An Australian national property market update

1. Dr.AndrewJ.Wilson
Australian housing markets report
Dr Andrew Wilson – Chief Economist Domain Group
October 2017
Copyright 2017 Dr Andrew Wilson – all rights reserved

2. DrAndrewJ.Wilson
Australian capital city housing markets -
synchronised, orderly growth and correction phases

3. DrAndrewJ.Wilson
expansion
trough
peak
trough
peak
correction
recovery
contraction
• Change points........
• Define phases
Housing market analysis – Wilson Curve house price cycle model (Wilson 98)
Prices below last peak
Prices below last trough
Prices above last trough
Prices above last peak
Bubble myth?

4. DrAndrewJ.Wilson
Investors loan rate less owner-occupied – tighter lending AND higher rates (RBA)
0.2%
0.6%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17

5. DrAndrewJ.Wilson
Most markets above previous cycle peaks
80.3%
55.5%
16.9%
14.2%
-10.1%
27.1%
20.4%
-12.8%
Sydney Melbourne Brisbane Adelaide Perth Canberra Hobart Darwin

6. DrAndrewJ.Wilson
Capital city house price cycle – Wilson Curve
correction
recovery
expansion
contraction
Sydney PerthMelbourne
Canberra
Brisbane
Darwin
Adelaide
Hobart

7. DrAndrewJ.Wilson
Current quarter capital city prices

8. DrAndrewJ.Wilson
Sydney and Melbourne still way out in front
$1,167,516
$880,902
$551,840
$519,517
$554,095
$723,980
$409,592
$593,329
Sydney Melbourne Brisbane Adelaide Perth Canberra Hobart Darwin

9. DrAndrewJ.Wilson
Rental Markets

10. DrAndrewJ.Wilson
National rents (September qtr)
Houses Units
Capital Rent Qtr change Year change Rent Qtr change Year change
Sydney $550 0.0% 3.8% $550 0.0% 4.8%
Melbourne $420 0.0% 5.0% $400 0.0% 5.3%
Brisbane $400 0.0% 0.0% $370 0.0% -1.3%
Adelaide $360 0.0% 2.9% $295 1.7% 1.7%
Perth $350 -2.8% -7.9% $300 0.0% -6.3%
Canberra $375 4.2% 13.6% $320 0.0% 14.3%
Hobart $505 1.0% 6.3% $420 0.0% 5.0%
Darwin $520 0.0% -5.5% $400 0.0% -5.9%

11. DrAndrewJ.Wilson
National yields (September qtr)
Houses Units
Capital Gross yield Qtr change Year change Gross yield Qtr change Year change
Sydney 3.12% -1.1% -6.3% 3.86% 0.4% -2.6%
Melbourne 3.34% -1.2% -5.7% 4.47% -1.1% 1.6%
Brisbane 4.67% -0.5% -2.9% 4.93% -3.5% -1.2%
Adelaide 4.51% -1.5% -1.8% 5.18% -1.4% 0.6%
Perth 4.08% -1.1% -2.4% 4.37% -2.3% -5.7%
Canberra 5.29% -1.3% -4.1% 5.53% 0.7% -3.6%
Hobart 4.33% 0.4% -2.4% 5.77% 1.1% 3.7%
Darwin 4.88% -1.7% 3.9% 5.65% -0.8% 2.1%

12. DrAndrewJ.Wilson
Houses Units Total homes
Sep-17 Aug-17 Sep-16 Sep-17 Aug-17 Sep-16 Sep-17 Aug-17 Sep-16
Sydney 1.9% 1.9% 1.8% 2.1% 2.1% 2.1% 2.0% 2.0% 2.0%
Melbourne 1.4% 1.5% 1.6% 1.8% 1.7% 2.3% 1.6% 1.6% 1.9%
Brisbane 2.5% 2.5% 2.6% 2.7% 2.8% 3.2% 2.6% 2.6% 2.8%
Adelaide 1.4% 1.4% 1.7% 1.7% 1.8% 2.2% 1.4% 1.5% 1.9%
Perth 3.2% 3.3% 4.2% 3.8% 3.9% 4.6% 3.3% 3.4% 4.3%
Hobart 0.5% 0.5% 0.6% 0.7% 0.6% 1.1% 0.5% 0.5% 0.7%
Canberra 0.7% 0.8% 0.8% 1.6% 1.5% 1.7% 1.1% 1.1% 1.1%
Darwin 1.8% 1.9% 2.1% 2.6% 2.7% 3.3% 2.2% 2.3% 2.7%
National 2.0% 2.1% 2.3% 2.2% 2.2% 2.5% 2.1% 2.1% 2.3%
National vacancy rates (September)

13. DrAndrewJ.Wilson
Key price drivers

14. DrAndrewJ.Wilson
The future for house price growth?
....as usual depends on the economy
 Key Drivers
 Unemployment and jobs
 Wages, incomes and profits
 Interest rates
 Tax policies
 Stockmarket
 Population growth
 New home supply
 Confidence

15. DrAndrewJ.Wilson
Interest rates and housing markets

16. DrAndrewJ.Wilson
Interest rates drive the cycle – for ALL capitals in sync
Rates rise 09-10
(FHOGB – mining boom 2)
Rates fall 11-12-13
(economy fades)
Rates fall 08
(GFC)
Rates rise 06-07
(mining boom 1)
Rates fall again 15-16
(economy still flat)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Sydney Melbourne Brisbane Adelaide
Perth RBA interest rate OO mortgage rate

17. DrAndrewJ.Wilson
Sydney house prices and interest rates – clear underlying relationship
9.5%
5.8%
7.8%
5.3%
$1,167,516
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
$1,100,000
$1,200,000
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mortgage rate Sydney Median
Sydney’s median house price
decreased by 1.9 per cent
over the September quarter

18. DrAndrewJ.Wilson
Sydney annual house price growth (Sept qtr)
orderly growth and correction phases
-4.6%
4.1%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Year
so Far

19. DrAndrewJ.Wilson
Sydney houses and units consistent cyclical relationship
$1,167,516
$732,321
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
$1,100,000
$1,200,000
$1,300,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Houses Units

20. DrAndrewJ.Wilson
Sydney gross house yields vs bank deposit rates - better returns (bank term deposit 1yr 10k)
2.3%
3.2%
2%
3%
4%
5%
6%
7%
8%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Term deposit House yield

21. DrAndrewJ.Wilson
Sydney Market Summary – September Quarter
 Sydney’s median house price decreased by 1.9 per cent to $1,167,516 over the
September quarter
 Steepest decline in house prices of all capital cities (with the exception of the highly
volatile Darwin market)
 First quarterly fall in the local market since December 2015
 Median house rents in the Harbour city remained steady at $550 per week, as did
median unit rents.
 While steady over the quarter, the results are up year-on-year by 3.8 per cent and
4.8 per cent respectively.
 Drop in Sydney’s house prices reflects the diminishing impact of the record-low
interest rates
 Despite recording a decline in both house and unit prices, Sydney clearly remains
the highest priced of all capitals, well ahead of the next-highest, Melbourne

22. DrAndrewJ.Wilson
Melbourne house prices and interest rates – clear underlying relationship
9.5%
5.8%
7.8%
5.3%
$880,902
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
5%
6%
6%
7%
7%
8%
8%
9%
9%
10%
10%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mortgage rate Melbourne Median

23. DrAndrewJ.Wilson
Melbourne annual house price growth (Sept qtr)
orderly growth and correction phases
-4.2%
12.8%
8.4%
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
YearsoFar

24. DrAndrewJ.Wilson
Melbourne quarterly house price growth (Sep qtr)
orderly growth and correction phases
1.3%
-4%
-2%
0%
2%
4%
6%
8%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

25. DrAndrewJ.Wilson
Houses and units

26. DrAndrewJ.Wilson
Melbourne houses and units still in sync
$880,902
$506,334
$250,000
$350,000
$450,000
$550,000
$650,000
$750,000
$850,000
$950,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
House Unit

27. DrAndrewJ.Wilson
Buyer types

28. DrAndrewJ.Wilson
Investor loan growth still up this year – FHB now rising (ABS this year to August vs last year VIC)
3.8%
12.3%
6.3%
11.8%
First home buyers Investors Changeover buyers Total

29. DrAndrewJ.Wilson
Housing supply

30. DrAndrewJ.Wilson
Melbourne unit supply cycle peaked – for now (ABS annual approvals)
22,916
18,720
22,834
21,666
27,637
33,373
31,083
2010 2011 2012 2013 2014 2015 2016

31. DrAndrewJ.Wilson
Melbourne house supply cycle rising (ABS approvals)
2569 2613
0
500
1000
1500
2000
2500
3000
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17

32. DrAndrewJ.Wilson
Melbourne unit supply cycle peaked but set to rebound (ABS approvals)
2989
2261
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17

33. DrAndrewJ.Wilson
Housing demand

34. DrAndrewJ.Wilson
VIC net migration drives local housing markets (ABS year to December)
92,038
-40,000
-20,000
0
20,000
40,000
60,000
80,000
100,000 1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

35. DrAndrewJ.Wilson
Melbourne unit market

36. DrAndrewJ.Wilson
Melbourne unit supply adjusts to prices – rebalancing in time (Jun qtr 17)
$325,000
$345,000
$365,000
$385,000
$405,000
$425,000
$445,000
$465,000
$485,000
3500
4500
5500
6500
7500
8500
9500
10500
2010 2011 2012 2013 2014 2015 2016 2017
Unit approvals Unit prices

37. DrAndrewJ.Wilson
Melbourne market outlook 2017

38. DrAndrewJ.Wilson
Melbourne to remain robust and resilient
 Nations strongest and most consistent capital city market
 Market to continue to thrive from solid economy, low rates and more investors (?)
 Record migration surge driving demand – confidence high
 Underlying housing shortages putting upward pressure on prices and rents
 Mid and outer - north, west and south east suburbs best but all regions positive
 Prestige, inner east market easing following recent strong price growth
 Listings higher with sellers keen to take advantage of strong market conditions
 Investor activity increased – but tapering as APRA acts again
 High relative yields and steady capital growth to still drive investors
 Tax enhanced residential investment returns remain a positive in low yield economy
 Vacancy rates remain tight despite building boom
 Booming new apartments great for local economy and no sign of oversupply
 International investors still active - particularly from China - cultural connection
 No stamp duty from July for first home byers to drive prices surge from ripple effect
 Melbourne prices to rise by 10 percent in 2017

39. DrAndrewJ.Wilson
Brisbane house prices and interest rates – clear underlying relationship
9.5%
5.8%
7.8%
5.3%
$551,840
$300,000
$340,000
$380,000
$420,000
$460,000
$500,000
$540,000
5%
6%
6%
7%
7%
8%
8%
9%
9%
10%
10%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mortgage rate Brisbane median

40. DrAndrewJ.Wilson
QLD net migration drives local housing markets (ABS year to December)
80,356
37,675
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

41. DrAndrewJ.Wilson
Brisbane annual house price growth (Sept qtr)
orderly growth and correction phases
-5.0%
5.2%
6.5%
5.2% 5.7%
0.8%
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
YearsoFar

42. DrAndrewJ.Wilson
Brisbane quarterly house price growth (Sep qtr)
orderly growth and correction phases
-0.2%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

43. DrAndrewJ.Wilson
Brisbane house and unit rents in sync (Sep qtr)
$400
$370
$250
$270
$290
$310
$330
$350
$370
$390
$410
$430
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Houses Units

44. DrAndrewJ.Wilson
Brisbane house and unit yields in sync and rising (Sep qtr)
4.67%
4.93%
4.0%
4.2%
4.4%
4.6%
4.8%
5.0%
5.2%
5.4%
5.6%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Houses Units

45. DrAndrewJ.Wilson
Brisbane houses and units cyclical price disconnect – supply imbalance (Sep qtr)
$551,840
$376,685
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
$600,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
House Unit

46. DrAndrewJ.Wilson
National market outlook 2017

47. DrAndrewJ.Wilson
Housing Market Barometer
12%
2%
1%
0%
0%
Perth 0%
R
I
S
I
N
G
F
A
L
L
I
N
G
2017 forecasts
4%8%
6%
4%
2%
2%
3%
4%
5%
Boom
Strong
Robust
Solid
Moderate
Moderate
Solid
Robust
Strong
Bust
Flat
Sydney, Adelaide, Darwin 5%
Hobart, Canberra 7%
Melbourne 10%
Brisbane 3%

48. Dr.AndrewJ.Wilson
Thank you