No doubt the soon-to-be-ex Reserve Bank Governor, Glenn Stevens, wouldn’t have appreciated seeing news headlines last week proclaiming a leap in property values on the back of May’s interest rate cut.
When the central bank decided to lower the official cash rate to an unprecedented 1.75 per cent, one of the significant influencers was how property enthusiasts and in turn, housing values might respond.
But a lacklustre inflationary outlook and reports pointing to six consecutive months of slightly declining median dwelling prices across Sydney seemed to be enough to make the rate cut play.
Stevens did caution industry insiders at a speaking engagement in mid-May of the need for responsible investment activity within the real estate sector, so as not to upset the affordability applecart too much.
At the same time however, he was quietly optimistic that alternative regulatory interventions would keep a lid on the simmering property pot, including independent retail rate rises and more stringent loan assessments instigated by lenders.
But did they move too soon?
Let’s not forget that a record low rate environment and a bevy of wannabe property investors looking to shore up their financial future were being jointly vilified just a year or so ago, as the catalyst for creating a property bubble.
Honestly though…what self respecting investor doesn’t want to snap up some of the asset offerings going begging when finance is so darn cheap?
Particularly baby boomers with some extra equity in the family home, presently staring down retirement and realising their super fund might not be enough.
And then there’s the question as to whether the apparent ‘slowdown’ that started toward the end of last year is in fact a long-term cyclical progression, or merely a seasonal adjustment period, as is often seen in real estate circles.
Some investors may have been temporarily sidelined for whatever reason over the past six months. But who could ignore the official rate falling below 2.00 per cent, along with coinciding forecasts for more cuts to come?
According to reports, not many it would seem, as investors began flocking back to some of our more affordable inner city property markets across the month of May.
Interestingly, head of research for CoreLogic RP Data Tim Lawless, said housing finance data for March showed investors comprised 47.6 per cent of all new mortgage commitments for that month; the highest it’s been since August last year and up from 42.9 per cent in November.
“Anecdotal evidence suggests investor numbers may have increased further from this time, with some lenders reversing the tighter lending requirements that were previously in place for investment purposes as growth in investor-related credit tracks well under the APRA speed limits of 10 per cent per annum,” he noted.
In other words, the demographic previously demonised for jumping on the real estate bandwagon due to ongoing cheaper finance, is seemingly back in the game in a very big way.
Brisbane is apparently the ‘pick of the day’ among property punters at present, with its entry-level house prices and comparatively attractive rental yields enticing purchasers to its sunnier climes.
While the nation’s two largest cities were growing in leaps and bounds, Brisbane house prices rose slowly and steadily at around half the pace.
According to the latest CoreLogic Hedonic Home Value Index, year-on-year dwelling value growth in Brisbane ran at 7.1 per cent, as opposed to 13.1 per cent and 13.9 per cent for Sydney and Melbourne respectively.
Well and truly coming out of its extended hiatus, Sydney’s housing market showed the strongest capital gains over the current four-year property cycle at 57.5 per cent, followed by Melbourne at 39.4 per cent and then Brisbane at 18.5 per cent.
Brisbane is far more affordable than its southern capital city counterparts, with a combined median dwelling price of $475,000, versus $590,000 in Melbourne and a largely unattainable $782,000 for Sydney.
Throw in gross rental yields of 4.2 per cent for detached properties and 5.2 per cent for units, and it’s clear the spark of attraction between Brisbane’s housing market and a bunch of cashed up investors will be easy to ignite with falling interest rates.
Data suggests though, Sydney’s property price growth spurt is not, by any means, over. Despite a notable slow down from recent breakneck value growth, values in Sydney surged by 3.1 per cent during May.
Sydney was, in fact, the month’s stellar price performer, outpacing Canberra at 2.5 per cent, Hobart (2.2 per cent) and Melbourne 1.6 per cent. And while investors might be starting to take notice of Brisbane, there’s still a long way to go before it catches its southern neighbour as values rose by just 0.1 per cent.
CoreLogic RP Data analyst Cameron Kusher didn’t mince words when it came to the reason behind this latest spike we’re seeing in property values.
“We are now in a very low interest rate environment,” he says.
“People are looking at where they can get a return and even though Sydney’s been slowing in terms of the capital growth the returns are still so much stronger than other asset classes and that’s why we are seeing this renewed strength in the Sydney and Melbourne housing markets, particularly.
“But also other capital cities we are now seeing that the growth is filtering into those markets, Brisbane has seen quite a strong level of annual growth, Hobart and Canberra as well.”
Kusher does suggest however, with the onset of winter this recent “bounce” in values of the last few months is unlikely to continue indefinitely.
“Obviously we are coming into winter and you are going to see less new stock coming onto the market, less active buyers, the real test will be obviously once we hit spring if the market still has momentum or if it regains that momentum.
“This growth phase has been going for four years now, you have got to think that even though interest rates are low and potentially going lower it can’t or won’t be allowed to run all that much longer.”
I feel it’s only fair to inform Mr Kusher of what you and I already know…after this week’s announcement from the Reserve Bank, it will be a case of ‘wait and see’ how the markets respond. Particularly given…winter is coming.