market-view Australian housing markets report Residential construction on the rise - higher and higher?

Transcription

1 Australian housing markets report Residential construction on the rise - higher and higher? Dr Andrew Wilson Chief Economist Domain Group October 2016 Copyright 2016 Dr Andrew Wilson all rights reserved

2 Australian economy in transition Decades of resource booms driving prosperity now ended Economy reflects post-gfc experience of other advanced economies Weakening economic growth Low incomes growth Low inflation Low interest rates Stagnant employment markets Subdued consumer confidence and business investment High levels of government debt

3 National jobless rate rises then improves? (ABS) 7% 6% 5.9% 6.2% 5.6% 5% 4.9% 4% 4.0% 3% 2% 1% 0%

4 Better jobless but declining full-time workers down 270,725 over year (ABS) m m Millions

5 Participation rate also declining discouraged jobseekers and more retirees (ABS) 65.8% 65.6% 65.7% 65.4% 65.2% 65.1% 65.0% 64.8% 64.6% 64.4% 64.5% 64.5% 64.2% 64.0% 63.8%

6 Reversal of state jobless performances as mining boom ends (ABS) 6.7% 6.8% 5.7% 6.0% 6.7% 6.2% 4.9% 4.4% 3.3% 2.4% NSW VIC QLD SA WA Sep-16 Post-GFC

7 Recent capital city jobless performance (ABS) 4.7% 5.4% 5.5% 5.7% 5.6% 5.2% 7.2% 7.8% 6.6% 5.9% Sydney Melbourne Brisbane Adelaide Perth Aug-16 Aug-15

8 Net migration shifts reflect economic performance (ABS) 77,314 60,459 48,148 59,016 50,771 63,525 22,525 3,554 7,353 9,193 NSW VIC QLD SA WA Mar-16 Mar-13

9 Monetary policy and lower interest rates the key policy tool Similar to other economies, local policy makers cut rates to stimulate growth with fiscal policy sidelined through budget deficits Official interest rates have fallen to historically low levels Mortgage rates followed official rates down with loan conditions now most favourable ever Lower mortgage rates released pent-up demand activating housing markets at varying levels Higher demand levels and prices growth reflects the nature of local supply and demand drivers Generally higher levels of residential investors from lower rates driving higher prices

10 Interest rates and housing markets

11 $1,200,000 $1,100,000 $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 8% 7% 6% 5% 4% 3% 2% 1% 0% Interest rates drive the cycle for ALL capitals in sync Rates rise (mining boom 1) Rates fall 08 (GFC) Rates rise (FHOGB mining boom 2) Rates fall (economy fades) Rates fall again (economy still flat) Sydney Melbourne Adelaide Perth Canberra Interest rate

12 64.9% Most markets now above previous cyclical peaks - but mixed levels 36.5% 10.4% 8.8% 16.2% 1.3% -0.6% -7.1% Sydney Melbourne Brisbane Adelaide Perth Canberra Hobart Darwin

13 Current capital city prices

14 Sydney clearly the most expensive - heading to $1.1 million, Melbourne $800k $1,068,303 $773,669 $521,152 $494,911 $566,609 $661,912 $595,466 $338,703 Sydney Melbourne Brisbane Adelaide Perth Canberra Hobart Darwin

15 Lower rates, higher demand drive rising supply RBA plan

16 Building approvals year ending August 2016 units booming (ABS) 40,256 26,424 32,152 16,869 11,457 20,117 13,917 6,230 3,766 6,107 Sydney Melbourne Brisbane Adelaide Perth Houses Units

17 Unit building booms - reflect local developer sentiment

18 6000 Sydney unit building trend rising strongly (ABS approvals ) Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16

19 Melbourne unit building trend rising steadily (ABS approvals ) , Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16

20 Brisbane unit building trend falling strongly supply cycle now fading (ABS approvals ) Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16

21 Change in unit approvals this year so far compared to last year (ABS approvals ) 8.1% 14.6% -6.1% -1.1% -23.4% Sydney Melbourne Brisbane Adelaide Perth

22 Unit prices vs house prices

23 Sydney houses and units in sync (Sep. qtr 16) $1,050,000 $1,068,303 $950,000 $850,000 $750,000 $685,865 $650,000 $550,000 $450,000 $350, Houses Units

24 Melbourne houses and units in sync (Sep. qtr 16) $800,000 $750,000 $773,669 $700,000 $650,000 $600,000 $550,000 $500,000 $450,000 $466,779 $400,000 $350,000 $300, House Unit

25 Brisbane houses and units disengaged from cycle (Sep. qtr 16) $550,000 $500,000 $521,152 $450,000 $400,000 $350,000 $367,518 $300, House Unit

26 Investors driving housing markets

27 $8 $7 National investor market now rising again (ABS ) $7.19bn $6 $5 $5.30bn $5.79bn Billions $4 $3 $2 $1 $0 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16

28 Investor activity now mostly above same time last year (ABS Aug) 18.2% 9.2% 5.3% -0.5% -28.1% NSW VIC QLD SA WA

29 NSW has highest local investor state market share (ABS August ) 56.1% 47.6% 38.5% 39.3% 34.3% 29.4% 47.4% 42.6% NSW VIC QLD SA WA TAS NT ACT

30 NSW has highest national investor market share (ABS Aug) 47.3% 26.5% 13.5% 3.9% 6.1% NSW VIC QLD SA WA

31 56.1% Investor activity still above average in most capitals (ABS Aug) 46.7% 47.6% 42.2% 38.5% 39.5% 39.3% 36.2% 37.2% 34.3% NSW VIC QLD SA WA August Long-term average

32 First home buyer activity below average (ABS Aug) 17.0% 15.6% 14.1% 13.0% 13.0% 18.6% 18.6% 10.1% 9.4% 4.8% NSW VIC QLD SA WA August Average

33 Tight rental markets and high yields support investors

34 House vs unit vacancy rates 4.2% 4.7% 3.2% 2.0% 2.1% 1.5% 2.3% 2.6% 1.8% 2.2% Sydney Melbourne Brisbane Adelaide Perth Houses Units

35 House vs unit yields 4.88% 4.94% 5.08% 4.51% 4.59% 4.48% 4.07% 4.12% 3.41% 3.68% Sydney Melbourne Brisbane Adelaide Perth Houses Units

36 8% Yields vs bank deposit rates 7% 6% 5% 4% 3% 3.87% 2.5% 2% 1% 0% year term deposit ($10k) Sydney dwelling yield

37 80% Yields vs bank deposit rate -% difference 60% 54.9% 40% 20% 0% -20% -40% -60%

38 Residential investor activity to rise Tax enhanced capital growth and investment returns Relatively high yields in a low yield economy Strong underlying connection to residential investment bricks and mortar Preferential component in mixed financial portfolio Volatile, underperforming sharemarket Changes to superannuation Undersupplied housing markets generally - tight vacancy rates, steady returns

39 Capital city residential construction outlook

40 Sydney chronically undersupplied with high-density, investor driven future Units set to overtake houses by 2030 High-priced, remote urban fringe now pushing demand inwards and upwards, low vacancies Investors up and home ownership down -more tenanted households than owned by New York points the way to the future Strongest underlying drivers robust diverse economy, migration, growing unit preference Melbourne -to remain engine room for fringe low-rise but more higher-rise Robust market for affordable new fringe developments from first home buyers Strong demand for inner, middle-ring medium-density but development constraints (NIMBY) Steady demand also for inner-suburban apartments CDB market to wane from lack of local demand but internationals still a force Brisbane -CBD units oversupplied, but new fringe house demand solid Apartment supply clearly ahead of demand with development levels to decline notably Affordable fringe new homes to remain in demand from first home buyers But demand brought forward by first home buyer grant boost and will decline Underperforming economy and reduced migration a constraint to new development

41 Adelaide solid outlook for both higher-density and low- rise Resilient housing market despite ongoing poor economic performance Steady appetite for unit development as prices consolidate recent increases Key local investor potential - higher yields, low prices, tight vacancy rates, steady growth Perth - unit market in decline but steady demand for fringe low-rise Market in sustained correction following end of mining boom and FIFO drivers Weak rental market to act as disincentive to investors Sharp decline in unit development following recent boom short-term oversupply Resilient FHB activity to continue to generate demand for fringe new housing Canberra underlying housing shortages to continue to drive home building Land release constraints reducing house development Unit building to continue following positive adjustment from recent boom Tight rental market, improving economy, high yields and capital growth to attract investors Darwin stabilising outlook for both new houses and units Unit oversupply easing following recent boom prices stabilising Still strong economy supporting market revival following end to mining boom and FIFO drivers Early signs of market bottoming -house vacancies tightening will support continued building

42 Australian property market analysis If you require any further information regarding Australian property market analysis I may be contacted by at andrewwilson@domain.com.auor phone For all the real-time housing market insights follow me on twitter Connect on LinkedIn to my wide real estate network LinkedIn

43 Thank you