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Major headwinds for housing pre-election but affordability is rising

Affordability is rising across the country as dwelling values fall, but experts warn of major headwinds for housing in the lead up to the Federal Election.

The latest CoreLogic Hedonic Home Value Index, released Monday, found that national dwelling values had been trending lower for 17 months and fallen by a cumulative 7.4 per cent since peaking in October 2017.

But “despite the broad based weakness, the national index remains 15.9 per cent higher relative to five years ago, highlighting that most property owners remain in a strong equity position.”

“The silver lining here is that housing is now very affordable and first home buyers are proportionally much more active relative to other areas of the country,” especially in markets where values peaked much earlier (2014) such as Darwin (-27.5 per cent) and Perth (-18.1 per cent).

“As dwelling prices trend lower or level out, household incomes are edging higher and mortgage rates remain around the lowest level since the 1960s,” said CoreLogic head of research Tim Lawless. “First home buyers are clearly taking advantage of the improved levels of affordability and less competition in the market.”

Rising House Affordability Australia - Investors Advisors

The good news for Brisbane was that while values were softening, the apartment sector seems to have recovered from over-supply.


The good news for homeowners was that the pace of the decline in property values was now easing off relative to the past four months, especially across Sydney and Melbourne.

The fear though was that the market downturn was “becoming geographically more widespread”, according to CoreLogic head of research Tim Lawless.

He said housing values were lower across six of the eight capitals and five of the seven ‘rest of state’ markets in the past month.

Brisbane was down -0.6 per cent in the past month, with dwelling values dropping by -1.3 per cent in the past 12 months, putting the median value at $489,832. Over the past five years though, dwelling values had actually grown by almost double digits, 9.9 per cent.

Mr Lawless said Brisbane was “previously seen as a level market”.

Rising House Affordability Australia - Investors Advisors

Weakness in Sydney and Melbourne was now spreading, mostly because of credit availability in the owner occupier market. Picture: AAP/Matthew Vasilescu.

“Values have really been edging lower in the last four months. We do see acceleration in the rate of decline in Brisbane despite Brisbane showing strong population growth, affordability, and generally improving conditions, it does look like there are some headwinds based on credit availability.”

But he said the apartment sector’s headwinds appeared to have eased, with it “starting to look healthier in Brisbane”.

“There’s been a rapid slowdown in construction, and the local unit market is looking a lot healthier,” he told The Courier-Mail.


Capital city Month Annual Median value

Sydney -0.9% -10.9% $782,473

Melbourne -0.8% -9.8% $624,425

Brisbane -0.6% -1.3% $489,832

Adelaide -0.2% 0.8% $426,990

Perth -0.4% -7.7% $442,716

Hobart 0.6% 6.0% $464,168

Darwin -0.6% -6.8% $400,316

Canberra 0.0% 3.1% $595,212

Combined capitals -0.7% -8.2% $597,860

Combined regional -0.4% -2.1% $376,728

National -0.6% -6.9% $524,149

(Source: CoreLogic Hedonic Home Value Index, March)


He expected the housing market to “continue to be affected by uncertainty related to the federal election, lending policies and more broadly, domestic economic conditions”.

“Federal elections generally cause some uncertainty, which is likely amplified more so this time around considering the potential for a change of government which will also involve significant changes to taxation policies related to investment.”

“No doubt, some prospective buyers and sellers are delaying their housing decisions until after the election, however, there is no guarantee that certainty will improve post-election, considering the impact of a wind back to negative gearing and halving of the capital gains tax concession is largely unknown.”

“It seems a reasonable assumption that removing an incentive from the market would result in some downwards pressure on activity and prices for a period of time.”

“If elected, the Opposition have flagged that changes to the capital gains tax discount and negative gearing would take effect from January 2020.”

Rising House Affordability Australia - Investors Advisors

The reduction in owner occupier lending was creating widespread impact across major cities.


Credit availability was also a major headwind, with one indicator of reduced activity coming of the number of housing valuation events “which provides a timely proxy for mortgage activity”, Mr Lawless said. Those valuation events were “around 14 per cent below activity a year ago” — a trend that was also showing in ABS housing finance data in terms of both investor and owner occupier lending through to the end of January.

Mr Lawless said it was the downturn in owner occupier lending that was of concern.

“The value of owner occupier lending is around 2.6 times the value of investor lending, so the substantial drop in owner occupier mortgage commitments perhaps explains why the housing downturn is becoming more widespread.”

Owner occupier housing finance commitments (excluding refinance) were down 17.1 per cent compared with January last year while investment credit was 24.6 per cent lower, he said.How much do I need to retire?

There is even better news for those borrowers who do decide to refinance or follow through with housing loans, with Mr Lawless expecting all the headwinds plus general weakness to see the Reserve Bank cut its cash rate target “later this year”.

“While any cuts to the cash rate may not be passed on in full, a lower cost of debt will provide some positive stimulus for the housing market. Arguably, this stimulus won’t be as effective as previous interest rate cuts due to the high serviceability buffer applied to borrowers, whereby lenders are still required to assess serviceability at a mortgage rate of at least 7 per cent despite mortgage rates which are now available around the 4 per cent mark or even lower.”

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