1 in 5 houses on the market have been owned for less than 3 years. What does this mean?

Sascha: [00:00:02] From equity markets media. This is the Dive, the podcast that asks Who's the business news needs to be all business. I'm your host, Sascha Kelly. Corelogic has just dropped new property data showing that the housing market has recovered well from the trough we saw earlier in January. In fact, you're only 1% below the previous all time high, which was seen back in April 2022. 

Audio Clip: [00:00:29] Corelogic's National Home Value Index marked a sixth consecutive monthly rise, up 0.8% in August. The monthly gain was a slight acceleration from the 0.7% increase in July, interrupting a two month trend of slowing capital gains. 

Sascha: [00:00:44] So you pair this with our simmering rental crisis, which is seeing rental vacancy rates at a record low of 1%. Combine that with population growth outpacing our construction rates. This conversation about property doesn't seem to be going anywhere anytime soon. It's Wednesday, the 4th of October, and today I want to know what can I learn about the Australian property market from Corelogic's latest data? To talk about this today, I'm joined by the right lady for the job. It's Eliza Owen, who is head of research at CoreLogic. Eliza, welcome to the Dive. 

Eliza: [00:01:18] Thanks for having me back. Great to be here. 

Sascha: [00:01:20] Excellent to have your company again. For those of us who don't have houses and not so excellent news that you've published this week, let's get into it. You've just released the Hedonic Home Value Index report. The headline being that the home value index rose 0.8% in September. Take me through some of these headline stats and what that's telling us about the property landscape. I've kind of given the lead a little bit away in my introduction, but yeah, what are you saying? 

Eliza: [00:01:49] Well, we're seeing this interest rate defying, an extraordinary rise in home values, where home values have come up about 7% from where they bottomed out at the start of the year. And that's in spite of formal rate rises that we've seen through 2023 and the possibility of another one later this year. And not only have they risen, but they're only about 1% away from getting to new record highs. So if you think about it in dollar terms for Australia's median dwelling value, we've seen an increase from about 694,000 at the bottom of the cycle in January, and now it's up to about 740,000. It's not being driven by easy access to credit because not only are interest rates relatively high, with most mortgage rates sitting somewhere between five and a half and 7%, but on top of that, banks are still having to assess people on three percentage points about that product. Right. So equity data showed that back in the June quarter, the average level of serviceability that a bank is assessing whether you can comfortably repay your home loan was just under 9%, so this is probably more an upswing that is driven more by people who aren't as reliant on credit think downsizers or people who can get help from mum and dad so they don't have to take out as much debt. It's also what we would call a thinly traded upswing because of that, because this is not the kind of upswing that everyone can participate in. Values are rising, but the actual volume of sales is sitting at about 470,000 over the past year, which is pretty average and certainly below the highs that we saw in 2021 where interest rates were really low. There was this buying frenzy and annual sales volumes peaked at about 621,000. 

Sascha: [00:03:51] That's so interesting. So it's a small minority that's really driving a lot of what you're saying. Can you give me a bit of a lay of the land of what that looks like in terms of where in Australia we know that, you know, Sydney and Melbourne often dominate that conversation, but also the regional and city based statistics is I think that's such an interesting conversation coming out of COVID. 

Eliza: [00:04:14] Yeah, that's a great point. So a couple of things there. I guess if you look at the different capital cities, again, this isn't really an upswing that's being led by Sydney and Melbourne and Canberra, which are our most expensive cities at this point. It's more an upswing that's being driven by the middle low end of the market at this stage. And again, that probably comes back to limitations on credit. So Adelaide was leading growth over the month of September with a remarkable 1.7% uplift and that city has just been on a tear through COVID, I'm guessing because it's relatively affordable, especially for interstate buyers. It's also one that has maybe had more value unleashed. As we got this more normalised trend of remote work and working from other cities. 

Sascha: [00:05:12] Most importantly in your report, you're talking about the correlation between stock levels. So the number of houses that are for sale and the value. You said that you know, that number, 470,000 before you said that was quite average. And in another point in this report, you said that housing undersupply looks set to worsen before it gets any better. What's your data suggest and what are we looking at? What's the forecast on this issue? 

Eliza: [00:05:40] Yeah, great question. So there's a couple of ways that we look at demand versus supply. We've spoken about demand, which is that average sales volume of 470,000 over the past year or about 120 sales in the past three months. If we compare that to the amount of new listings coming to market nationally, there were fewer new properties added to the market than they were sales over the past three months. So that's where nationally you get that lift in home prices because technically demand is still outpacing supply. Mm hmm. It's a very different story depending on which market you're looking at. And so what we tend to see is that a greater deficit in new listings or total inventory on the market is where we get the highest property price growth. So Adelaide, Perth, Brisbane, these were the leading cities in terms of monthly growth in September and they are all cities where total listings are sitting about 40% lower than where we would usually see them this time of year. Cities like Canberra, Hobart, where values are flat falling. That's where we're actually seeing stock levels quite elevated on historic averages. And for Sydney and Melbourne, they really led this weird phenomena through winter when new listings actually were rising through those cooler months. 

Sascha: [00:07:03] Yeah, So can I pick that up that usually in winter we wouldn't see that trend. Is that the case?

Eliza: [00:07:08] That's exactly right. So usually, you know, it's called the spring selling season, right? In wintertime, on average, we get a decline in new selling decisions of about 5% from the beginning to the end of winter. 

Sascha: [00:07:21] Can I just ask you really quickly, is that just basic human psychology that we don't want to move in winter? What's the rationale behind that?

Eliza: [00:07:29] Oh, I think there's some advantages to selling your property when the weather is better. You got it looks better. Outdoor spaces are more inviting. That's my understanding of it. Okay. But yeah, usually that's when you get your uplifting new selling decisions. This year it seems to have happened early. It seems to have happened through winter. And part of the reason we think that may have been is that people kind of had to sell through winter because that's what we saw, the bulk of low fixed rates that were secured during the pandemic, that term actually expiring. So all of a sudden, people may have been facing these higher interest rates. And even if they could afford them at that time, they may have said, well, you know, or the fixed rate expiry is coming up, maybe I can't afford it by the end of the year or what have you. So we might sell. That's probably not the only reason. I'd say there were other things like the fact that last year's spring selling season was virtually non-existent because the market was going through the sharp adjustment to interest rates and maybe people just wanted to cash in. Yeah, Properties made a lot of money in the past few years, so yeah, there were probably a few reasons, but it was weird. And Sydney and Melbourne really led that to the point where total stock levels across Sydney and Melbourne are pretty much bang on average now. And so we're not seeing as strong a price growth or a sense of urgency right now. Instead, we're seeing slightly more choice and negotiating power of the buyers in those markets. 

Sascha: [00:09:08] I'll be back with more from Eliza in just a minute. 

Audio Clip: [00:09:15] A Saturday Ritual For hopeful homeowners. One final look through the property before registering For a bidding paddle. Try to make a smart decision for our future family. This young couple will push their budget to the limits for a three bedroom home. In Greystones in western Sydney. But it wasn't enough. 

Sascha: [00:09:35] So welcome back to the Dive. Today we're talking all things property and I am joined by the head of research from CoreLogic, Eliza Owen. I want to pick up on another piece of data that you've published recently, and that's on short term resales. And I think it dovetails into what you were just talking about really nicely there, which is pointing to this as a new major housing market trend that's saying that in winter, 16% of listings added to the market for sale have been owned for less than three years. Now, there's a number of rational factors that could contribute to that one that you were just describing there, which is people who are looking ahead at the interest rate rises to come and thinking maybe now's a good time to sell before I have mortgage stress. Are there other factors that contributed to that decision? 

Eliza: [00:10:22] Well, yeah, I think the reason we looked at it was because we thought mortgage stress would be a key factor. But what we actually found when we broke it down regionally is that a lot of areas outside of capital cities were seeing this higher concentration of short term resales. In the combined regional Australian housing market. A fifth of new listings, so over 20% of new listings that had come to the market through winter were only held for three years. So this could even be a bit of a reversal of that COVID lifestyle trait change sea change trend that we saw over the past few years with people maybe making the decision to return to cities again. Maybe it's just because those areas have made extraordinary capital gains and people are cashing in on that to maybe upgrade by something better. But I think it's pretty telling that it's so concentrated in regional Australia. The further we've gotten from lockdowns, the more capital cities have resumed. It's kind of leading the market. 

Sascha: [00:11:27] We need to turn to the rental market because that's where a lot of our listeners are at. That's where I'm at. I rent in inner city Melbourne. It's not good news. Australia's rental crisis has deepened. Rental vacancy rate is at a record low of 1% and your latest data also reveals dwindling stock. Nationally, rent is up 8.4% over the past 12 months as well. With population growth expecting to outpace housing construction in the coming years, this isn't a trend that's going to go away, is it? This is something that we're looking at for the future. 

Eliza: [00:12:01] Yeah, in the month of September, we did see a little bit of a acceleration in monthly rent growth at 0.7%, so that's up from 0.4% in the previous month. It is important to note that the rental market is partly seasonal as well. I would argue that price changes in the rental market are actually more seasonal than what we see in the purchasing market and would be more tied to things like university semester starts and holidays and things like that. But it is a persistent trend. While we have such a strong net overseas migration position, so Australia's seen recently record highs in the amount of people coming to the country, but also about a 25% drop on the amount of departures from Australia. So that's meant you've got a lot of relatively recent arrivals, but people basically hanging around and being in the rental market for longer. The reason overseas migration is such a big factor for the rental market is because most people coming to Australia from overseas rent when they first get here. Yeah, after about five years, if they do stay longer, their tenure starts to match longer term residence in the country. So knowing that that's where we can start to do some analysis around which areas are going to see the most strain from that overseas migration trend. And that's basically your high density markets of the largest capital cities. I mean, Wentworth on the whole is slowing, but at eight and a half per cent over the past year, it's still extremely high. And I think you're going to get more of a response from tenants before you get a stronger investor response at the moment. It's likely we won't see more investors really coming into the market and providing more of that rental stock until we get a clear indication that interest rates are going to move lower because that would attract more investors to the market. 

Sascha: [00:14:08] Excellent. Well, Eliza, thank you so much for your time today. We always appreciate it. Hope to have you back on the dive sometime soon. 

Eliza: [00:14:15] Great. Thanks for having me. 

Sascha: [00:14:17] I'm going to ask you for a quick favour. Could you please jump in your podcast player and give us a five star review? It makes all the difference in terms of us climbing the charts and, you know, getting that pesky algorithm to show us to more people. We really, really appreciate it. I'm going to be back in your feeds on Friday with another fast three. Until then.