As a brand new decade dawns, we reflect on how the market performed over the year that was. 2019 was a turbulent record-setting end to the decade, to say the least, with both downturns and rebounds being present, the housing market also experienced the largest and longest recorded correction followed immediately by rapid rebounding.
CoreLogic’s Head of Research, Tim Lawless said it perfectly, “The positive year-end results mask what has been a year of two distinct halves - we saw capital city dwelling values fall by 3.8% over the first six months of 2019 and the rebound by 7.0% over the second half of the year.” A combination of lower mortgage rates, the 2019 federal election, the Australian Prudential Regulation Authority’s (APRA) relaxation of lending restrictions, improved housing affordability and renewed market certainty all contributed to these contrasting halves.
The 2019 new year began off the heels of downward pressure within Australia’s major markets, like Sydney and Melbourne, which accounted for around 40% of all Australian homes and 55% of total housing wealth. The market has since rebounded over the second half of the year to finish 2019 on a high national dwelling change of 2.3% over the year, according to CoreLogic, however, the market still sits 3.1% below peak values.
Change in Dwelling Values
Source: CoreLogic
RBA Cash Cuts
Throughout the past year, there were many major factors that influenced the performance of the property market. First and foremost, 2019 was the year where the RBA dropped cash rates to unprecedented low levels, with the first cut arriving in June 2019, which dropped the cash rate from a 34-month standstill of 1.50% to 1.25%. In the subsequent month, the RBA decided to cut the cash rate by a further 25 basis points to 1%, which at the time, was the lowest level in Australian history.
Despite these record-low rates, the Australian economy remained weak and the annual inflation rate remained below the RBA’s inflation target of 2 - 3%. Thus we arrive at the third cash rate cut in October of 2019, with another 25 basis points off the already historic low of 1% to the new lowest point in Australian history, 0.75%. Despite the market performing quite well in the few months prior to the 0.75% cash rate, the prices were still well below the peak and unaffordability within major capital markets remained an issue.
Graph of the Cash Rate
Source: RBA
Coalitions’ Victory
Another major factor that pushed a rebound of the property market in the second half of 2019 was the Coalition’s victory in May 2019. At a total value of $6.869 billion (September Quarter 2019), which is around 4 times Australia’s annual GDP, the property market is one of the key pillars of the Australian economy that drives and supports a wide range of industries and services such as the building industry, housing-related services (such as banking and legal) and also acts to stimulate household consumption.
Much of the past year has been plagued with market uncertainty and low consumer confidence with the Sydney and Melbourne property markets losing 11% and 10% of dwelling values respectively when comparing May 2019 to May 2018 values. Prior to the Coalition’s victory, market uncertainty was further fuelled by Labor’s proposed negative-gearing policies and reforms to capital gains tax alongside stagnant wage growth and unaffordability in Sydney and Melbourne.
The Value of Lending
At the peak of the market (in 2017), the value of lending commitments was $37 billion per month. Since the decline of the market, the value of lending commitments bottomed at $31 billion in March 2019. The value of lending to households is largely influenced by consumer sentiment and the property cycle. Borrowers are much more willing to take out larger home loans, while banks are more willing to supply borrowers with higher value of home loans when the property market is expected to increase in value. When borrowers are empowered with these larger home loans, prices are generally pushed upwards.
Auction Clearance Rates
Auction clearance rates in 2019 gave a fantastic view at both booms and busts in the property market. Directly following the downturn of the property market in 2018, the beginning of 2019 did not give any positive indication that a rebounding market was in sight, it was not until June 2019, off the back of the election and the first interest rate cut was there a renewal in consumer confidence.
The week commencing the 3rd of February 2019 revealed that a total 928 auctions were held across the combined capital cities over the week. In comparison, the Melbourne market alone contributed 1,491 auctions over the week commencing the 24th of November 2019, with a staggering 3,058 auctions across the combined capital cities during this week.
Auction clearance rates across the combined capitals during the February period also sat at 51.10%, which, at the time, was the first time that the final auction clearance rate rose above 50% since September 2018. In contrast, the busy November week amassed a 78.90% clearance rate across the combined capitals.
National Dwelling Values
National dwelling values rose by a total of 4.0% over the final quarter, which represented the fastest rate of national dwelling value growth over any quarter since November 2009, according to CoreLogic. The best performing city within this period was Sydney at 6.2%, with the worst-performing city being Darwin at - 1.4%.
Despite the rebound, the national property values still remained 3.1% below the peak in October 2017. As the sun set on 2019, Sydney and Melbourne delivered an annual change in dwelling value of 5.3% and currently sits at median values of $840,072 and $666,883 respectively.
These nominal rates of recovery give a positive indication that the property market in 2020 is likely to overtake previous record highs set in 2017.
Index Results as at December 31, 2019.
Source: CoreLogic
To summarise, the property market in 2019 has been a figurative rollercoaster ride, with both peaks and troughs all happening over two contrasting halves of the year. The year began rocky and uncertain, with capital dwelling values falling 3.8% over the first six months. Since then, many factors have pushed the property market to rebound, some of these included:
RBA Cash Cuts - with 3 cash rate cuts over 5 months, the cash rate now sits at an unprecedented 0.75%, the lowest in Australian history.
Coalitions’ Victory - The 2019 federal election was a major timestamp for the property market. The Coalitions’ victory created positivity and much needed confidence in the property market with policies that stabilise the market.
The Value of Lending - Borrowers are likely to take out larger home loans from lenders when the property market is expected to increase in value and vice versa. This ultimately empowers buyers with higher purchasing power, which generally pushes prices upwards. With market sentiment rising
Auction Clearance Rates - The auction clearances rates gives interested parties a fairly brief overview on the overall health of the property market. The contrast of auction clearance rates as well as the number of auctions between the first half and the second half of the year gave a stark indication on the performance of the market and the quick rebound in values that the market received throughout the second half of the year.
As the sun rises over the 2020s, the Australian property market is forecasted to continue increasing as it rides the tails of 2019’s turnaround performance. Supported by very low interest rates, improved lending criteria and conditions as well as the introduction of new policies like the First Home Loan Deposit Scheme (FHLDS), the property market is set to continue shining into the roaring twenties.
Sources: CoreLogic | Domain | ABC | The Guardian
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