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Tuesday, 11 December 2018

Aussie property prices deflate -1.9pc over the year

Home prices fall in Q3

The ABS released its residential property price indexes this morning.

The indexes showed capital city prices down by -1.9 per cent over the year to September 2018.

Dragging back the data series all the way back to their inception in 2003 you can see that - with Melbourne prices down by -2.6 per cent in Q3 2018 - surprise package Hobart is set to take the mantle of strongest performer over the full history of the data series.

That may seem an unlikely outcome, but there is more interstate and international capital around these days - especially from China - and Hobart has been relatively affordable until recently. 

Asian tourism is firing in Tassie, and the lower dollar has helped to turn around the exporting economy. 

Indexed housing market price changes in Brisbane and Adelaide continue to track each other remarkably closely in recording modest price growth, and there was also solid growth in Canberra over the year to September (+3.7 per cent). 

A significant decline over the year was again recorded in deflationary Darwin at -4.5 per cent.

Looking at the chart from 2003 to 2018 by capital city the most striking observation is just how similar price growth has been, despite the divergence of the resources capitals through the mining boom years (I've posted a few charts here - you can click on them to expand). 

Looking at the long run figures the case for a raging property bubble isn't an especially strong one, with the weighted average capital city price index slightly more than doubling over the 15 years to September 2018.

A glance at a compound interest rate table tells you equates to a compound annual growth rate of ~5 per cent, while prices would already be some way lower today as I write this in December. 

This was a 15-year period through which the Aussie population increased by 5¼ million - overwhelmingly into a handful of capital cites - and the standard variable mortgage rate declined by ~125 basis points. 

In Sydney the more volatile detached house price index was down by -5 per cent year-on-year as at September 2018, and attached dwellings were down by -3 per cent. 

The mean dwelling price nationally has declined from a peak of $697,100 to $675,000, mainly due to the declines now being recorded in Sydney and Melbourne. 

The figures for the total dwelling stock are preliminary only, but show that New South Wales and Queensland have addressed their respective housing shortages through this cycle, as previously sluggish levels of apartment construction picked up very strongly. 

Melbourne has tended to be less supply-constrained and has long built dwellings at a solid pace, and the figures for Victoria reflect this consistency. 

There are now  about 10.2 million dwellings in Australia. 

Finally the total value of dwelling stock peaked for this cycle at $6.99 trillion, and has since declined to $6.85 trillion (note that these figures are not adjusted for population growth). 

The wrap

As expected the figures confirmed an ongoing deflation in property prices in 2018, with capital city prices down by -1.5 per cent for the quarter, and -1.9 per cent year-on-year.

The ABS figures suggest that the Sydney decline has been ongoing for about 18 months now, although my on-the-ground experience was that prices may have peaked a little earlier.

No matter.

Melbourne took a little while to join Sydney, but recorded the sharpest decline in Q3 2018 with prices down by -2.6 per cent in the third quarter alone. 

The ABS noted that price declines are no longer confined to premium markets, with declines also now reported across lower and middle price market segments.

Auction markets now head until hibernation until after Australia Day, which is also when the final report for the Royal Commission into banking and financial services misconduct falls due.