Why lower rates are good for the national property market
We all know that from region to region, housing markets are significantly different. In the instance of Sydney, where housing market conditions are red hot with dwelling values rising by almost 14% over the past twelve months, dwelling values in Perth, Hobart and Darwin have fallen slightly over the past year. In fact, outside of Sydney and Melbourne, every other capital city has seen dwelling values rise by less than 3% over the past year.
The stark variability in housing market performance becomes even greater when we look at some of the regional markets around the country. Broadly, we are seeing that the mining-related regions of the country continue to show very soft market conditions while at the same time, lifestyle markets are showing a consistent bounce back in values after the post GFC slump.
The biggest losses
CoreLogic RP Data’s recent quarterly release of the Pain and Gain report revealed the regions showing the highest proportion of loss making sales were all related to the mining sector. The Queensland region of Mackay, which is intrinsically linked with the coal mining sector, topped the list with 34.7% of all properties which re-sold over the December quarter recording a gross loss. Another resources-related area of Queensland – Fitzroy – which includes Gladstone and Rockhampton and is linked to both coal mining and natural gas, showed the second highest proportion of loss making resales at 29.6% over the December quarter.
Highlighting the strength of the Sydney market, only 2.4% of all dwelling re-sales were transacted at a gross loss over the December quarter; the lowest proportion of loss making sales across the country.
The variability in housing market performance is a firm reminder that very low interest rates aren’t the only driver of housing market conditions across the country. If they were, we would be seeing much more even results across individual capital cities and regional markets. Other factors that are causing the imbalance in growth rates include economic conditions, demographic trends, supply levels and labour force dynamics.
It’s no wonder that Sydney is seeing such housing market strength when the New South Wales economy is the strongest of any state, unemployment is lower than most states, population growth hasn’t shown any signs of moderating and housing supply has historically been insufficient until recently.
The opposite can be said of Western Australia, where housing markets are substantially weaker than Sydney’s, with dwelling values declining by 0.1% over the year. Economic conditions have weakened rapidly across Western Australia, migration rates have fallen away sharply, unemployment is rising and the new housing supply pipeline is substantial at a time when housing demand is moderating.
The big picture
With the RBA looking towards the housing construction sector to take on some of the heavy lifting for economic growth, a healthy and vital housing market is a necessary precursor to maintain developer confidence. The diversity in housing market performances provides the Reserve Bank with some unique challenges when considering housing market conditions, in relation to monetary policy settings. Moving interest rates lower will potentially provide more stimulus to an already hot Sydney housing market, but may also provide much needed fuel to housing markets in other parts of the country.