Aussie Property Market Grew 0.3% in August — Bubble? What Bubble?


Australia’s two-speed property market had its softest month in a long time during August. According to CoreLogic RP data, property prices grew at a measly 0.3% across capital cities. Not surprisingly, Sydney continues to lead the way. It posted the strongest monthly price growth yet again.

But there are emerging signs that even Sydney’s overheating market is cooling. Don’t mention the ‘B’ word, but things look rosier than they have in recent times.

How do we know the market is slowing?

For one, property values in Sydney rose 1.1% during the month of August. That’s not bad, but it’s down from the 3.3% it grew in July. The median dwelling price in Sydney now stands at $773,000.

Melbourne, on the other hand, didn’t grow at all in August. Median dwelling prices remained unchanged, at $563,000.

Elsewhere, dwelling prices in Adelaide grew 0.7%. Darwin was the only other city to show growth, rising 0.3%.

As for the rest, it was yet another month in which prices declined. Perth was down 1.3% for the month. Dwelling prices in Canberra fell 1.7%, while prices also dropped 1.1% in Hobart.

Altogether, the Aussie housing market grew at 0.3% in August. This tepid monthly growth compares poorly to the previous two months.

Between June and August, combined city dwellings rose 5.3% in value. At 0.3%, August was comfortably the worst performing month. And this suggests that overheating in Sydney and Melbourne are cooling. We see this more closely when taking each market in isolation.

Take Sydney first.

Dwellings prices in Sydney rose 7.4% between June and August. Yet the property market only rose 1.1% in August. It means that less than one sixth of Sydney’s three month growth came in August.

The same is true of Melbourne, where prices rose 8% in the rolling quarter. Unlike Sydney, Melbourne saw no price growth during August.

That’s evidence enough, however temporary, that the market is slowing. And it should ease concerns over property bubbles in these cities.

Yet none of this should dampen what’s been a strong year for Australia’s property market.

Sydney dwellings have grown 17.6% in the year to August. Melbourne too saw growth of 10.6% in the same period. Median dwelling price in Victoria’s capital now sits at $563,000.

Lending restrictions curb property market growth

Early signs the markets are cooling suggests APRA regulations are working. The prudential regulator has urged banks to cut back on lending growth. Banks responded by tightening lending restrictions for investors. At first, there was little evidence of any major shift in lending growth. But August is the first month in which there is a noticeable slowdown in price growth. That could suggest that demand is slowing, which is keeping a lid on price growth too.

It would explain why median prices in August slowed to such an extent. But CoreLogic thinks we shouldn’t get ahead of ourselves just yet.

We should be cautious about interpreting this as a slowdown in the overall trend of value growth. In fact, the quarterly and annual trend of capital gain remains high in Sydney and Melbourne’.

Everything starts from somewhere. Banks needed time getting grips with new regulations. We’ll have to wait and see whether this was down to a slowdown in investor lending. Only then will we know whether this slowdown is a blip, or something more permanent.

But CoreLogic says the real test for the market is still ahead of it. As winter rolls into spring, property listings will start rising.

It’ll be interesting to see if property demand maintains pace as new listings rise. It’s expected the number of properties on the market will rise 5.5% compared to last year. Sydney and Melbourne will account for 16% and 10% of new listings respectively.

Either way, slowing growth is good news if you’re a first time home buyer. It’s also a sigh of relief for the Reserve Bank too. Why? Because housing affordability is rising as price growth stalls. This should also pressure on the RBA to cut rates soon. An overheating property markets is one the key factors it takes into account when setting rates.

A good time to rent

One of the outcomes of rising dwelling prices is that rental yields are falling.

Investors still opt for negative gearing to maximise their investment strategies. In other words, they’re betting that property prices will rise in the future. In doing so, they take losses on rental income. Strong yearly growth ensures investors still prize capital gains over cash flow. But it’ll be interesting to see whether stalling growth makes a difference to investor attitudes.

At the same time, booming house prices in the last year is keeping rental demand down.

Both of these factors make it an attractive time to rent.

In Sydney, rental properties have annual gross yields of 3.3%. That’s in sharp contrast to capital gains. As we’ve seen, prices in Sydney have risen 17.6% on last year.

That difference is less pronounced in Melbourne, but still high. Rental yields in Melbourne are at 3.1%, compared to annual property price growth of 10.6%.Nonetheless, rental affordability is rising because of this.

If you’re not a homeowner, you’ll hope that this is the start of flatter, long-term, property prices. If you’re an existing homeowner or investor, you’ll hope August proves nothing but a minor blip.

At least we can hold off on any bubble talk for the time being. In any case, the next few months should make for an interesting time for the Aussie property market.

Property market performance by city

Below is a list of market performance by city (monthly, yearly, median dwelling price).

Sydney: +1.1%, +17.6%, $773,00

Melbourne: 0%, +10.6%, $563,000

Brisbane: 0%, +3.9%, $451,000

Perth: -1.3%, -1.8%, $500,000

Adelaide: +0.7, +1.8%, 405,000

Hobart: -1.1%, +1.5%, $320,000

Darwin: +0.3%, -4.6%, $527,500

Canberra: -1.7%, -0.9%, $537,000

Combined capitals: +0.3%, +10.2%, $570,000

Mat Spasic,

Contributor, The Daily Reckoning

PS: The Aussie property market is still growing. It may be a two-speed market, but the majority of capital cities are still growing. The Daily Reckoning’s property expert, Phillip J. Anderson, is bullish on the market’s future.

Phil says that the national housing market is only set to continue growing. He says that Aussie real estate will boom for the next decade.

Phil’s 20 years of experience as a property analyst and advisor has given him a keen sense for where the property market is, and where it’s going. He correctly predicted the 2008 housing market crash. He also went against the trend in 2009, saying that house prices would go on to boom this decade.

He was right on both accounts.

In his latest free report ‘Why Australian Property is on the Verge of a Decade Long Boom’, Phil guides you through this coming decade. He’ll show you the right time to buy property at its cheapest, and how you can use this to time your investments. To find out how to download his free report, click here.


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