Ten years of value growth; how Australia's property market has transformed

Ten years of value growth; how Australia's property market has transformed

There has been a lot of talk about Australia’s “hot property market”, however there has actually been little value growth over the past decade outside of Sydney and Melbourne, with negative growth in some regions, according to research by CoreLogic. 

There have been several influential factors affecting value growth around Australia over the past decade, including:

  • The Global Financial Crisis (GFC)
  • Periods of rising and falling mortgage rates
  • Heightened levels of investment
  • Growing demand for housing from foreign investors

Change in dwelling values, 10 years to January 2018

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Source: CoreLogic

National dwelling value growth increased by 41.8 per cent over the 10 years leading to January 2018. This has mainly been driven by Sydney and Melbourne, which saw significant dwelling value growth over the decade.

Sydney dwelling values grew 79.3 per cent, followed by Melbourne dwelling values increasing by 72.4 per cent. Regional Victoria also saw strong growth levels (42.7 per cent), making these three regions the only places in Australia to see value growth in excess of the National figure.

Regional WA saw the largest decrease in dwelling value, falling by -29.5 per cent. This was followed by Perth (-6.9 per cent) and Regional QLD (-5.1 per cent). These areas were also hit hard during the GFC, and have struggled to climb out of negative numbers.

Decline in dwelling values during GFC (early 2008 to early 2009)

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Source: CoreLogic

CoreLogic Head Researcher, Cameron Kusher, has described the influence of the 2008 GFC as causing “dwelling values to begin to slide” but the housing market improved shortly after.

“Although the periods of decline varied across regions, generally values started to fall early in 2008 with value growth returning in early 2009.  The declines were fairly short and sharp.

“The declining housing market was reversed due to two main factors: a swift reduction in mortgage rates and the introduction of government stimulus including additional first home buyer incentives which helped stimulate growth in demand and subsequently values,” said Kusher.

Western Australia dwelling value growth suffered most significantly in this time, with Regional WA falling by -12.2 per cent, and Perth falling by -11 per cent.

Decline in dwelling values between 2010-2012

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Source: CoreLogic

CoreLogic data found that between June 2010 and February 2012, national dwelling values fell by -6.5 per cent.

During this period, QLD overtook WA in declining dwelling values across Australia. Regional QLD fell by -11.1 per cent and Brisbane fell by -10.6 per cent.

“Following the stimulus-led re-inflation of dwelling values post-GFC, as the stimulus was removed from the market values once again started to fall,” said Mr Kusher.

“First home buyer incentives were removed and the Reserve Bank started to lift interest rates from their generational lows.

“Between 2010 and 2012, although timing does vary somewhat across the regions, the national housing market once again experienced value declines,” said Mr Kusher.

Change in dwelling values from their historic market peak to January 2018

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Source: CoreLogic

CoreLogic has also charted the differences between dwelling values as of January 2018, and that areas historic peak. For most of Australia, current dwelling values are lower than their highest peak throughout the last decade.

Brisbane and Hobart are the only capital cities in which values were not lower than their previous peak over the ten year period. This was also seen in Regional NSW, Regional VIC and Regional Tas.

The most significant change over the ten year period was seen in Regional WA. Dwelling values in Regional WA for January 2018 are 29.5 per cent lower than when they were at last at peak ten years ago (January 2008).

In terms of capital cities, Darwin saw the most significant change in dwelling values as of January 2018 compared to its peak. Dwelling values in Darwin for January 2018 are 21.7 per cent lower than when they were at last at peak in May 2014.

According to CoreLogic Head Researcher, Cameron Kusher, this data highlights that “despite most regions of the country having seen dwelling values increase over the past decade, within that decade there have been periods in which values have fallen.” 

“The data presented also highlights how during the value growth periods, growth has very much been slanted towards the Sydney and Melbourne markets.

“With dwelling values now falling in a number of regions, it will be interesting to see how rapidly values, fall, what may or may not be done to slow the falls and how the market declines will compare to other periods of decline over the past decade,” said Mr Kusher.

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Learn more about home loans

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

How much can I borrow with a guaranteed home loan?

Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

How can I negotiate a better home loan rate?

Negotiating with your bank can seem like a daunting task but if you have been a loyal customer with plenty of equity built up then you hold more power than you think. It’s highly likely your current lender won’t want to let your business go without a fight so if you do your research and find out what other banks are offering new customers you might be able to negotiate a reduction in interest rate, or a reduction in fees with your existing lender.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

  • Costs are calculated on the current variable rate however they could change in the future.
  • Loans are assumed to be principal and interest
  • Fixed-rate loans with terms greater than five years are still assessed on a five-year basis, so 10-year fixed loans are assessed as being only five years’ long.
  • Break costs are not included.

Mortgage Calculator, Repayment Type

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What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.