Units in demand: Weekly market wrap with Sam DodimeadBack
Are increasing unit values close to outperforming houses?
Prospective property buyers, especially those who have spent more than six months in the market, would be noticing fewer opportunities to choose from. Increasing buyer demand and less choice is driving appreciating property values in both new and established markets.
SQM Research found that while Canberra recorded an increase in new listings during February, year-on-year (YoY) there was an overall reduction of 19% in the number of properties for sale. Managing Director of SQM Research, Louis Christopher, said “the month of February traditionally records a rise in properties listed for sale as the new year is well underway, this is evident in Sydney, Melbourne and Canberra whereby new listings skyrocketed by over 60% compared to January. However, we are down for the year in all cities as absorption rates have picked up. There are many more buyers now compared to last year and so surplus stock is being sold and taken off the market”.
Australian Bureau of Statistics new property market data showed a 26.8% drop YoY in the number of new dwellings approved. SQM Research Weekly Asking Prices Index, which tracks advertised prices, showed a 2.3% month-on-month increase and 6.8% YoY increase in the asking prices of units. This research is an early indicator of vendor confidence.
CoreLogic’s Home Value Index supports vendors asking higher prices, finding unit values are increasing at a similar rate to houses, achieving 1.1% and 1.2% growth respectively during the last quarter. Those currently in the market for a new unit may not have long to enjoy current conditions before investors exiting the bloodbath of the stock market start to pour into property. The Canberra market is especially attractive for those seeking a lack of volatility and strong gross yields (5.8%).
Why own residential property in Canberra?
Canberra’s local economy offers significant strength during times of adverse market forces. The unemployment rate is the lowest nationally. The Real Estate Institute of Australia found Canberra households devote the second lowest proportion of income nationally to meeting loan and rent commitments, 22.3% and 18.8% respectively. This means housing is exceptionally affordable in comparison to peers nationally.
Households have the highest national median incomes, creating significantly greater borrowing capacity when interest rates reduce. Canberrans have been ready, willing and able to take advantage of favourable borrowing conditions. During the December quarter 2019, the average Canberra loan size increased by $33,611 and recorded the highest national increase in the number of new dwelling loans at 17.6%.
Sales data from July 2019 shows property prices have increased as borrowing capacity has increased. The Reserve Bank of Australia interest rate cut of 0.25% last week with full pass-through from major lenders and likely further cut in April should provide plenty of additional firepower to keep driving price growth.
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