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
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
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% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Better jobless but declining full-time workers down 270,725 over year (ABS) 8.6 8.4 8.34m 8.2 8.0 8.07m Millions 7.8 7.6 7.4 7.2 7.0 6.8 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
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% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
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
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
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
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
Interest rates and housing markets
$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 06-07 (mining boom 1) Rates fall 08 (GFC) Rates rise 09-10 (FHOGB mining boom 2) Rates fall 11-12-13 (economy fades) Rates fall again 15-16 (economy still flat) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sydney Melbourne Adelaide Perth Canberra Interest rate
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
Current capital city prices
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
Lower rates, higher demand drive rising supply RBA plan
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
Unit building booms - reflect local developer sentiment
6000 Sydney unit building trend rising strongly (ABS approvals ) 5000 4302 4000 3000 2000 1000 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
Melbourne unit building trend rising steadily (ABS approvals ) 4500 4000 3500 3000 2,992 2500 2000 1500 1000 500 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
Brisbane unit building trend falling strongly supply cycle now fading (ABS approvals ) 3000 2500 2000 1500 1304 1000 500 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
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
Unit prices vs house prices
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 $350,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 Houses Units
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 $300,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 House Unit
Brisbane houses and units disengaged from cycle (Sep. qtr 16) $550,000 $500,000 $521,152 $450,000 $400,000 $350,000 $367,518 $300,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 House Unit
Investors driving housing markets
$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
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
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
NSW has highest national investor market share (ABS Aug) 47.3% 26.5% 13.5% 3.9% 6.1% NSW VIC QLD SA WA
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
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
Tight rental markets and high yields support investors
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
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
8% Yields vs bank deposit rates 7% 6% 5% 4% 3% 3.87% 2.5% 2% 1% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1 year term deposit ($10k) Sydney dwelling yield
80% Yields vs bank deposit rate -% difference 60% 54.9% 40% 20% 0% -20% -40% -60% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
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
Capital city residential construction outlook
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 2040 -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
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
Australian property market analysis If you require any further information regarding Australian property market analysis I may be contacted by email at andrewwilson@domain.com.auor phone 0427 410 240 For all the real-time housing market insights follow me on twitter at @DocAndrewWilson Connect on LinkedIn to my wide real estate network LinkedIn
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