Sydney housing turns as CoreLogic launches revised index

The tide is turning for the Sydney market with a CoreLogic property index revealing a 1.3 per cent increase in the value of homes over the quarter - compared with the Melbourne market which posted a 2.6 per cent increase.

These are the new figures from CoreLogic’s new-generation Hedonic Home Value Index, which was launched to the media in Sydney on Monday.

“The significant review of our indices provides a more granular and timely approach to property,” said CoreLogic CEO Lisa Claes, adding that the data highlighted the importance of “Australia’s most critical and beloved asset class”. 

In particular, the $7.2 trillion residential property market is now four times the value of all the companies on the Australian Securities Exchange and three times the size of all the superannuation funds combined. Claes added that two-thirds of banks assets are dedicated to residential mortgages. 

“Residential property in Australia is the Jupiter in the solar system of asset classes. It is crucial that the data available can effectively and accurately measure it in a timely way,” she said. 

The upgraded index will include a property’s key qualities such as land area, number of bedrooms, bathrooms and care spaces, with recent local sales to accurately estimate the value of every dwelling on a national basis. While major renovations such as adding an extra bedroom will be factored into valuations, minor alterations will not.

“We wanted to remove any factors that distorted home values. This will mean less volatility in the day –day numbers,” Claes told AB+F. 

Sydney reaches peak 

The focus will therefore be on house values, not house prices. CoreLogic’s new methodology puts it in line with current global best practice benchmarking standards endorsed by the International Monetary Fund and the Bank for International Settlements.  

Other updated features include better handling of bulk settlements as well as off-the-plan sales, such as the exclusion of sales with a settlement period of more than 12 months that can imbalance market data; updated geographic boundaries in line with the official regions in the Australian Bureau of Statistics (based in census data) and a longer historical data.

The new index begins in 1980 for most areas – an improvement from the previous series which began from 1996. The revised figures highlight a number of interesting findings in the changing value of homes in Australia’s capital cities. 

While Sydney has moved through its peak rate of growth, Melbourne’s market has been more resilient to a slowdown relative to Sydney.

“Clearance rates in Melbourne are high, up above 60 per cent. There is more urgency among buyers, and the city does not have the same affordably constraints as Sydney,” CoreLogic head of research Tim Lawless said.

Growth in Adelaide remains steady and sustainable. Conditions remain strong for both Hobart and Canberra while Brisbane’s housing market is steady, albeit with no signs of accelerating. 

While Perth and Darwin are likely to approach the bottom of their cycle, Lawless is relatively optimistic about the outlook for Perth. He noted that job growth is starting to climb in Western Australia and more first home buyers are entering that market. 

What it means for banks 

According to CoreLogic, banks will be able to get access to more bespoke research under the revised sampling. 

“One of the greatest features of the new index is its ability to report on different data sets and geographies,” Lawless said.

“We will be able to track a lender’s portfolio against the broader market. A lender will be able to determine whether their portfolio is growing faster or slower compared with their peers,” he said.

He added that lenders will also have access to data on high risk post codes and can also use research features such as tracking the performance of the value in the high end part of the property market.

Lawless also does forecast a housing market crash. However, he acknowledged that past housing market downturns – such as the one in 2005 are different compared with today – with housing debt at high levels and low interest rates.

“However, against this environment, our house view is that there will not be a substantial decline in house values. Values may fall 20 per cent if unemployment rises, or if there is either a significant monetary shock or another global financial crisis.” 

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