And with impeccable timing, an immense flood of new construction.
In Sydney, breeding ground for one of the world’s biggest housing bubbles,
prices of single-family houses dropped 7.3% in August, compared to a year
earlier. Prices of “units” — condos in US lingo — fell 2.2% year-over-year.
Price declines were the sharpest at the high end, with prices down 8.1% in the
most expensive quarter of home sales. Prices of all types of homes combined
fell 5.6%, according to CoreLogic’s Daily Home Value Index. The index is down
5.8% from its peak last September:
Melbourne, where the inflection point has been lagging a few months behind
Sydney’s, is in the process of catching up. Over the three month-period,
June-August, prices fell 2.0%, making Melbourne the weakest housing market
among the capital cities. By segment, house prices fell 2.7% from a year ago
while condo prices still inched up 1.5%. At the most expensive quarter of
sales, prices fell 5.2% from a year ago. For all types of dwellings combined,
prices declined 1.7% year-over-year, to the lowest level since early June
2017, according to CoreLogic.
Prices are down 3.6% from their peak at the end of November 2017:
Corelogic tracks the largest five of Australia’s eight capital cities in a
separate index. Due to the size of their housing markets, Sydney and
Melbourne weigh the most. In the remaining three of the five capital cities
in the index, prices were mixed in August:
- In Brisbane, home prices inched up 0.9% year-over-year.
- In Adelaide, home prices ticked up 1.0%.
- In Perth, home prices fell 2.0%, with houses down 1.5%
and condos down 4.4%. Prices have been skidding since late 2014, when
Western Australia mining boom turned into a mining bust.
The aggregate five capital cities index fell 3.1% in August
year-over-year. The index has declined month-to-month for 11 months in a row
and is down 3.5% from its peak in October 2017:
With impeccable timing, there is a flood of new condos expected to be
completed over the next two years, something avid crane-counters in Sydney
and Melbourne have been swearing for a while. Here are some of these
astounding numbers that CoreLogic
estimates based on data it collected from the industry:
Greater Sydney: In 2019: 31,500 new condos are scheduled
to be completed. In 2020, another 45,500 condos are expected to be completed.
This brings the two-year total of new condos to 77,000 units, which will
increase the total stock of condos by 9.3%!
Greater Melbourne: The oncoming flood of new condos is
expected to reach 29,000 units in 2019 and nearly 50,000 units in 2020. Over
the two years, this will increase the total stock of condos by nearly 79,000
units, or by 11.5%!
As it becomes harder to find buyers for these projects, developers may
delay or cancel some of them. So not all of these units may be completed in
the two-year period.
In some of the other cities, the stock of condos is expected to increase
over the next two years in similar fashion:
- Greater Brisbane by a whopping 18.4%
- Greater Adelaide by 12.5%
- Greater Perth by 5.7%
- Greater Hobart by 3.8%
- Greater Darwin by 9.9%
Nationally, 94,500 condos are estimated to be added in 2019 and 2020,
which would increase the existing stock by 9.3%! And so CoreLogic explains:
Over the past five years there has been a significant increase in overall
unit supply. At the same time, housing market conditions have deteriorated
over the past year, particularly in Sydney and Melbourne, with dwelling
values falling and rental growth slowing.
In the face of weakening housing market conditions, both of these cities
still have a high volume of unit stock to be completed. As the new supply
comes on line over the coming years, it is anticipated that this could lead
to further softening of both dwelling values and rents in Sydney and
Melbourne.
In its home value report, released today, CoreLogic has a somber outlook:
[I]t’s likely the spring season will be a challenging one
for the housing sector. Advertised stock levels are already 7.6% higher than
the same time last year across the combined capitals, despite a 5.7%
reduction in ‘fresh’ stock being added to the market. The rise in inventory
is simply due to a lack of absorption; with fewer buyers, homes are taking
longer to sell and clearance rates [of homes sold at auction] have trended
into the mid to low 50% range.
One of the reasons for the downturn is the fairly sudden exit of investors
and speculators, which for banks are among the riskiest elements. Starting in
2014, Australia’s banking regulator (APRA) and the Council of Financial
Regulators introduced “macroprudential policies” (summary)
that were designed to cut down speculation in the housing market. They
initially produced no results. Speculation increased, and prices jumped. But
as they were tightened, including the imposition of a 30% limit per bank on
interest-only mortgages and higher interest rates on mortgages for investors,
they suddenly began to bite.
After publicized scandals, shenanigans, and the findings by the Royal
Commission investigation into the banks, lending standards have been
tightened on the margins for potential homebuyers as well, some of whom are
now being sidelined by the new focus on sustainable debt-to-income ratios and
the crackdown on mortgage fraud, particularly in the most overpriced markets,
Sydney and Melbourne.
As prices are declining and rental yields are historically low, investors
and speculators will be further discouraged because now, the quick and easy
gains have moved out of view.
All this is happening even as mortgage rates remain at historic lows. But
mortgage rates too are expected to tick up as funding costs for the banks
have risen – and will likely continue to rise. Smaller banks have already
lifted mortgage rates, and now Westpac has become the first of the big four
banks to increase its rate for variable rate mortgages. The other banks will
follow. And according to CoreLogic, this “is likely to send a chill through
the housing market.”
Real estate is local and prices tend to move slowly over many years, on
the way up as well as on the way down. But the housing markets of Sydney and
Melbourne, ranked globally in the top housing bubbles, have passed a clearly
visible inflection point late last year, when price moves changed direction
and have formed well-defined U-turn.
New York condo prices fell again. Historic spikes slow in Seattle and
other metros. Read… The
Most Splendid Housing Bubbles in America
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