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Where Are Australia’s Tightening Property Markets? [Mid-2019]

Where Are Australia’s Tightening Property Markets? [Mid-2019]
September 9, 2019 Simon Pressley

A series of policy changes between May and July provides much-needed positive news for Australian property markets and the broader national economy.

More important than negative gearing surviving the (May) federal election chop and interest rate cuts by the RBA (June and July) was APRA’s decision to allow banks to reduce loan assessment rates by circa 2 per cent.

Since 2015, the property sector was whacked with a series of blows that culminated in a spiralling reduction in national transaction volumes and worked directly against the grain of all efforts to improve economic conditions and wage growth. The last 12-months was the worst that Australian real estate has experienced in 30 years.

But, in spite of a few years of some challenging macro factors doing their collective best to suppress property price growth, as happens (without fail) in every year, many parts of Australia still performed well. That’s because local factors have a bigger influence on property markets. These include local economic conditions, local housing supply volumes, local projects, job creation, local confidence and local affordability.

The Last 3-Years

Of the more than 500 municipalities across Australia, the best performed property market across the last 3 years ending May 2019 was Snowy Monaro (40.7 per cent increase in median house price), located 90 minutes south of Canberra – ski and trekking country.

Incredibly, the median house price increased by more than 35 per cent in just three years in ten Australian municipalities. Hobart and Melbourne’s outer urban footprint were run away winners for the capital cities, while 17 of the Australia’s top 30 locations were regional locations.

Bass Coast, Moorabool, Baw Baw, Hepburn, Geelong, and Mount Alexander are Victorian municipalities that all produced more than 30 per cent real estate price growth over the last 3 years.

While Sydney’s median house price only increased by 4 per cent over the last 3 years, regional New South Wales locations which performed very well include Byron Bay (Australia’s most expensive city), Lithgow, Eurobodalla, Shoalhaven and Tweed. Newcastle and Griffith also produced a 20 per cent increase in median house price.

Regional Tasmania continues to be among the strongest property markets in Australia. Break ODay and Huon Valley are in Australia’s Top 30 while Burnie (14 per cent) is still solid and 20 per cent capital growth in just the last 2 years was produced in Launceston.

Recent Property Market Winners

Specific to capital cities over the last 12 months, Hobart produced another year of strong growth in the median house price, prices declined in Sydney, Melbourne and Perth, while Brisbane and the other capitals produced mild growth.

When we zoom in and take a closer look beyond the headline growth rate, it’s clear that many of the most expensive parts of Sydney and Melbourne performed the worst over the last 12 months. Lane Cove (-18.7 per cent) and Ryde (-16.2 per cent) were among Sydney’s worst, while (Port Phillip (-22.3 per cent), Whitehorse (-17.5 per cent) and Monash (-15.1 per cent) had very forgettable years in Melbourne.

The best-performed Australian real estate markets over the last 12 months (ending May 2019), with the exception of middle-ring Hobart, were once again dominated by numerous regional locations.

The Queensland municipality of Isaac (Moranbah) produced a 34 per cent increase in median house price over the last 12 months. Gympie, Noosa and Scenic Rim continue to be steady.

South Australia’s Port Augusta (27 per cent) and Roxby Downs (20 per cent) were Australia’s second and third highest ranked locations. Mount Gambier, Light, Renmark and Whyalla also did well.

The Riverina and Central West regions are the shining lights of New South Wales property markets. Dubbo, Orange, Parkes, Griffith and Wagga Wagga have the combination of strong rental yields and higher capital growth than most capital cities.

In Victoria, the median house price in Kyabram and Echuca (Campaspe city council) increased by 11 per cent over the last 12 months. Mildura (7 per cent) has a good outlook while Bendigo and Ballarat continue to outperform Melbourne.

Affordable housing and controlled housing supply always go a long way towards underpinning solid property market performance. Strong and / or improving economies then become the driving force for real estate buyer confidence and price growth.

The common denominators among the economic profiles of each of Australia’s strongest property markets right now include regional tourism, agriculture, mining and infrastructure investment.

In a lot of cases, local employment growth is drawing internal migration and placing extra pressure in property prices.

Looking Ahead

During Propertyology’s daily activities of analysing the fundamentals of property markets across Australia’s 500+ municipalities, some of the metrics which provide leading indicators include the average time to sell a dwelling, the volume of dwellings sold, vacancy rates, and several employment metrics.

The fundamentals of Hobart and Canberra continue to be the best of all capital cities. Recent positive macro changes for the property sector should see rates of price growth accelerate.

Perth, Brisbane and Adelaide are all at the right stage of the property cycle, have balanced supply and housing affordability. While Propertyology believes they will all produce some growth over the next 12 months, it’s unlikely to be anything spectacular until such time as there is tangible proof of a meaningful lift of private-sector job growth. Still waiting!

Dwelling values in Sydney and Melbourne as at May 2019 had fallen back to levels last seen in June 2015 and October 2016, respectively. Improved credit supply and interest rate cuts will certainly ease the slide, but record housing supply volumes and affordability constraints will curtail price growth for sum years yet.

On the balance of probability, the economy in both Sydney and Melbourne will soften (not strengthen) and the same can be said for their respective infrastructure pipelines and internal migration trends. The most likely future for the property market of Australia’s two largest cities is a prolonged period of very little capital growth and low rental yields.

As we’ve already seen during the last couple of years, regional locations continue to show the most potential in Australian real estate.

One such example is the NSW university city of Armidale in the New England region. It has already seen a significant reduction in real estate selling times, tightening vacancy rates, and has an admirable list of major projects which is fuelling job growth and community confidence. The median house price in Armidale has increased by an impressive annual average of 6.2 per cent over the last 20 years and still sits at an affordable $350,000.

Other regional New South Wales locations with some positive trends showing up in a few metrics include Wagga Wagga, Coonamble, Parkes, Murrumbidgee, and Dubbo.

The rebound in commodity prices that commenced a few years ago, and more recently resulted in job growth, is now showing through in property metrics.

Regional property markets which support precious metals such as gold and copper are strengthening. These include Mount Isa, Charters Towers, Orange, Cobar, Swan Hill, Bendigo, Kalgoorlie, and Roxby Downs.

The coal sector is currently incredibly strong (refer Mackay, Moranbah, and Emerald in Queensland and Musswellbrook in New South Wales). There’s no reason why these property markets wouldn’t perform well in future years.

Expansion within Western Australia’s iron ore and lithium resources sector is fuelling improved property market performance in Port Hedland, Newman, Karratha and Bunbury.

In Victoria, Bendigo is a standout for its tight vacancy rates, growth in job advertisements, and a reduction in the average number of days for houses to sell from 62 (2017) to 38.

Wangaratta, Shepparton, Bairnsdale, Colac, Benalla, Swan Hill and Latrobe are other Victorian locations displaying some positive signs while Mildura ticks many of the right boxes. Growth cycles in Geelong and Ballarat are near over.

While south east Queensland’s higher profile draws lots of attention, job creation remains the missing link. The metrics look better in various Queensland regional locations. The tsunami of large job-creating projects underway and in the pipeline in Cairns combined with very tight housing supply is one such example.

Property markets are tightening in Hervey Bay, Gladstone, Rockhampton, Townsville and Mackay while Beaudesert, Lockyer Valley and Warwick definitely warrant consideration.

Propertyology is surprised that Perth hasn’t seen a return to price growth by now but there are indications of tightening in municipalities such as Armadale, Bayswater, Joondalup, Rockingham and Swan.

The near-term outlook for Karratha and Port Hedland seems good however, positive property market signs are also evident in regional Western Australian cities of Albany, Geraldton, Esperance and Bunbury where the economy is more diverse.

The 3 to 4-month lag in the production of property data means that it’s currently too early to have enough proof of price growth emulating out of the aforementioned positive macro changes for Australian real estate. But make no mistake, the signs for improvement are certainly there!

Propertyology is Australia’s premier property market analyst and award-winning buyer’s agency. Every capital city, every non-capital city, we analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.

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