[NEW VIDEO]: The Melbourne Residential Property Market Update December 2022
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Why landlords will be LAUGHING next year as property prices increase and a housing shortage continues to push up rents!
SQM Research is expecting strong property price rises in 2023 as rate rises stop
Reserve Bank was also tipped to cut interest rates in second half of next year
This could see Sydney's median home prices rise by 8 to 12 per cent in 2023
Managing director Louis Christopher said tight rental market to spur recovery
Investor landlords are set to benefit next year as house prices start rising again, a data analyst says.
SQM Research is predicting some double-digit home price rises in 2023, with managing director Louis Christopher forecasting an end to Reserve Bank of Australia rate hikes by the middle of the year - and a return to rate cuts.
'Australian capital city dwelling prices will commence a recovery in 2023 as a result of a pause in the rise of interest rates,' he said.
Sydney home prices were expected to rise by 8 to 12 per cent next year if Reserve Bank interest rates didn't rise beyond 4 per cent - a monetary policy forecast in line with the big banks.
Australia's biggest city was expected to be the biggest beneficiary of a tight rental market, with migrants and international students returning again.
The NSW government is now also giving buyers the option of paying an annual land tax instead of an upfront stamp duty bill in the tens of thousands.
'This recovery in Sydney will be driven by the surge in underlying demand for residential property as a result of the rise in overseas arrivals, the return to the office, the existing shortage of rental accommodation, the new stamp duty/land tax changes and the expected ongoing strength of the Sydney economy,' Mr Christopher said.
Melbourne prices were tipped to grow by a more subdued 2 to 6 per cent as Brisbane prices climbed 3 to 7 per cent.
Perth was tipped to see a much more generous 9 to 13 per cent increase.
The RBA cash rate is now at a nine-year high of 2.85 per cent, following seven consecutive rate rises since May.
This has seen Sydney's median house and unit price plunge by 10.9 per cent since peaking in April, back to $1,025,684, making it by far Australia's worst affected capital city market, CoreLogic data for November showed.
ANZ and Westpac are both expecting the RBA cash rate to hit an 11-year high of 3.85 per cent by May 2023.
But the futures market is less worried, predicting a 3.6 per cent cash rate by July, after inflation in the year to October grew by 6.9 per cent - down from the 32-year high figure of 7.3 per cent in September.
Mr Christopher said a cash rate peak under 4 per cent meant there wouldn't be forced sales from those unable to repay their mortgage.
His optimistic forecasts are also based on the Reserve Bank cutting interest rates in the second half of 2023.
The SQM Research forecasts are based on inflation peaking at 8 per cent, a level still more than double the RBA's 2 to 3 per cent target.
'No doubt it will be a very challenging year for the RBA to walk their tight-rope and pull off a soft landing for the Australian economy,' Mr Christopher said.
'However, contrary to current popular opinion, I believe they will manage to do just that.'
Rental vacancies are still tight with just 1 per cent of homes available across Australia's capital city markets, SQM Research data showed.
Mr Christopher is expecting rents to keep rising until late 2023 by which time more new homes would have been completed, boosting supply.
Expensive rents would also encourage more renters to buy their first home, despite a series of interest rate rises.
Sydney has a slightly higher than average rental vacancy rate of 1.3 per cent but during the year to November, median weekly rents surged by 28.4 per cent to $695.81, with this figure covering both houses and apartments.
Melbourne, with a rental vacancy rate of 1.5 per cent, saw its rents surge by 22.8 per cent to $512.89.
Brisbane, where the rental vacancy rate is 0.8 per cent, has experienced a 24.5 per cent increase in rents to $572.40.
Perth, with an even tighter rental vacancy rate of 0.4 per cent, has seen its rents soar 18.3 per cent to $553.49.
Adelaide also has a rental vacancy rate of 0.4 per cent and has seen its rents climb 20.6 per cent to $494.46.
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Dear Fellow Property Investor,
As Australia’s rental market continues to tighten to record levels, the pace of rental growth has started to ease, suggesting affordability constraints are having an impact.
CoreLogic’s Quarterly Rental Review for Q3 2022, released today, shows the national rental index had its smallest monthly increase this year, up 0.6% in the month to September and 2.3% over the September quarter, a 60 basis point decrease on the three months to June (2.9%).
The quarterly trend in national rental values is now 70 basis points below the recent peak rate recorded in May (3.0%).
CoreLogic Research Analyst and report author Kaytlin Ezzy said despite the slowdown in the monthly and quarterly rate of growth, the annual growth trend in national rents held steady at record high 10% in August and September.
“The past few years has seen unprecedented growth in rental values,” she said.
“We saw rents fall marginally over the first few months of COVID, but, since August 2020, national dwelling rents have surged almost 20%, equivalent to a weekly rent rise of approximately $90 per week.
“Initially driven by a reduction in the average household size, the continued upswing in values is likely now predominantly being driven by the strong return of overseas migration, coupled with extremely tight rental supply.”
Ms Ezzy said the easing in rental growth was a little surprising, particularly given such low vacancy rates.
“The slow down in the rate of rental growth may suggest an increasing number of prospective tenants are starting to come up against affordability constraints,” she said.
“As high non-discretionary inflation, along with increasing rents put additional stress on a renter’s balance sheet, it is likely a growing number of tenants look to reform larger households or find more affordable rental options in an attempt to reduce costs.”
Record low vacancy rates
Supply continues to be an important factor impacting rental markets with the total supply of advertised rental stock -35.4% below the previous five-year average.
National dwelling vacancy rates tightened from 1.3% in June to 1.1% in September, the lowest national vacancy rate on record.
“One factor which has likely negatively impacted rental supply is the decline in investor purchasing activity between early 2017 and early 2020,” Ms Ezzy said.
“Through this period, a mix of temporary changes to mortgage lending conditions, and the uncertainty surrounding the onset of COVID-19 limited residential property purchases. Additionally, CoreLogic recorded an increase in investor-owned housing stock being listed for sale through 2021 and into 2022, with many investors possibly looking to maximise capital gains through the upswing.
Capital cities vs regional rents
Rental growth across the combined capitals continues to outpace rent rises across the combined regionals.
Ms Ezzy said this trend was largely owing to the return of overseas migrants, who typically choose to rent in high-density markets of Sydney and Melbourne upon arrival.
Rental growth in the combined capitals was up 2.7% and 1.3% across the regions, over the three months to September.
“While both markets saw the pace of quarterly growth ease compared to the June quarter, the decline in the rate of growth seen across the combined regional markets was significantly stronger,” she said.
“However, despite the easing growth trend, rental availability in both markets remains extremely tight, with the capitals recording a monthly vacancy rate of 1.1%, while just 1.0% of regional rental properties were observed as vacant in September.”
Capital best and worst performers
Brisbane recorded the strongest quarterly rise in dwelling rents (3.8%) of any capital city, despite the pace of growth easing from the recent peak rate of growth (4.2%) recorded over the three months to August.
Adelaide and Darwin both recorded an increase in rental values of 3.6% over the quarter, while Sydney, Perth and Melbourne, saw dwelling rents rise 2.9%, 2.5% and 2.3% respectively.
Canberra was the exception, with dwelling rents declining -0.4% over the three months to September due to a -0.9% fall in house rents. Rental values across Hobart rose 0.4%, an increase on the 0.1% rise recorded over the three months to August.
Despite recent declines, Canberra maintained its position as Australia’s most expensive capital city rental market (just), with a median weekly rental value of $682, followed by Sydney ($665 per week), Darwin ($590 per week) and Brisbane ($573 per week). Melbourne retained its position as the most affordable capital to rent in ($495 per week), followed by Adelaide ($508 per week), Perth ($533 per week) and Hobart ($551 per week).
“With Sydney recording strong rental growth at a time when rents are declining across Canberra, the gap between Australia’s two most expensive rental markets has narrowed to just $17 per week,” Ms Ezzy said.
“Given international migration is expected to continue to support rental demand across Sydney while affordability is expected to hamper Canberra’s rental growth, it’s likely we’ll see Sydney overtake Canberra as Australia’s most expensive capital city rental market in the coming months.”
Yields bouncing back
Gross rental yields continue to expand, with rental values rising as housing values depreciate. National dwelling values fell -4.1% while national dwelling rental values rose 2.3%over the September quarter, resulting in a rise in dwelling yields of 24 basis points to 3.57%.
Ms Ezzy said while yields are above the record lows recorded in February (3.21%) they are still well below the pre-pandemic decade average of 4.24%.
“With interest rates expected to continue rising throughout the first half of 2023, it’s likely we’ll see further downwards pressure on housing values,” Ms Ezzy said.
“In this scenario it is likely rental yields will continue to improve with the combination of continued rental growth and falling values being a potential catalyst for national dwelling yields to return to long-term averages, which could help offset the highest mortgage costs investors are facing.
“Once interest rates have stabilised, higher yields coupled with lower values and stronger buying conditions, could entice more investors to enter the market, which would ultimately help raise rental supply.”
CoreLogic Q3 2022 Rental Review Key Trends
National dwelling rents rose 0.6% in September and 2.3% over the September quarter, down from a 2.9% increase recorded over the June quarter.
Annual growth in national dwelling rents broke into double digits for the first time on record over the year to August, and held steady at 10.0% over the 12 months to September.
Seven of the eight capitals saw dwelling rents rise over the quarter and year.
Canberra was the only capital city market which recorded a quarterly fall in dwelling rental values(-0.4%), driven by a -0.9% decline in house rents.
National units recorded a new peak annual growth rate of 11.8% over the 12 months to September.
The annual growth in national house rents slowed to 9.4% in September.
The gap between Australia’s two most expensive capital city rental markets (Canberra and Sydney) narrowed to $17 per week, with Canberra rents falling as Sydney dwellings recorded strong rental growth.
Brisbane unit rents recorded the strongest quarterly growth rate in September (4.6%), while Adelaide and Brisbane tied for the strongest rise in house rents (3.6%).
Sydney overtook Canberra as Australia’s most expensive unit rental market ($594 per week), while Canberra remains the most expensive capital to rent a house in (730 per week).
Melbourne remains Australia’s most affordable capital to rent a house in ($518 per week), while Adelaide is the most affordable city to rent a unit at $423 per week.
Kind regards,
KONRAD BOBILAK
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Dear Fellow Property Investor,
Suburbs struggling the most to pay mortgages as Australia’s cost of living crisis worsens.
Some Australians have fallen more than 30 days behind their mortgage repayments as the worst suburbs are named and shamed.
An estimated one in five mortgage holders – or 551,000 Australians – will struggle to pay back their mortgage if interest rates continue rising as expected.
Comparison site Finder found a whopping 20 per cent of mortgage holders will be in serious mortgage distress if their home loan interest payments increase by three per cent. Home loans have already increased by 1.75 per cent since May.
It comes as separate data from S&P Global revealed which suburbs in Australia are most at risk of defaulting on their home loans.
The Northern Territory came out as the worst state, with the highest percentage of mortgage holders more than 30 days behind on payments.
A fringe suburb in Perth topped the list in terms of debt overdue to the bank, while Sydney, Melbourne, Adelaide as well as some regional areas also received a poor rating.
Of even more concern was that the research was conducted before the Reserve Bank of Australia (RBA) starting increasing the cash rate, meaning these areas will be even more at risk of defaulting on their loans now.
For four consecutive months the RBA has hiked interest rates. Last week, after its August meeting, the central bank brought up the cash rate to 1.85 per cent.
The cash rate has already risen by 1.75 percentage points since May, following two years of interest rates sitting at a record low of 0.1 per cent.
According to S&P Global, rising mortgage repayments have hit suburbs on the fringes of big cities the hardest.
Their research measured the weighted average of arrears more than 30 days past due on residential mortgage loans in publicly and privately rated Australian transactions.
The Perth suburb of Maddington, 20km from the city centre, topped the list of “Worst performing postcodes” in the report.
As of early April, 4.67 per cent of homeowners in Maddington are in arrears.
That was closely followed by Dolls Point, located in southern Sydney.
Of the mortgaged houses in that NSW suburb, 4.33 per cent are behind on payments.
In third place was another WA postcode, Byford, in Perth’s southeastern edge, with an arrears percentage of 4.16 per cent.
Western Australia had one more suburb on the list – Ballidu in the Central Midlands – while NSW had a total of four.
Bankstown and Castlereagh in Sydney were also experiencing substantial pressure. Katoomba from the Blue Mountains also earned a spot in the report.
Victoria, Queensland and South Australia each had one suburb on the list – Broadmeadows in Melbourne’s north, Barkly in Queensland’s Mount Isa region and Hackham, an outer suburb of Adelaide.
A breakdown of each state showed that the Northern Territory was the most behind in its mortgage repayments, at a rate of 1.75 per cent.
Western Australia came in at 1.40 per cent, as of April this year, before interest rates started to be hiked.
Victoria received a score of 0.87 per cent while 0.85 per cent of NSW mortgage holders were also in mortgage arrears.
The ACT fared the best, with an arrears rate of only 0.33 per cent.
Overall, the national average was 0.71 per cent for Australia’s arrears rate, as of April.
“The swift pace of interest rate rises will create debt-serviceability pressures for households with less liquidity buffers and higher leverage,” the report noted, forecasting that sometime in the third quarter of this year a higher arrears rate would show up in new monthly date.
Finder also released a damning statistic about the state of Australia’s home loan debt.
A recent survey conducted last month concluded that more than half a million homeowners would be “on the brink” if interest rates rose by three per cent.
Of those, 145,000 Australis said they would consider selling their home if rates jumped because they would “struggle a lot” to repay them. That represents about five per cent of Australia’s mortgage holders.
The survey also found that 14 per cent of respondents admitted they might fall behind on their repayments or other bills.
Nearly half (48 per cent) would be able to manage, but would have to cut down on their spending, according to Finder.
Only a quarter of participants said a rate rise would not change their lifestyle or spending habits at all.
Kind regards,
KONRAD BOBILAK
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Dear Fellow Property Investor,
Did you know that one-bedroom flats in the big cities have missed out on Australia's property boom despite interest rates being at record lows?
National home prices last year surged by 22.1 per cent - the fastest annual growth for a calendar year since 1989.
House values in some capital cities went up by a third in just one year as two and three-bedroom units had double-digit annual price growth.
But one-bedroom apartments hardly increased in value at all, especially in cities with oversupply issues, Domain sales data showed.
In Australia's biggest cities, values were either flat over the year or increased by single digits even though the Reserve Bank kept the cash rate at a record-low of 0.1 per cent.
Young couples with a child usually prefer something larger with a bedroom for the baby, which means the potential market for one-bedroom units is smaller.
Investors often buy smaller apartments to rent out but Sydney's unit market is now going backwards for the first time since late 2020 despite a reopening of Australia's border to international students and skilled migrants.
Economists are expecting the Reserve Bank to raise interest rates later this year, which would cause a slowdown in house price increases and a fall in 2023.
In Melbourne, the median price for a one-bedroom unit remained flat over the year, staying at $395,000 as the city was kept in lockdown for many months.
By comparison, mid-point house prices in the same city rose by 18.6 per cent to $1,101,612.
Apartments in general still had a lacklustre year with two-bedroom units in Melbourne going up by 4.5 per cent to $606,000.
Larger, three-bedroom units did better though with values rising by 12.1 per cent over the year to $846,250.
Inner-city areas of the Victorian capital had some of Australia's highest rental vacancy rates during the earlier stages of the pandemic, after the border was closed to foreigners.
Sydney also saw smaller units vastly underperform the increase in house prices and larger apartments.
One-bedroom units went up by just 6.6 per cent annually, to $680,000.
This was well below the 33.1 per cent surge in the median house price to $1,601,467.
Larger apartments, however, had double-digit growth with two-bedroom unit prices rising by 10.9 per cent last year to $825,000.
The median price of a three-bedroom apartment in Sydney went up by 14.1 per cent to $1.325million.
But new CoreLogic data released this week showed Sydney's house and unit prices together falling by 0.1 per cent in February - marking the first decline since September 2020, before the Reserve Bank cut the cash rate to a record-low of 0.1 per cent.
Median apartment values dropped by 0.3 per cent to $831,793, which was the sharpest decline since November 2020.
Australia's median home price last year rose by more than 22 per cent, marking the fastest calendar year increase since 1989.
The annual increase has slowed to a still-strong 20.6 per cent, with $728,034 now the middle point for a property.
One-bedroom units in Brisbane went up by just 4.1 per cent over the year to $333,150, the Domain data showed.
This occurred as the median house price surged by 25.7 per cent to $792,065.
Two-bedroom apartments had double-digit price growth, going up by 10.2 per cent to $452,000.
But the median price for a three-bedroom unit fell by 2.1 per cent to $460,000.
Canberra, however, was a rare exception with the median price of a one-bedroom unit surging by 15.4 per cent to a still-affordable $410,000.
Two-bedroom units did even better with an annual price increase of 28.6 per cent to $575,000 as three-bedroom apartment prices rose 25.9 per cent to $752,000.
Last year, Canberra's mid-point house price rose by 36.6 per cent to $1,178,364.
But in the other mainland capital cities, the value of one-bedroom apartments went up in the single digits last year.
Perth's median price for a one-bedroom flat rose by just 6.3 per cent to $276,500.
But this was at least better than the 1.4 increase for two-bedroom units, taking the mid-point to $350,000.
In Adelaide, the median price of one-bedroom apartments increased by eight per cent to $289,000.
By comparison, two-bedroom unit prices rose by four per cent over the year to $348,500.
Nonetheless, three-bedroom units had strong growth, with prices climbing by 15.9 per cent to $524,000.
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