According to a recent CoreLogic study, residential property values in most capital cities have declined in February for the fifth consecutive month. It was more moderate than the declines in the past two months but it was the first time national values had dropped for five consecutive months since March 2016.
Capital city and regional markets remain diverse with capital city values falling and regional values increasing. National values were at its peak in September 2017. Because of the segmented market, investors are advised to consult their accountants in Sydney before buying a property.
Sydney, Melbourne and Perth values have experienced more moderate falls than in January as auction clearance rates have improved. Over the last three months, Adelaide and Hobart were the only cities where values increased. Sydney saw the largest decline in values followed by Darwin, which has been consistently weak in recent years.
While capital cities have experienced declines, regional dwelling values have increased and were higher in all states except for Western Australia. The gap between annual growth rates in capital cities and regional markets continuously widened as the latter outperformed the capital cities.
The decline has tapered in Perth but other regional markets are not as lucky, such as Darwin. Regional NSW, regional Tasmania, regional Victoria, regional Northern Territory and regional Queensland have increased in value in 2017 but regional South Australia and regional Western Australia values have dropped.
The good news is that rental rates have increased during the same period. Rental rates have increased in all capital cities except Darwin and Perth and within regional markets except for Western Australia. Hobart and Tasmania have experienced the strongest rental growth since August 2009 and the end of 2008, respectively.
When rental rates climb and dwelling values fall, gross rental yields may start to recover after long periods of yield compression. This may continue to slow down investment participation in the housing market. However, migration is supporting housing demand in markets like Sydney and Queensland.
The national unemployment rate has been steady in the last couple of months, job growth has improved and there have been broader-based job creation. Strong labor market in affordable regions may help increase housing demand and reduce demand where dwelling values are higher.
In terms of finance, first home buyers are increasing in NSW and Victoria partly because of the stamp duty concessions which took effect on 1 July. Less competition from investors because of tightening policies also contributed to a high rate of first time home buyers in NSW and Victoria.
Interest rates will likely remain low but may pick up soon while a cash rate increase may happen in May of 2019. The following months will tell us whether declines will continue or if the market will stabilize, but housing market conditions are expected to remain steady compared to previous years.
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