Property Hub - Investment Insights & Inspiration - Realty Talk: Cracking the Property Puzzle

Episode Date: June 16, 2023

With so much continued uncertainty and so many contrary and often conflicting opinions on what’s happening and what’s going to happen in the wonderful world of property, this week’s show breaks with tradition to deliver a special feature data driven presentation by Eliza Owen from CoreLogic to help you crack the property puzzle and take advantage of emerging opportunities.  RealtyTalk is part of the Property Hub podcast channel, your home for property investment insights, inspiration, and stories from Australia’s top property experts, investors, leaders, and analysts. Subscribe now to get every RealtyTalk episode delivered to you each week for free, and also get full access to Get Invested, the leading podcast for Australians who want to unlock their full ‘self, health, and wealth’ potential and get inspired by the stories of investors, founders, and entrepreneurs. NEW - Join the Property Hub community on Substack! Sign up to get Australian property news, opinion and episodes in your inbox: https://propertyhubau.substack.com/ Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media. Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Hi and welcome to your Property Hub's Realty Talk show, your go-to place for property investment insights, inspiration and stories from Australia's top property experts, leaders and analysts. I'm Bushy Martin from KnowHow Property Finance, and as we approach the end of the financial year, we've decided to break with tradition to deliver you a special feature data-driven detailed presentation by Eliza Owen from CoreLogic. It's going to help you to crack the property

puzzle and take advantage of emerging opportunities, given the continued uncertainty and the dearth of contrary and often conflicting opinions that keep circulating on what's happening and what's likely to happen with property conditions moving forward. During our in-depth conversation, we cover the full spectrum of our housing market, including locational and price band trends, migration movements, sales and listing levels, along with associated trends in housing finance and the rental market, before concluding with an analysis on the locations that have experienced the highest growth rates in recent times. So if you're serious about property, you just can't afford to miss this enthralling conversation that's going to give you the edge in cracking

the property puzzle. Now, before we get underway, if you'd like to get a free copy of my award-winning book, Get Invested, make sure you sign up on the realty.com.au homepage and take a couple of seconds to subscribe to the Property Hub on whichever platform you're now enjoying the show. We've got mountains of magic to unpack, so let's get underway. successful property investment is a game of finance do you have the right team and the right game plan realty talk is brought to you by know how property more than mortgage brokers bushy martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs tax risk and stress while increasing your capacity for growth know how

has helped over 1,900 homeowners and investors secure more than $800 million in property wealth. So get set to live more, work less, and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au. There's so much uncertainty and so many contrary and often conflicting opinions on what's happening and what's going to happen in the wonderful world property around Australia, we're often left scratching our heads wondering where we're at and what to do next. On one hand is the continuing threats of interest rate rises, inflation and builders going bust, while on the other there's stories of property values rising again, historically low rental vacancy rates, massive housing under supply and a tidal wave

of skilled migrants hitting our shores. So what does it all mean and where's it all heading? Now, as we're about halfway through the year, we thought of a tune to stop and prop and reflect on where we've come from and what's likely to happen next in property. But how do we make sense of recent, past, current and trending conditions to make better informed property and finance decisions?

Well, it's always about relying on reliable and accurate data. And there's no better place to source this than CoreLogic, who are Australia's leading property data information and analytics provider with information that covers over 98 of the property market so we're very privileged to be joined by show favorite eliza owen to show us the way in all of this who's cord logic's head of residential research so welcome back to realty talk eliza thanks bushy thank you for having me eliza you prepared a great presentation that

covers the full spectrum of our housing market including locational and price band trends migration movements, sales and lifting levels, along with associated trends in housing finance, the rental market and housing construction, as well as your analysis on locations that have experienced the highest growth rates as well as the largest falls. So I'm just going to hand it over to you to walk us through it all. And then I'll just chip in with a few questions along the way. Over to you. Great. Sounds good. Thank you so much. And in terms of Australia's housing market at the moment, it has been an extraordinary cycle. In recent months, we've seen signs of a rebound in property values up about 2.3% from a recent trough in February. There's some renewed uncertainty

now with the June rate hike and cumulatively with May's increase as well, we could see a little bit of that exuberance come out of the market. But overall, the fundamental supply and demand levels are pointing to what could be a pretty resilient market and more robust conditions on the other side of that rate hiking cycle. To kick off our presentations, I usually provide this overview of the residential market compared with other facets of Australia's economy, just so we can see how important and fundamental residential real estate is. CoreLogic currently values Australian housing at about $9.4 trillion, so it's several times the size of GDP, and it's also larger than the combined value of assets like superannuation, the ASX, and commercial real estate. We know that

a lot of wealth is also held in the housing asset, so it's very important for Australians to eventually own their own home, both from a wealth perspective, where the asset currently holds over half of Australia's overall household wealth, but also from a longer-term retirement perspective. Ultimately, you want to own your home outright by the time you get to retirement, because that can really be the difference between a comfortable retirement and one where you're really challenged facing ongoing rent or mortgage payments. Over the past 12 months, we've seen about 480,000 sales in residential real estate. Now that's down from a peak of 620,000 from the 2021 calendar year where we had those record low interest rates and really strong selling conditions. Now we see that

sales volumes have trended more to a kind of decade average level. So really normalizing from those highs in 2021. Yeah, great. And it certainly very clearly demonstrates how impactful property is and the overall wealth effect that Australians enjoy so we're great graphic there thanks yeah absolutely um in terms of capital growth trends I mentioned at the top there that we've started to see a bit of recovery in what's been an extraordinary housing market cycle this chart shows the monthly change in Australian home values alongside various headwinds and tailwinds that have affected market conditions in the past decade I might just jump in on that one if I can And to get your thoughts really on what's underpinning the turnaround in property value increases in recent months, as you say.

Yeah, so we've seen an extraordinary housing market cycle through the COVID period, not just a record downturn of 9.1% in value, but that was preceded by an upswing in Australia's housing market of about 28%. And all of that came from that kind of over-insurance of the Australian economy and, by extension, property market with record low interest rates, a record fiscal stimulus package. So as those things were withdrawn and we started to see the cash rate rising and the fiscal stimulus pared back, this led to quite a steep peak to trough decline of about 9.1%. Now, more recently, we've seen three consecutive months of housing market increase. That seems to be off the back of relatively low levels of stock that are coming to market. Fewer vendors are looking to sell right now with higher interest rates and potentially a lower purchase price than they would have achieved for their property a year ago. A very strong rebound in net overseas migration, which is adding strongly to demand. And I think there is some level of positive sentiment returning to the market off a, you know, sharp peak to trough decline. And I think psychologically, people get back into that space that as we get towards the end of the rate hiking cycle and inflation peaking, that they're sort of trying to pick the bottom of the market as well.

So all of those things help to support the recovering value. I think it's a little less certain with June's cash rate hike, but certainly we'll be watching those growth rates very closely. Across different markets, we've seen very varied outcomes in overall capital growth performance. So these charts are showing the cumulative growth in home values across our different capital cities and regional markets of Australia. Across the capital cities, you can probably see that variation most clearly. Melbourne home values have risen pretty marginal 1.6% throughout the upswing and downswing through the COVID period. That's largely due to unfavorable migration trends. If we think about Melbourne having these extended lockdowns and a spike in migration from cities to regions, that overall has left the city with fairly low levels of capital growth. But at the same time, now it's looking relatively affordable to a lot of these different capital cities as well.

If you take the value gap between a typical house in Sydney and Melbourne, for example, that's gone from a premium in Sydney of about $200,000 on the median Melbourne house at the onset of the pandemic. Now, with Sydney rising about 13%, Melbourne not rising as much, that premium has extended to $380,000 thereabouts. So certainly looking relatively affordable. And then across a city like Adelaide and even to an extent with some of these smaller capitals like Brisbane, Perth, Hobart, their relative outperformance through the COVID period I think really comes back to their affordability, the fact that they've not had as strong a reaction to rising interest rates because you typically don't have to take out as much debt to buy into those cities either. And the same can be said of our regions where property values have increased about 30% across the combined regional market since the onset of the pandemic. Again, regional South Australia, which hasn't really shown a single month of decline through rate hikes, is sitting 52% higher than at the onset of the pandemic. So regional performance overall has been quite robust. it's interesting there's a bit of alignment there really between uh the cbd and the regional areas

and that adelaide and the regional sa is up and and at the other end melbourne and regional victoria seems to be the wooden spooners so we're clearly there's a bit of a state-based uh approach whether that's by coincidence or not i don't know what are your thoughts on that i think yeah in part it comes back to price point um and probably also international migration trends as well. For South Australia, even though they don't see the highest levels of overseas migration, they've seen a more positive trend in internal migration through the pandemic period. And a lot of those regional South Australian markets, like the Limestone Coast, have become increasingly popular and I think normalized through these remote work trends as well.

um so the affordability has really been in the favor of those of those states um as well as just the smaller capital cities we've also seen trends across different value segments of the market where if we break up the market into this kind of high value so the top 25 percent of values across houses and units the middle of the market and what we would call the lower quartile so the bottom 25% of values, we see different trends in those segments of the market as well. So we've tracked quarterly growth in those different value segments across houses on the left-hand side, units on the right-hand side. And basically what this data shows us historically is that the high end of the market tends to lead cyclical trends. Not only that, but it tends to be more volatile.

You can see historically during upswings where the top 25% of values denoted by this dark purple line has often seen higher highs, lower lows during downswing periods. So this is another signal to us that the market is in that recovery trend because the high end is once again leading charge. When we talk about the high end of home values across houses in the capital cities, you're looking at about 1.2 and above. In the unit segment, you're looking at about $820,000 and above. So again, leading growth, the low end of the market, sort of middle of the range there, 2.1% growth in house values and about 1.5% in the unit segment. Yeah, is the upper quartile driver about the fact that they've got easier access to funds and easy borrowings given their capacity

or are there other things associated with that that you look at a lot? Well, there's different theories as to why the high-end leads. Some argue that they're more sensitive to changes in lending conditions and economic environments just because of the, I guess, sheer price point and the fact that people generally take out more credit to buy into them.

There's other theories around the fact that they're set on uh land that is less likely to be developed as well um so there's no real um established reason i guess that we found in the literature but it is a fairly consistent trend uh so interestingly we've seen a you know we talk about a really um extended cycle for regional australia and the fact that it's generally retained more value since the onset of the pandemic If we start to look at the quarterly change in housing values across the capital cities and regional markets of Australia, this is where we start to see that the combined capital cities is actually becoming more dominant once again and leading this recovery in market trends that we've observed over the past few months. So in the three months to May, the combined capital cities market was up 2.8% in value compared to a 0.8% rise in the regional market of Australia. And those regional housing trends are showing a move away from the downswing as well.

So kind of following the combined capitals out of the downswing phase. And part of this comes back to a normalisation in migration trends between regional Australia and the capital cities. So, ABS migration data is a little bit lagged, but there is this really useful index from Commonwealth Bank and the Regional Australia Institute who have partnered to track an index of net migration to regional Australia. The higher the index goes, the more indicative it is of more people essentially ending up in regional Australia. Now, you can see through lockdown periods that that index was really elevated, but since we've moved post-lockdown periods in the end of 2021, we've seen a normalization in that trend. Still slightly higher on average than where we were pre-COVID, but in the March quarter of this year, net regional migration reduced to its lowest level since 2019 or pre-pandemic. Interesting. Interesting. So as those sort of regional and capital trends start to align and get back to normalisation with the sort of equalisation in that internal migration flow, do you see that alignment continuing or is it too ill-intentional?

I think that it's likely to keep normalising to pre-pandemic trends, but it might be a little elevated. I get the sense that March just seasonally maybe has a little less movement. But, yeah, the trend that we're seeing at the moment is slightly higher than pre-COVID net regional migration, but it's certainly eased a lot since those pandemic conditions. And a lot of that is not just that the desire for tree change and sea change has faded. It really hasn't. It's more that you've got more people going from regions to cities now, whereas for obvious reasons, they wouldn't have done that through lockdown. So you've got people living in regional Australia who have decided they're going to make that move for university or maybe to pick up a job in the city.

And that's now being reflected in capital growth trends. Makes complete sense. Look, Eliza, we might go to a short break now and then stay with us because after the break, we're going to have a look at sales and listings. Property deductions can save you thousands of dollars each year. To make sure you maximise deductions, you need to work with the most experienced quantity surveyor in the country. BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first full financial year deductions.

Call BMT on 1300 728 726 today for an obligation free quote. Welcome back. You're enjoying a great presentation on the property market update from Eliza Rowan from CoreLogic. And now we're going to dig into an update on what's happening in sales and listings. So back to you, Eliza. Thanks, Bushy. So, this part of the data that we're looking at, I think, really underpins why we've started to see a recovery in home values, a recovery that's fairly broad-based, and it comes back to these fundamentals of supply and demand in the housing market. focusing on the demand side of things first of all Australia is going through a very strong

surge in net overseas migration post lockdowns post travel restrictions related to COVID being eased it was July last year where we opened our borders completely to vaccinated and non-vaccinated arrivals and since then we've seen ABS data show that strong rebound so quarterly net overseas migration, this is the people coming into Australia minus those exiting, surged to a record high of over 100,000 in the quarter of September 2022. Now that data is a little bit lagged, but even looking at the Treasury estimates from the federal budget of where they see net overseas migration this year, you're looking at about 400,000 in net overseas migration. If you compare that to the pre-COVID decade average, it was closer to $215,000.

So that really puts into perspective just how strong the net overseas migration position is. And the forward estimates are for that $400,000 this financial year. Next financial year, you're looking at about $300,000 and then normalizing to about $250,000. Yeah, certainly pretty obvious why we're having a rental crisis with pouring that number of people into the country. For sure. So, you know, 85% of overseas arrivals to Australia are renters when they first get here. So that does initially really flow through to rental demand. But with a tight rental market, that could also be seeing decisions at the margin pivot to a purchase as well if people don't want to battle it out in the rental market. it. Another very important demand trend has been a change in housing composition. So we've seen an overall decline in average household size from 2.6 people per household pre-pandemic. And you can see from this chart that trends down to about 2.5 people. Now, if you have lower average people

per household, you need more houses to accommodate the population. And the RBA estimates that this transition in average household size added to dwelling demand by about 120,000 properties and that was before we opened borders so that really offset I think a loss in net overseas migration through lockdown periods in 2020-2021 and we've seen more people taking up single person households notably in the past few months that trend has started to reverse and I think that's because households are trying to start reshare housing again to cope with higher housing costs. But overall, that's been a major contributor to demand as well. Some very interesting demand pressures that are rising in an environment where we've got quite low supply. So it's certainly

starting to tell the story there, Eliza. 100%. And then if we look at the supply side, while demand is trending higher, supply has generally been very low, particularly through the second half of 2022 and into the start of this year. So anyone who's seen a CoreLogic presentation before is probably familiar with our listings charts. On the left-hand side is a count of the flow of new listings being added to the market, whereas on the right-hand side this would be your kind of total stock, so everything on the market, not just the new stuff that's been added over the past four weeks. So we've got a rolling four-week count. The different lines represent different periods of time. So red line is 2022. The dotted line is the previous five-year average.

So over the previous five years, you could see on average where your new listings volumes would sit. And then the purple line is representative of 2023. And throughout the course of this year, new listings have been far lower than what you would usually see this time of year. This is probably a reflection of people wanting to hold off selling because interest rates are high. You know, if you're upsizing, now might not be the time that you want to take on a bit of a mortgage if you're not paying much on your mortgage at the moment. Even though property prices have been rising, they're still down year on year. So people might be holding out for further price growth before they sell. and against relatively normalizing sales volumes this is depleting uh overall stock levels because

there are currently more sales than new listings being added to the market and that's where you get to this position on the right hand side that we've got about 77 000 properties on the market but usually it would be closer to 100 000 properties for sale so while your demand is rising, not a lot of stock on the market. That's about a 30% decrease based on the numbers you just mentioned there, which is a fairly significant impact. And then on the sales side of things, these have started to normalize. And again, it could be the fact that we've got that strong net overseas migration or people are tired of sitting on the sidelines and they want to try and secure a property, we're seeing a little bit of that in a first-home buyer rebound as well. But essentially,

capital city sales are down from their recent peak in 2021. If we look at the current three-month trend in home sales, they're down 26% from that peak in the 2021 calendar year. but you can see that they're starting to trend back above a longer term average and similarly on the right hand side where you've got 2022 even before rate hikes started you've got that very elevated volume of sales happening at the start of the year as interest rates start to rise they they fall below trend and now sales volumes are sitting around their historic averages so sales volumes have really normalized very interesting it's starting to paint a very clear picture there eliza so we'll take another very short break but stay with us because when

we return we'll be jumping into trends in housing finance successful property investment is a game of finance do you have the right team and the right game plan realty talk is brought to you by know-how property more than mortgage brokers bushy martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs tax risk and stress while increasing your capacity for growth know-how has helped over 1900 homeowners and investors secure more than 800 million dollars in property wealth so get set to live more work less and live your legacy want to know how to invest in your freedom visit knowhowproperty.com.au welcome back we're enjoying a fantastic presentation by eliza rowan from poor logic

and now we're going to dive into trends in finance thanks bushy um looking at the housing finance space, it very much reflects what we've seen in housing demand and interest rates. These charts are showing the monthly growth in housing credit across Australia. We did see a little bit of a downward trend in growth of housing credit through the month of March. And as you can see, there's been a broader decline in outstanding housing debt as interest rates have risen since May 2022. Now, this is kind of a good thing. This is what the RBA was looking to do, was really slow housing credit growth so that it wasn't consistently outpacing income growth, and that makes a more sustainable kind of housing debt position overall. Investors did show a little

bit of an uptick through March. We've since seen April data showing owner-occupier credit growth following that a little bit, but definitely, I guess, a more positive thing to see those outstanding credit levels settle a bit since the highs that we were seeing in 2022. This is a chart of monthly changes in housing credit from the ABS. So this is looking at monthly changes in new housing finance lent. And we see a similar trend where a lot of the new finance lent went through a large downswing and started to pick up towards the beginning of 2023. And if we look at the different segments of housing lending, it's been pretty broad-based, particularly for owner-occupiers who are not first-home buyers and for investors. Since a recent peak in early 2022, we've seen a

a fairly consistent downward trend in the amount of new lending as interest rates started to rise. For the investor segment, they've been kind of the hardest hit, if you will, since interest rate rises coming out of the market and down about 31% from April through to February. We did start to see first-term buyer finance falling earlier, really coinciding with the end of the HomeBuilder scheme in early 2021. So overall, a fairly broad base decline in the new lending space. In recent months, we started to see a recovery in the first

home buyer borrowing segment, which makes sense because they're usually the first to take advantage of a trough in market conditions. Yeah, of course. So tell me before we sort of move on, What impact is the sort of reduced borrowing capacity that's coming from these rising rates having across the board as you see it? Well, I think that on top of the macro prudential measure that was introduced in October of 2021 to have that three percentage point borrowing assessment, it's had a large impact on borrowing capacity. so you know we're hearing more and more about people who aren't so much touched by these changes in borrowing conditions you know people who are buying homes outright from downsizing and and all that kind of thing but it does it does have an impact people don't tend to borrow to their full borrowing capacity so the reduction in home prices hasn't been exactly correlated to the

reduction in borrowing capacity that that we've seen in the lending space more broadly but yeah it's pretty obvious when you see the correlation between the lending conditions and what's going out and property prices yeah good to know excellent um now one of the more positive sides of housing lending conditions has been in the refinancing space both because people facing higher interest rates are keen to get a more competitive rate. But also in 2023 in particular, we're seeing the expiry of about 880,000 fixed term loan facilities. So when you're going from these fixed rates of sub 2% to a variable environment of 5% to 6%, obviously that's going to trigger more refinancing decisions once those expire. So looking at the monthly volume of

externally refinanced mortgage debt. This hit just under $20 billion in February, a fresh record high, and it's something that we expect to continue rising over the course of this year. So it certainly kept a lot of brokers quite busy. Yeah, it has. I guess just flying on from our brief chat around the borrowing capacity reductions, is that likely to create larger numbers of mortgage prisoners who might want to refinance but won't be able to even if the desire's there. What's your read on that? Yeah, it could do. I mean, the good news, I guess, is that property values have started recovering over the past few months. But I think that is something that, you know, recent homebuyers in particular might just have

to live with, that they won't have that ability to refinance. Clearly, there has been a strong uptick in the refi environment. But unfortunately, there will be people who aren't able to do so until property prices trend higher, or potentially we see a relaxation in the borrowing assessment buffer. Now, another feature of the lending environment as interest rates have risen is that lending has generally become more conservative. So APRA produces these quarterly indicators on the portion of new loans that are on interest-only terms or of debt-to-income ratios or loan-to-income ratios of six or more, or loans that are originated with an LVR of greater than 90% or 90%. And these have really all come down through the December quarter of 2022. They

recently released their March data as well, which showed further declines in these, I guess, indicators of risk in the lending space. So that is something that, you know, will be pleasing for APRA and suggests a more kind of stable housing lending environment as well. And it's one of the, I guess, unintended benefits of a rising interest rate environment. It certainly flies in the face of a lot of the headlines who've been scaremongering around the number of people who are teetering on mortgage stress and getting themselves into trouble. Those figures you're just sharing there tell a very different story, which is very compelling. Yeah, it reduces the risk over time. I mean, I can see where there is some fear because if you look back to the December quarter of 2021, that's where we had those really low interest rates.

And you did have a peak of people taking out those large levels of debt relative to their income. But, you know, that kind of contains the risk, I guess, to that particular point in time. And as we move through the rate hiking cycle, we'll find less and less borrowers in that position. Now, importantly, the actual portion of loans that are in negative equity at the moment is considered to be relatively small. So this analysis from the RBA, which was a snapshot of housing loan balances in January, showed that the share of loans in negative equity or having an LVR of greater than 100% was very negligible and actually much lower than prior to the pandemic. And again, that's a snapshot taken in January. So as we've seen March, April, May, we've started to see home values rising once again. So presumably the portion of loans in negative equity would become even slimmer still.

Excellent. Look, another really good run through some very important data there, Eliza. So we're going to take another short break. And when we come back, we're going to dive into rental market trends. To make sure you get the most from your investment property, you need to claim depreciation. BMT tax depreciation ensures that depreciation claims are maximised and compliance is maintained through their physical site inspections. During a site inspection, a specialist BMT site inspector measures the building and identifies every depreciable asset possible. Call BMT on 1300 728 726 for a free estimate of the likely deductions.

welcome back to Realty Talk where Eliza Owen is giving us a great rundown on what's happening in the property market generally and now we're going to dive into the very interesting and topical area of rental market trends thank you so rents have indeed been an incredibly topical part of the housing market we discussed the impact of high net overseas migration and the recent impact that that's had on rental demand. But even prior to the return of overseas migration, we saw a tightening in rents off the back of reduced household size, share houses breaking up, and a lot more pressure on regional rents in the earlier stages of the pandemic as people sought their own space. They had higher levels of income from fiscal stimulus, so they were able to lock in those rental leases.

And that's all contributed to the tight rental market conditions that we have at the moment. So annual growth in rents remains close to record highs. The housing market or rental market growth that we saw throughout much of the 2010s was annual average growth rate of just 2.1%. And that's pretty much in line with what we saw in inflation throughout the decade as well. Through the pandemic period, that growth has surged. It's a combination of the demand factors I've spoken to, but also in the way of supply, I think the big kind of surge in capital growth that we saw from late 2020 to early 2022 prompted a bit of selling activity from the investor side of things as well, where a lot of investors are seeking strong capital gains. So the result is this mismatch of supply and demand, very strong growth in rents. Only recently have we started to see annual growth rates ease a little from highs of 10.2% to just under 10% in the 12 months to May. You can see that the highest rates of rental value growth are concentrated in the capital city markets at the moment.

And that comes back to the fact that more recently, the demand drivers have been net overseas migration, and migrants will largely go to Sydney, Melbourne, Brisbane. Adelaide has a fair chunk of overseas migration in its population growth composition as well. So it's interesting that we've started to see growth in regional rents really easing in momentum while the capital city growth trend continues to lift. And again, that just reflects the changing drivers of demand that we've seen in the rental market more recently. Growth in regional rents is still positive and it's still high at about 5.5%, but it's come down from around 12% annual growth earlier in the pandemic. On the capital city side of things, we'd seen a significant drop-off in value of about 9.7% through its downswing while rents were rising. so this has really lifted gross rent yields but overall the amount that rents have lifted in dollar terms is nowhere near what we've seen in mortgage repayments so this has actually slowed

the flow of new rental supply because even though yields have technically gone up rising interest rates mean that investor mortgage repayments have increased much further than rent values. And that's kept investors out of the market for a while. It's likely that when we get on the other side of the rate hiking cycle, we'll see a strong return in that investment activity. And hopefully that will help to normalise some of these rental market trends as well. Yeah, it's interesting the relativity in rental increases versus the mortgage repayments that investors are having to put the bill on makes a little bit of a mockery of some of the suggestions that have been made in recent times about capping rents and whatnot.

So it's an interesting and appropriate perspective to really highlight the fact that investors are bleeding probably more in terms of the cost increases over the relative rental increases that renters are having to suffer. Yeah, and the individual investor is the largest supplier of rental housing. So, you know, where that has been deterred through a higher interest rate environment, it's obviously had a massive impact. Now, I guess just to kind of wrap everything up and think about where we're going for housing market trends, it's important to acknowledge that there are challenges ahead, especially off the back of the June rate hiking decision.

I think that we might see some steam come out of the recent housing market recovery. Even if we're not at the end of the rate hiking, or sorry, even if we were at the end of the rate hiking cycle, it's important to remember that there is a lag between the cash rate going up and the banks filtering those through and passing on the higher cost to mortgage holders. Yeah, it's a very interesting environment we're coming into. And when we've got that huge number of fixed rate loans that are still coming off in coming months, So it will be very interesting to see how that comes out in the wash, Eliza. We can expect weaker economic conditions and more banks are forecasting the possibility of a recession, technical recession this year as well.

So we have all those risks. And I think in the short term, it's reasonable to expect a little uncertainty, perhaps even some downward pressure on housing values still. But I guess the longer term view or looking to the other side of the rate hiking cycle, there's definitely some tailwinds for further growth in Australia's housing market. The fact that the RBA is getting us to potentially the peak in the rate hiking cycle, inflation looks to have peaked, and we've got that mismatch in supply and demand. So on balance, we're expecting that once we get to the other side of the rate hiking cycle, we'll see an improvement in sentiment. There's a lot of people who have been holding off buying and selling. So that activity is going to pick up in the market once we see sentiment improve. We could see a subtle growth in housing values this year, but it's very unlikely to be what we saw in that kind of record low rate environment at the onset of the pandemic.

So, you know, it's going to take a while, but we do see kind of more positive outlook for the housing market on the other side of rate hikes. And it's also important to remember that while we've broadly got the market in a bit of uncertainty, there are always going to be areas that outperform, underperform. So in this pack, we've also put together a summary of some of the areas that have seen the strongest 12-month growth rate over the 12 months to May. And a lot of these areas are concentrated in South Australia, Western Australia, and in particular, rural and regional markets. So this really does reflect affordability. You know, a lot of these top markets don't have median values much over $500,000. If we look to the areas that have seen the weaker performance over the past 12 months, the market that suffered the most in terms of capital losses is the Richmond-Weed region. This comes off the back of both the regional housing market downturn, but also a market that's been compounded by extreme weather and flooding events.

the central coast southern highlands and shoal haven are all areas that have had large downturns off the back of rate hikes because essentially they became much more expensive through covid and you can see that since the onset of covid these markets have still retained a fair amount of value even if they have declined over the past 12 months so in the mix we've got some of our more expensive Sydney markets as well which again have been more sensitive to changes in interest rates so that's pretty much all from me thanks for having me Bushy and thank you so much for sharing the or giving us the opportunity to share these insights. Eliza it's an absolutely brilliant presentation I want to thank you for that awesome overview of the full spectrum of

factors that are driving residential property conditions across the country and for your very generous time on the show with us today. So there you have it, guys. You now have a complete view of all of the factors driving current property conditions so that you can now enjoy clarity and comfort emerging out of the clouds of confusion in order to make better informed decisions and related finance decisions on what you need to be doing now. And if you're looking for further data to quantify and validate your research, check out the resources and reports available at corelogic.com.au and that's another wrap for this week's very informative show another big thanks to our very special guest and show favorite eliza owen from corelogic and before we go make sure

you don't miss another episode of your trusted voice for all things property by subscribing to the property hub now on your favorite podcast player or wherever you're listening to the show where you'll also get to enjoy the get invested podcast delivered to you each and every week thanks again to realty.com.au bmt tax depreciation appear on marketing dm media and southern cross austereo their ongoing support i'm bushy martin from know how property finance and along with kevin turner and the entire property hub realty talk team please remember if not now when and if not you then who that's more food for thought and we look forward to seeing you again next week miss something in this week's show or want to catch up on past shows

do it anytime at realty.com.au where we connect buyers sellers and agents differently