliff has a median house price of $1.68m and a median unit price of $875,000. In the highest income regional postcode of 6713 Dampier the median house price is $865,000 The same is true at the opposite end of the spectrum, with low income postcodes unsurprisingly featuring low priced housing. Once again, a few examples: The postcode of 7016 Hobart’s suburb of Risdon Value shows a mean individual income level of $38,268 and a median house price of $185,000. 4114 the Brisbane suburb’s of Kingston and Woodridge has a mean income level of $40,108 and is recording a median house price $277,500. 3200 Melbourne’s Frankston North and Pines Forest shows a mean income level of $39,827 and a median house price of 4285,000.

New residents flock to Melbourne’s urban fringe

Yesterday the Australian Bureau of Statistics released their annual ‘Regional Population Growth’ figures – a set of data that provides estimates of population growth for a range of smaller geographic areas than what is available in the regular quarterly updates. The data is released for the most common Australian Standard Geographic ASGC regions including statistical divisions, statistical subdivisions, statistical local areas and local government areas. The estimates provide an interesting and much more granular insight into where Australia’s population flow is being housed and hence where is the greatest demand for housing and infrastructure development being felt. I have compiled a top 50 list based on council regions below, filtering out any regions where the raw growth in population numbers was below 500 persons over the year – some of these smaller regions show wild annual growth figures due to the small population base being measured. I have also appended the median house and unit price as at December 2010 onto the list to provide some relativity of housing prices in these regions. The list shows the fastest growing council regions around Australia based on the percentage change in population between the June 2009 and June 2010 estimated residential population growth figures. Top 50 fastest growing council regions around Australia The influx of residents into Melbourne’s fringe is very clear and demonstrates the success of Melbourne’s early urban planning and infrastructure development as well as the affordability of the housing product being delivered in these areas. The top four council regions are all located across the Melbourne fringe where an estimated 33,216 new residents have settled over the last year. The most affordable of these regions is Melton where the median house price is just $275,000. The data provides some further understanding into why Melbourne’s housing market has been so hot. The combination of very strong population growth, a better managed urban housing strategy, and a forward thinking infrastructure policy that preceded the rapid rise in population growth have been key to the strong market conditions. As in many areas around the nation South East Queensland is arguably the best example , rapid rates of population growth also have their downside and the benefits of growth can quite quickly turn into growing pains due to congested roads, over demand on health care and education services and of course higher housing prices. It will be interesting to know if any readers are seeing these signs emerging in the Melbourne fringe.

Australia’s financial system gets the tick of approval by the RBA

The RBA this week released their half-yearly Financial Stability Review and overall it was quite a positive release. The report can be downloaded here: http://www.rba.gov.au/publications/fsr/2011/mar/html/contents.html The headline findings of the review were: Since the last review six months ago, confidence in the banking systems of major countries have generally improved Share prices of banks in the major overseas markets tended to increase over much of the last six months in line with continuing economic improvement however, recent natural disasters and tensions in North Africa and the Middle East have slowed the increase recently. The major international banks have continued to report profits and strengthen their balance sheets. Some banking systems particularly in Europe are still under considerable strain, where recovery is being undermined by market concerns about sovereign debt sustainability. The Australian banking system has continued to outperform many other countries, consistent with the relative strong domestic economic conditions recently. The number of non-performing assets is higher than they were pre GFC but they continue to improve. For the largest banks, profitability has now recovered to near pre-crisis levels. Australian banks have maintained ready access to wholesale funding markets in the past six months however, the need to raise wholesale funds over this period has lessened as growth in deposits continues to outpace growth in credit. This is reflected by households paying down debt and increasing their savings in recent times. The growing economy is improving the financial position of the household and business sectors in Australia. Both sectors continue to exercise a cautious approach to borrowing than prior to the crisis, with businesses deleveraging significantly and households reducing the growth in their debt outstanding to a rate more in line with income growth. Despite the increases to savings and households paying down more debt, household indebtedness remains historically high and recent increases in interest rates have lifted the aggregate debt servicing requirement. While indicators of financial stress are relatively subdued, the RBA would like to see households continue to borrow less and pay down more of their debt. It appears that the strong growth in the financial system pre-GFC is unlikely to occur again. The rapid improvement during that time was due to financial deregulation and a lower level of inflation in recent years. If the RBA’s view is correct, then banks’ domestic growth opportunities will be more limited in the years ahead. If financial institutions therefore attempted to return to their earlier rates of growth, they may take unnecessary risks that may be difficult to manage. Maintaining a more moderate pace of balance sheet expansion, particularly one that is more easily able to be funded by deposits, will also assist in further strengthening bank funding profiles. All in all it looks as if the Australian economy and financial system is performing quite well. It seems as if banks are increasing their deposits as households save more and pay down their debt, as a result their reliance on other sources of funding are lessened. The comments suggest that the RBA would like households and businesses to continue their cautious approach and pay down more of their debt. It also seems as if growth in banks profitability and revenue is not likely to return to those levels recorded before the GFC. Should consumers continue to take a more conservative approach and look to pay down debt and save more it is likely to result in fewer property transactions and lower levels of growth. In saying this, we expect lower levels of capital growth going forward. As has been the case with the rapid growth in the financial system prior to the GFC, the rapid growth in property values recorded during the past decade is unlikely to continue. Mortgage arrears in Australia also remain at very low levels, the report highlights: ‘the household sector is coping reasonably well with its debt levels and higher interest rates. While arrears rates on mortgages are higher than the low levels reached during the late 1990s and early 2000s, they remain low by international standards Graph 3.8 . By loan value, the share of non-performing housing loans on banks’ balance sheets was around 0.7 per cent in December 2010, broadly unchanged since March 2010, and up 6 basis points from December 2009; the vast majority of these loans are well covered by collateral. Arrears on securitised housing loans were also stable in 2010, at about 0.7 per cent, though these data are becoming less representative of overall housing loan quality given the gradual decline in residential mortgage backed securities outstanding down about 47 per cent from the peak in 2007 .’ Non performing housing loans What do you think, is the financial system as stable as the RBA suggests, or is everything not as rosy as it seems? We would be interested to hear your thoughts.

Dwelling commencements slow during December 2010 quarter but way up on 2009 volumes

The number of dwellings commenced during 2010 was recorded at 169,428. This represented an increase of 22.4% over the calendar year, the largest since they rose by 27.2% during 2002. With almost 170,000 dwelling commencements last year, it was a substantial improvement from around 138,000 commencements in 2009. On an annual basis, there has been an average of almost 156,000 dwelling commencements during the past 10 years which indicates that commencement in 2010 were 8.7% higher than the decade average an encouraging result given the need to deliver more dwellings. Interestingly, the rebound over the year is being driven by the unit market despite the fact that developers are reporting that obtaining finance for off-the-plan stock remains difficult due to strict lending criteria. Year on year, commencements for private sector houses are down -19.0% while private sector unit commencements have increased by 27.9%. Despite the strong performance for units, it is important to note that over the year they accounted for just 31.7% of dwelling commencements and that house commencements continue to far outweigh that of units. Despite the positive annual results, commencements appear to now be heading in the wrong direction. Total commencements fell by -13.0% in the September 2010 quarter and fell a further -5.3% in the December quarter. During December, private sector house commencements fell by -8.0% while unit approvals increased by 4.2%. Across the states, each state has recorded an increase in dwelling commencements over the past year. The greatest increases were recorded in: ACT 39.0% , Vic 29.6% , NSW 28.7% and WA 21.4% . The weakest states during 2010 were: Tas 1.7% , SA 8.2% and Qld and NT both 8.5% . During the final quarter of 2010, commencements fell in each state and territory except ACT 74.9% with the largest fall recorded in NT -37.2% . Unfortunately, with the number of dwelling commencements heading in the wrong direction over the past two quarters and January building approvals data particularly weak it seems as if a sustained recovery in commencements is unlikely at least during the first couple of quarters of 2011. This is likely to be compounded now due to the floods in Qld and parts of NSW and Vic during January. A sufficient volume of new home commencements is essential to even up the demand and supply equation and to help contain excessive price growth. The insufficient new supply at a time when our population has been growing so rapidly has placed additional upwards pressure on home values as buyers compete for quality available stock, particularly in well located areas. Although population growth is slowing, commencements need to catch up as they were insufficient throughout the years when the rate of overseas migration and natural increase was booming.

Suburbs with the greatest number of transactions during 2010

This week’s Property Pulse highlighted that nationally, property sales volumes were at their lowest level in more than a decade the lowest since 1996 actually . Sales volumes had been impacted by the swift increases in interest rates and deteriorating affordability levels. In saying this, there are still a number of areas which have recorded strong volumes of sales. The list below details those suburbs which recorded the greatest number of dwelling sales houses and units during 2010. Most sales The suburbs listed are characterised by a number of features. They are usually inner city suburbs dominated by unit developments, outer more affordable housing areas where the population is growing strongly or large regional townships. The dominant characteristics throughout is that these suburbs are large in size and have lots of dwellings. Melbourne has actually had the greatest number of sales during 2010, with 1,651 dwellings sold most of which were units. It is also interesting to take a look at the suburbs which have recorded the greatest proportion of stock turning over during 2010. For this analysis we have only included those suburbs which have recorded more than 30 sales over the year. The table below details the top 50. Greatest % of Sales The growing suburb on Melbourne’s fringe, Casey, has recorded the greatest proportion of total stock turning over during 2010. Over the year, 15.8% of all housing stock in the suburbs sold. The suburbs listed here are characterised as having relatively fewer overall properties. In a number of instances these suburbs are growth areas on the city fringe however, there is plenty of well established residential areas also detailed. The last 12 months has been characterized by fewer sales but a large volume of properties available for sale, particularly during the second half of 2010. Please let me know where your local market is and what the conditions are like. Who are the vendors, why are they selling, which buyers are active, are vendors setting realistic prices and just how difficult is it to get a sale at the moment?

GDP indicates Australia was doing alright….in December 2010

The Australian Bureau of Statistics released the December 2010 quarter Gross Domestic Product GDP figures this week. The data reaffirmed what we already knew, the Australian Economy was performing quite well during the final quarter of 2010. Over the quarter, GDP grew by 0.7% which was in line with the market expectation. The quarterly growth figure took annual growth during 2010 to 2.6%. The GDP read for December was also in line with the Reserve Bank’s forecast of 2.75% as published in their most recent Statement on Monetary Policy. The GDP figures revealed that disposable incomes have recorded s