Sentiment turns, investors exit as housing comes off the boil

The latest figures from CoreLogic, released yesterday, showed home values in Sydney and Melbourne fell by 1.3 per cent and 1.7 per cent, respectively, during the month of May.

The two cities were largely responsible for slowing growth across combined capital cities, which saw a 1.1 per cent fall in dwelling values, according to CoreLogic’s head of research Tim Lawless.

While seasonal changes and the impact of APRA’s latest regulatory measures to curb interest-only lending are a factor, Mr Lawless said a “dent in consumer confidence” is likely contributing to slower growth conditions.

“In particular, the Westpac ‘time to buy a dwelling index’, fell 6.5 per cent over the month. According to Westpac, ‘consumer sentiment towards housing shows an increasingly negative view’,” he explained.

Meanwhile, CoreLogic estimates of dwelling turnover for the combined capital cities were tracking 6.9 per cent lower year-on-year.

“It appears that housing activity has eased, which is attributable to a range of factors including affordability constraints, tighter credit policies, rising mortgage rates and a downturn in consumer sentiment towards housing,” Mr Lawless said.

Investors beginning to exit the market

Sydney-based real estate agent and Starr Partners chief executive Doug Driscoll said the number of investors purchasing property in Sydney has fallen by 20 per cent.

Last year, investors comprised more than 50 per cent of the entire Sydney market but have started to level off this year, which Mr Driscoll largely attributes to APRA’s tightened macro-prudential measures.

However, he says Australians should not expect a market crash.

As a group, Starr Partners has seen a shift this year among investors in Sydney, with many now starting to set their sights on areas such as the Newcastle and Hunter regions.

“A bump in the road won’t be too impactful for experienced investors. Normally, they are very sensible in their approach, they have enough capital in their investment portfolio and carry a long-term view,” Mr Driscoll said.

Based on the most recent data from the Australian Bureau of Statistics, investors comprised 48 per cent of the value of new mortgage demand (excluding refinances) in March, well above the long-term average, but the lowest proportion of mortgage demand since August last year.

CoreLogic’s Mr Lawless said that, considering we are yet to see the full effect of the recent round of macroprudential measures flow through, there is a high possibility that investor activity, and consequently housing demand, will slow further during 2017.

“Investor demand will also be dampened due to higher mortgage rates and tighter credit policies as well as the added disincentive of low rental yields and reduced ability to claim depreciation and travel expenses,” he said.

In February, the Reserve Bank warned that low rental yields and slow growth in rents could refocus property investors’ attention and shift sentiment.

“Although investor activity is currently quite strong, at least in Sydney and Melbourne, history shows that sentiment can turn quickly, especially if prices start to fall,” the RBA said.

“Softer underlying demand for housing, for example because of a slowing in population growth or heightened concerns about household indebtedness, could also possibly prompt such a reassessment.”

[Analysis: The investor lending dilemma]