How the housing market shifted in 2017

Significant shifts in lending made 2017 a year of transition for the Australian housing market as regulators amped up the pressure to cool dwelling values in Sydney and Melbourne, according to CoreLogic’s research analyst Cameron Kusher.

As a result of APRA’s speedbumps on interest-only mortgages introduced in March and previous credit growth limits for investors, lenders began charging premiums on the interest rate for investor and interest-only mortgage products, impacting the strong mortgage demand in NSW and Victoria.

So after nearly 12 months of dwelling value growth to November 2017, national dwelling values have started levelling off as the year comes to a close, CoreLogic research found. 

The sharpest transition occurred in Sydney, which had previously been the strongest housing market in recent years. By the end of November, Sydney’s dwelling values were -1.3% lower than they were at their peak in August 2017.

Sydney's neighbourhoods still topped the list for best performing suburbs in 2017. Darling Point had the highest median house value of the year at $5.6m; while Dawes Point, also in Sydney, took the top spot for highest median unit value at $3.1m.

Most other capital cities have also seen their rates of growth slow recently with Perth being the exception. Although Perth dwelling values were lower over the year, there was a subtle transition towards growth in late 2017 with values 0.3% higher over the three months ending November 2017, the strongest rate of quarterly growth since June 2014.

While the market went through a transition, it continued to show diversity across the country, Kusher said. This was most evident in the rise of double-digit values over the past 12 months in Hobart (+11.5%) and Melbourne (+10.1%), while values continued to fall over the year in Perth (-2.6%) and Darwin (-5.5%). Although the heat is now clearly coming out of the housing market, Sydney and Adelaide are the only capital cities to see the annual change in dwelling values now lower in November 2017 relative to November 2016, he said. 

Housing market forecast for 2018

Looking forward to 2018, CoreLogic said it expects a continued slowdown in national housing market conditions, with national dwelling values likely to drop further prompted by falls across Sydney and to a lesser extent, Melbourne.

In regards to credit policies, CoreLogic doesn’t expect regulators to loosen their grip on these any time soon. Instead it says they'll be keeping an eye out for a rebound in investment credit growth, or a reversal in the trend towards fewer mortgages with a loan to valuation ratio of more than 80%. CoreLogic also expects the RBA to keep the cash rate on hold in 2018.

“Higher interest rates would stifle household consumption and business investment and could cause financial distress amongst a highly indebted household sector, however rates aren’t likely to fall due to concerns of refueling the controlled slowdown in the housing market." 

While CoreLogic’s outlook for 2018 is not as positive as it was for 2017, it said there are plenty of factors in play that will work to keep a floor under housing demand.

“We’re likely to see regulators and policy makers looking to encourage households with high levels of debt to reduce their exposure while rates remain low. Why? Because currently, household debt levels are at record highs, a factor which has been called out by the Reserve Bank repeatedly, as well as international institutions.”

“With interest rates remaining low, the opportunity for households to pay down debt could come at the expense of broader spending on retail and discretionary items.”
 

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