The May issue of the Australian Real Estate Market report, published jointly by the National Bank of Australia and real estate research firm CoreLogic, came out fresh. The most frequently mentioned words in this report are "soft" (soft) and "cooling" (cool). The report recalls that capital gains for property transactions across Australia fell in April. The CoreLogic Capital City Composite House Price Index, which grew 1.2 percent a month in the first quarter, now slows to just 0.1 percent.
"April`s data show a significant slowdown in capital gains growth," said an expert at the NAB Group`s Department of Economics, which is just a month`s data, followed by a close look at whether it will turn into a trend of sustained cooling in the housing market. "if there are similar weak results in the coming months, it could prove that the housing market has reached its peak and that the earlier very strong growth cycle ran into an inflection point."
The decline in mortgage volume reflects a decline in demand
The ACB News reported that the April index softened mainly because of a fall in the performance of hot cities. House prices in Sydney did not rise in April, while Melbourne rose only 0.5%, much less than in previous months. There were short-term factors, such as Easter, autumn holidays and long weekends of the military festival, in most areas where property transactions were lower than in the same period last year.
At the same time, mortgage demand is slowing, with CoreLogic`s platform to track property valuations in the banking sector, which reflects mortgage demand in real time, and data show that weekly mortgage processing is at its lowest level since July last year.
Demand softened, the stock of housing digestion speed also slowed. According to a separate CoreLogic survey, supply of inventory housing (excluding flats) in the Australian capital is now being digested at a rate of 4.4 months, higher than the average annual level since 2012. Kusher, head of research, said the increase in supply months was mainly due to a slowdown in trading activity, rather than an increase in the number of properties for sale, suggesting weaker demand.
Sydney`s undigested supply was only three months old, but demand is also showing signs of softening compared with recent years. Melbourne was 4.2 months, the highest in nearly five years. Canberra is the most sought-after property, at 2.6 months.
Implicit interest rate increase: mortgage interest rate is actually raised
NAB economists say the decline in mortgage demand has been seasonal, but the other fact is that mortgage rates have risen since August, ACB News reported. Discount investment floating mortgage rates have risen by 25 basis points, according to ADB data, which equates to the central bank`s rate increase.
Since August last year, fixed interest rates on three-year investment mortgages have risen by 30 basis points; discounted self-housing floating mortgage rates have also risen by 10 basis points. "when household debt levels are at record highs, people naturally take into account the cost of loans. Sydney, Melbourne, rental yields are at an all-time low, while other cities are down, making property investors more sensitive.
In addition to higher mortgage rates, the Australian Banking Regulatory Commission (APRA) announced more macro-prudential measures at the end of March to force banks to pay less than 30 percent of new home loans. The report said that the new policy could lead to constant cash rates, mortgage rates continue to rise, and investors` willingness to participate in the housing market will be further reduced.
The slowdown in investment activity will essentially affect major markets, particularly in Sydney, where investment activity is high. Sydney`s investors account for 57% of new mortgage demand in the new state, according to the latest data. Melbourne`s investors account for 46% of new home demand in Victoria.
In short, the Australian housing market may be going through an inflection point. The situation in the coming months is crucial.
Three factors affecting the overall situation of the Housing Market
According to the report, housing affordability, higher mortgage rates and tighter APRA lending policies are the main factors driving the housing market to soften, according to the ACB News. In terms of housing affordability, the CoreLogic`s latest index shows that the situation is still grim in terms of price-to-income ratios. According to December data, the median national house price is 7.2 times the median per capita income, and Sydney`s highest is 8.4 times.
Because the mortgage interest rate is relatively low, the mortgage repayment index is still good. Australian households now spend about 51% of their income on home loans a year, up from a typical 30.5%, but still well below their 2008 peak.
Based on these two points, the report argues that measuring housing affordability still depends on the down payment threshold, while income growth is well below the rate at which house prices rise, placing many home buyers outside the housing market. In addition, stamp duty, survey costs and other costs are also a burden.
According to the latest figures from the Australian Bureau of Statistics, hourly wages, excluding bonus bonuses, rose 0.5 percent in the first quarter of this year and 1.9 percent year-on-year. By contrast, house prices in Sydney and Melbourne rose in double digits.
"the latest round of APRA regulation, which makes it harder to apply for interest-only loans, is likely to continue to push up mortgage rates. It looks like the housing market will slow further in the coming months. "
