2018 property market wrap up
As we approach the end of 2018, we reflect on a varied 12 months for the spectrum of buyer groups, marketplaces and the regulatory system. Here, Head of Research Mathew Tiller takes look at some of the prevailing factors in the national marketplace over the last year.
Rates & regulations
The official cash rate has not moved from its record low since August 2016. However, the official cash rate is no longer the barometer for mortgage costs. Increased funding costs have seen banks lift mortgage rates independently of the Reserve Bank of Australia which has meant servicing a home loan, particularly for investors, has become more expensive.
In addition to rising rates, banks have also tightened up their lending criteria by reducing their Loan-to-Value (LVR) ratios and requiring detailed and backdated paperwork to approve loans - both by-products of this year's Royal Commission. The end outcome has been reduced financing to investors over the period.
Strong property price growth in the major capital city markets over recent years has seen affordability diminish, particularly in Sydney and Melbourne. But while the two largest markets are experiencing recent corrections, the growth of the past three years still overshadows the softening trends of 2018.
Overall, price growth has encouraged First Home Buyers, downsizers and families wanting to upsize to search for more affordable regions to live.
The tree and sea change phenomenon has given rise to higher volumes of city-dwellers packing up and relocating to regional markets this year. The popularity of certain regional areas has underpinned healthy price growth: the Richmond-Tweed in New South Wales' Far North Coast notched 4.8%, the Hunter Valley (excluding Newcastle) recorded 5.1%, while Queensland’s Sunshine Coast enjoyed 6.5%. And leading the field of regional performers was regional Tasmania - which followed Hobart’s lead this year for double digit growth – and Geelong (9.8%), which benefits from proximity to Melbourne and its general progression from blue collar to white collar employment. The increase in popularity of these regions also encouraged new supply into these markets.
Governments are fully supportive of regional growth, easing the congestion and infrastructure demands of cities.
First Home Buyers make the most of lower competition
Over the past few years, First Home Buyers endured stiff competition from investors who leveraged equity and low interstate rates to add to - or create - their investment portfolio.
However, investor demand has softened over the past year in the face of regulations from APRA which has limited the amount of investor loans lenders can carry on their books.
The amount of international investment interest in the marketplace has also decreased as foreign governments restrict the flow of capital from their borders. Several state governments in Australia have also placed levies on the purchase of property by foreigners.
FHBs have used these factors to capitalise on the lower level of competition. Indeed, the most recent data from the Bureau of Statistics indicated almost one in five (18%) finance commitments in the September quarter were for FHB purchases; approximately 50% more than at the start of 2016 when investors were still heavily active in the market. Investors and FHB’s generally compete for the same property types which are typically in the lower price brackets of each market.
Rise in listing volumes
One of the key drivers of price growth over the past cycle has been record-low levels of properties for sale. Owners held off selling because of the lack of options for them to either upgrade or downsize to. However, the top of the price cycle in Sydney and Melbourne, combined with increased new supply coming into the market, has seen the number of listings increase; in Sydney, alone, the volume of listings has risen more than 20% compared to the same time last year.
The growth in the number of properties for sale and the lower demand from investors has also eased the level of urgency previously dominating the market, which underpinned previous price growth. FHBs, downsizers and upgraders can now take their time, do their research and find the right property at the right price.