Red23 Research Bulletin | Jun.’19

  • Positivity in the market has been witnessed, but still early days.
  • Extra stimulus will need to be considered; interest rates are predicted to fall again.
  • Greater Geelong’s month-on-month median land price increased back up to $290,000.
  • June delivered a further $2,000 decline in the median land price. Will the median land price fall below $300,000?
  • Median price of new stock introduced this month was $315,000; $16,000 less than the median land price of available stock.

There has been much speculation and forecasting to what the next few months will encompass. 

The residential market has seen various forms of uplift; that being in sales numbers, price growth in some suburbs and growth areas, auction clearance rate but more importantly, buyer’s sentiment.  This coincides with the news of two interest rate falls and announcements by the Australian Prudential Regulation Authority (APRA).

Its’ been well played out in the media, but here’s a recap…

As predicted, interest rates fell by 0.25pc on the 4th of June and again on the 2nd of July in a desperate move to boost a soft economy, where wage growth has frozen, disposable income has grown by a marginal 2% since December 2018 and consumer confidence continues to fluctuates close to the long term average. This was the first back-to-back cut since 2012, indicating short-term fear of unemployment growth, low GDP growth and to avoid another GFC.

Although banks have not past on this full amount, the four major banks have passed on varying degrees of the rate cut.

Graph 1: Auction Clearance Rate (Melbourne) + Australia’s official cash rate
Graph 1: Auction Clearance Rate (Melbourne) + Australia’s official cash rate (source: Red23 Research Hub)

On Friday 5th July, APRA announced changes to its residential mortgage lending criteria which is likely to increase the borrowing power for many Australians. APRA released a statement communicating:

APRA confirmed its updated guidance on residential mortgage lending will no longer expect authorised deposit-taking institutions (ADI’s) to assess home loan applications using a minimum interest rate of at least 7 per cent. Common industry practice has been to use a rate of 7.25 per cent.

But what is the short-term outlook?

In last month’s EDM, it was noted that at the end of the last price boom prices fell by around 17%, from $225,750 to around $200,000 and the market correction took ~14 months. If we were to apply this rate to the current market; (at its peak in Q2.’19 where the median land price was $355,000) the median land price will need to fall by approximately $60,000 to $295,000 for the market to stabilise. We have currently dropped to $333,000 (Gross) and in addition; if an average of $20,000 discount is applied; the median price currently is $313,000 (net). 

There is still some room for movement on price. but will it reach below $300,000?  The traditional end of financial year slowdown was not witnessed this year, perhaps, due to the overriding cooler conditions.  We are in for a few more months of uncertainty however we may see some positivity in Spring. This has definitely been reflected in the media already.  First Home Buyers will continue to be the key source of housing demand due to improved affordability, low mortgage rates and incentives. Investors are only 25% of lending commitments.

In the established market, auction clearance rates moved further into the mid 70 per cent range (of note, an average of 57 per cent pre-Federal election and 65 per cent post-election): approaching the long run trend.

Established housing prices falls will temper and legitimate sellers will continue to offer larger price reductions. Extra stimulus will need to be considered, interest rates are predicted to fall again in November, and in March 2020, with rates falling to 0.50. 

Now, to the growth area specifics …

The Melbourne growth area has suffered a $2,000 drop in the median land price and over the month of June. ’19, following an equal amount drop in May and stabilisation before then. 

Hume continues to outperform all other projects in just about every manner. It has sat on top of the median price ladder for nine consecutive months and has experienced a month-on-month median land price increase of nearly $11,000.

Hume’s median project sale rates have remained the strongest amongst all other municipalities throughout 2019.  Over the past month, Hume has recorded a median sales rate of 5 sales per active project.  This is double the growth area median.

Opposing to Hume, Melton is underperforming. It only recorded an average of around one sale amongst the 41 active projects.  Approximately 36 per cent of projects in Melton recorded no sales at all. Melton also suffered a $16,000 month-on-month price decrease during Jun. ’19 which has brought it to $299,000.

Casey is the second most expensive land market at a median of $350,000. Cardinia sits at three on the median price ladder – this is a drastic fall to that of where it stood at this time last year.  Since Jun.’18, Cardinia’s median land price has fallen by 24 per cent.

Overall, the median lot size has remained stable at 400sqm, as it has done so for several months now. Across all growth areas, for the second consecutive month the median price of new stock introduced this month was $315,000; $16,000 less than the median land price of available stock. The median size of these newly introduced lots is 380sqm (20sqm less than current median land size). 

The median price of lots sold in Jun. ’19 was $326,000, which is up $9,000 from last month.  Melton is home to the three most affordable suburbs amongst the Melbourne growth regions with Eynesbury, Kurunjang and Diggers Rest producing the lowest median land price numbers. Berwick and Burnside remain the most expensive suburbs, with Burnside nearly surpassing a median land price of $500,000. Greater Geelong’s month-on-month median land price increased back up to $290,000, this comes after the $2,000 fall it suffered during May. ’19. It still remains above Mitchell and is now closing in to take over Melton on the median price ladder.

Table 1 – Median Prices and Lot Sizes | Jun. ’19 (source: Red23 Research)

The information contained has been produced as a general guide and does not constitute advice. Whilst the information has been prepared in good faith and with due care, no representation is made for the accuracy of the whole or any part of the publications. No liability for negligence or otherwise is assumed for any loss or damage suffered by any party resulting from their use of these publications.