The long-expected cooling of the property markets appears to be under way, with values falling, auction clearance rates declining, rental growth the lowest on record and general real estate sentiment weakening.

National Australia Bank’s (NAB) residential property survey for the final quarter of 2015 shows real estate market participants have little optimism left, with the index at +1, down from +10 in the third quarter. The respondents to the survey expect house prices to increase by just 0.5% nationally this year and 1% over the next two years.


Clearance rates fall

That gloomy outlook is borne out by the figures, which show the capital city auction clearance rate in the final quarter fell substantially, according to CoreLogic RP Data’s Quarterly Auction Market report.

It shows that while auction numbers were 15% higher than the previous quarter as people tried to sell before the likely slowdown, the national clearance rate fell to 62.1% for the December quarter from 73.4% over the September quarter.


Values in Decline

Dwelling values across Australia’s combined capital cities, meanwhile, showed a 0.9% rise in January after recording no change in December and a 1.5% drop in November, CoreLogic’s data shows. The January increase, however, wasn’t enough to pull the overall result into the black, with dwelling values remaining down 0.6% over the three months.

Dwelling values as at January 31, 2016

Source: CoreLogic RP Data

Rents Stagnate

The figures were uglier for landlords, with rental growth across the capital cities not rising at all over 2015 – the worst year since CoreLogic’s rental series began in 1996.

Rental Index results as at January 31, 2016

Source: CoreLogic RP Data

According to the company’s head of research, Tim Lawless, rental markets are the weakest ever seen. “In fact, there hasn’t previously been a 12-month period when rents didn’t rise across our combined capitals index,” he says.

“With dwelling values rising substantially more than rents in Sydney and Melbourne, this ongoing effect has created a compression in gross rental yields to the extent that gross yields in these cities are now only marginally higher than record lows.”

Brake on property investors

Investors have also backed out of the market as funding has been harder to find. According to the most recent Reserve Bank of Australia private sector housing credit data, the pace of investment-related credit growth has fallen well below the 10% speed limit implemented by the Australian Prudential Regulation Authority in December 2014.


“The slower pace of investment credit is likely to be due to more than just higher mortgage rates for investment loans and stricter lending policies, but also due to investors becoming wary of the low rental yield scenario while also anticipating lower capital gains than what was recorded last year,” Mr Lawless says.

“As housing market activity moves out of its seasonally slow festive period, we are likely to have a much better gauge on how the overall housing market is performing in the New Year.

“The bounce in dwelling values in January may provide an early sign that housing values across the combined capital cities are not likely to experience material decreases in 2016. We believe that the rate of capital gain across the combined capitals in 2016 is likely to be less than the 7.8% experienced in 2015, driven by a slowdown in Sydney and Melbourne and continued softness in the Perth and Darwin markets.”

The expectation that the floor won’t fall out of the market is echoed by the NAB’s real estate sentiment report. “Our overall assessment is that the possibility of a more serious correction in the Australian housing market is still remote, although the risks have escalated over the past six months,” it says.

“Nevertheless, a sharp correction will likely require an external catalyst, triggering a sharp deterioration in the local labour market and/or a wave of Chinese selling.”

While it’s not yet a disastrous scenario for sellers, the market is certainly improving for buyers.

Back to Insights and News

Related articles

All insights

Borrowers feel the heat of high rates

With interest rates staying elevated following a year of aggressive increases, mortgage stress is on the rise among borrowers. New data from Roy Morgan reveals that the number of Australians facing mortgage stress has increased by 724,000 since May 2022, when the Reserve Bank of Australia (RBA) began raising the cash rate from a record…
Read More

Housing market soars 40% four years after pandemic

The impact of the pandemic continues to shape Australia’s property market, four years on. Dwelling prices have exploded as factors such as population growth and limited supply drive competition for homes. According to data from PropTrack, national home values surged by 39.9% from March 2020 to March this year. Prices in regional areas soared by…
Read More

Australian SMEs grapple with rising defaults amid cost pressures

The rising cost of borrowing and reduced consumer demand are hitting small and medium-sized enterprises (SMEs) hard. Payment defaults among them have surged to a record high, making them more vulnerable to business failure. According to the latest CreditorWatch Business Risk Index (BRI), business-to-business trade payment defaults are now above pre-COVID levels and rose by…
Read More