WHAT a difference a year makes on the rollercoaster ride of real estate.
Heading into summer last year, many Australian capital cities were blindly surfing a wave of rising house prices and the end didn’t seem anywhere in sight.
Now the two culprits behind Australia’s booming price growth, Sydney and Melbourne, have passed their cyclic price peak and look to be cooling off after an overheated couple of years.
According to CoreLogic RP Data head of research Tim Lawless, slower housing market conditions for both Sydney and Melbourne became evident earlier in the year and continued throughout November. Over the month, Melbourne home values fell by 3.5 per cent, while Sydney values were down 1.4 per cent.
Across the country other cities saw dwelling values fall. In Hobart there was a drop of 2.4 per cent, in Darwin values were down 1.3 per cent and in Canberra there was a slight dip of 0.5 per cent.
Overall, the CoreLogic RP Data combined capitals housing index out today showed dwelling values dropped by 1.5 per cent last month. That takes the rolling quarterly rate of change to -0.5 per cent.
But bucking the national trend, some cities actually had price growth over the same period. Values rose in Adelaide where there was the highest month-on-month growth rate of 0.7 per cent, in Brisbane there was humble home price growth of 0.6 per cent and Perth saw a slight improvement of 0.3 per cent.
“The latest results are now placing downwards pressure on the annual change in dwelling values. The annual rate of growth across the combined capitals index peaked at 11.5 per cent back in April 2014, and has since reduced to 8.7 per cent,” Mr Lawless said.
But Sydney and Melbourne househunters hoping for a bargain will need to hold their collective breath, because a dip in the monthly price growth figures does not equal an imminent price crash.
The harbour city still maintained the highest annual growth rate for the year to date with values up 12.8 per cent, but that is down from a peak rate of annual growth of a whopping 18.4 per cent in July.
Melbourne’s annual growth rate has reduced from a recent peak of 14.2 per cent to 11.8 per cent over the 12 months ending November this year.
The only capital cities where values actually declined over the 12-month period are Darwin (-4.2 per cent) and Perth (-4.1 per cent). These cities suffered through weaker economic conditions, and a slowdown in population growth, which both contributed to an early peak in housing market conditions in December last year.
Mr Lawless said the market slowdown in the November figures was due to mortgage rates rising independently of the RBA cash rate, as well as tighter lending practices leading to a recent drop in investor interest.
As a result, investors went from representing 54.1 per cent of all new mortgages in May 2015 to 45.4 per cent by the end of September — the lowest level since July 2013.
Mr Lawless said the dip in housing values would be a hot topic when the RBA met today for its last gathering of 2015.
“A less buoyant housing market is likely to provide the Reserve Bank with a greater degree of flexibility in adjusting interest rates without as much risk of overstimulating the housing market,” Mr Lawless said.
“While the Reserve Bank is likely to welcome a slowdown in the rate of home value appreciation, the overriding objective would be to avoid a significant downturn in the housing market, which would act as a weight on economic growth and potentially impact financial system stability,” he said.
But he warned that all eyes would be on the large number of new dwellings under construction and a heightened level of settlement risk for off-the-plan purchases.
“Those purchasers who have recently purchased off the plan may face challenges at the time of settlement if the valuation of the property is lower than the contracted price, or if mortgage finance is less freely available, or on more expensive terms. This would imply that some buyers may have a higher loan-to-valuation ratio (LVR) than anticipated, which could require additional funds to bring the LVR down to a level the lender is comfortable with.”