Core logic quarterly_economic_review_may_2016

Quarterly Review
The Australian Residential Property Market and Economy
Released May 2016

Contents
Housing Market Overview 3
Sydney Market Overview 9
Melbourne Market Overview 10
Brisbane Market Overview 11
Adelaide Market Overview 12
Perth Market Overview 13
Hobart Market Overview 14
Darwin Market Overview 15
Canberra Market Overview 16
Economic Overview 18
Where to From Here 26
About CoreLogic 29
Disclaimers 30

Quarterly Review | May 2016
Residential property in Australia is the nation’s single largest and most valuable
asset class by a substantial margin with a total estimated value of $6.5 trillion
as at April 2016. The value of residential property is significantly larger than the
value of listed equities ($1.5 trillion) and Australian superannuation ($2.3
trillion). Over the 12 months to December 2015, Australian gross domestic
product (GDP) was recorded at almost $1.64 trillion indicating that the value of
residential property is four times larger than the annual output of the Australian
economy.
Although the total value of the residential housing market sits at an estimated
$6.5 trillion, private sector credit data from the Reserve Bank (RBA) indicates
that the total value of outstanding mortgage debt to Australia Authorised
Deposit-taking Institutions (ADIs) was approximately $1.5 trillion as at March
2016. This indicates that the level of mortgage debt remains comparatively low
relative to the overall value of the national housing portfolio, at around 23%.
The same data set from the RBA shows that Australian ADI’s have a
significantly greater level of lending to mortgages as opposed to personal and
business lending. According to the March 2016 data, there was $1.5 trillion
outstanding to housing, $847 billion to business and $145 billion to ‘other
personal’. Based on these figures, 61.0% of credit is for mortgage purposes
compared to 33.3% to businesses. Mortgage lending has consistently been a
larger proportion of lending by Australian ADIs since April 2001. Banks have
continued to favour mortgage lending over business lending with good reason.
Mortgages have generally performed well with low arrears, the return on equity
is strong, earnings from mortgages are consistent, higher risk loans are
generally insured via lender’s mortgage insurance (LMI), home values have
generally trended higher and Australian’s tend to prioritise repayments of their
mortgage. The high level of mortgage lending has been a contributing factor to
the escalation of property values and the subsequent record-high level of
housing debt.
Over the past 47 months, combined capital city home values have been rising
following a fall of 7.4% over the previous down phase which ran from October
2010 through to May 2012. As always the level of value growth has generally
been uneven however, the two largest capital cities, Sydney and Melbourne,
have consistently recorded the strongest capital growth conditions of all capital
cities over the past two growth cycles. Although, the rate of growth in each of
these cities is now slowing. The rise in home values across the combined
capital cities has been accompanied by an increase in the number of property
transactions however, the number of home sales is now also starting to trend
lower, as accompanied by a rise in the level of new dwelling approvals.
The Australian residential housing market is highly concentrated and largely
Housing Market Overview
$6.5 trillion
Value of residential property
$2.3 trillion
Value of Australian
superannuation
$1.5 trillion
Value of listed equities
$0.7 trillion
Value of commercial
real estate
Private sector credit
data from Reserve Bank
(RBA) indicates that the
total value of
outstanding mortgage
debt to Australian
Authorised Deposit-
taking Institutions
(ADIs) is $1.5 trillion as
at March 2016.
3
dominated by a handful of capital cities. The four largest capital cities: Sydney, Melbourne, Brisbane and Perth generally
have the largest labour markets and employment opportunities and between them they account for more than 58% of the
national population with almost 40% of Australians living in either Sydney or Melbourne. As a result, competition for
housing in these cities is often strong, particularly those homes that are well located, close to public transport, in inner
city areas or close to desirable attributes such as water. Most of these cities have had an insufficient new supply of
housing over the past decade which has also created upwards pressure on home values. At the same time these four
cities also have historically attracted a higher number of overseas migrants than the smaller cities which is another
contributor to growing housing demand, although migration rates across Perth and Brisbane have slowed over recent
years.
Throughout the past 12 months there has been some substantial changes to the Australian lending environment. After
APRA undertook some investigations in 2014, they found that in recent years home lending standards were ‘somewhat
weaker than had originally been thought (though still better than in the years leading up to the global financial crisis). In
some cases, practices have not met prudential expectations, potentially placing lenders at risk of breaching their
responsible lending obligations under consumer protection laws. In particular, poor documentation and verification by
lenders in many instances suggests that some borrowers may have been given interest-only loans that were not suitable
for them. Serviceability assessments also seem to have been especially problematic: the common (and prudent) practice
of applying a buffer to the interest rate used when calculating the allowable new loan size had in some cases been

Annual and quarterly change in combined capital city home values
undermined by overly aggressive assumptions in other parts
of the serviceability calculations. As a result, some borrowers
have had less of a safety margin against unexpected falls in
income, increases in expenses or increases in interest rates
than it had appeared.’
In response to these investigations changes have been
made to the lending policies of many mortgage lenders.
These changes include: an increase in mortgage interest
rates for investors, higher interest rate serviceability
calculations, lower loan to value ratios for certain types of
lending along with other changes. We’ve also seen the
introduction of a 10% speed limit on annual investor credit
growth for lenders which has slowed investment mortgage
demand. More recently many banks have tightened lending
policies for offshore borrowers which in most instances
includes excluding income earned offshore and lowering loan
to value ratios for these lenders.
While the impact of the recent changes to offshore borrowers
is unclear so far, the earlier changes have resulted in a
decline in lending to the investor segment of the market as
well as some loans being reclassified from investment
purposes to owner occupiers. The value of investor housing
finance commitments is -15.4% lower than its peak in April
2015 and annual investor housing credit growth has slowed
from a peak of 11.0% in May and June of last year to 7.0% in
March 2016.
Official interest rates were lowered to 1.75% in May and
there is an expectation that the cash rate could move even
lower during 2016. Given this, we anticipate that home
values are likely to continue to increase however, we
anticipate that the rate of appreciation will continue to slow.
Despite virtual record-low interest rates, affordability is
stretched (particularly in Sydney and, to a lesser extent,
Melbourne) and a tighter lending and regulatory environment
should continue to take some of the heat out of the market. It
is possible that as growth slows in Sydney and Melbourne,
value growth may pick-up in other regions and we are seeing
evidence of this occurring in markets like Brisbane, Hobart
and Canberra along with coastal lifestyle housing markets.
Improving levels of consumer and business sentiment along
with an improving housing market are also likely to contribute
to further increases in home values albeit at a more
moderate growth rate.
4
Annual home value growth has been slowed substantially since peaking in July 2015
 Combined capital city home values have recorded value growth of 7.3% over the 12 months to April 2016.
 The annual growth in home values has slowed since it peaked in July 2015 at 11.1%.
 Over the past year, house values have increased by 7.2% compared to a slightly higher 7.9% increase in unit
values.
 Although annual growth in house values is lower than unit value growth it is noticeable that in Melbourne,
Brisbane and Canberra growth for houses is much stronger than for units.
 There continues to be a high level of development appetite for medium to high density housing. Although
activity remains high, approvals have peaked which is likely to flow through to a peak in the construction phase
during 2017.
-10%
0%
10%
20%
30%
Apr-98 Apr-00 Apr-02 Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16
Quarterly change
Annual change
7.9%
7.2%
Annual change in capital city home values - to April 2016
Cumulative value growth, 2001-04 growth phase vs. current
-4%
1%
6%
11%
16%
Sydney Melbourne Brisbane Adelaide Perth Hobart Darwin Canberra Combined
Capitals
90
110
130
150
170
190
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47
Months
2001-04 2012-16

5
Annual total returns from capital city homes - to April 2016
Change in home values compared to previous market peak - to
April 2016
Cumulative change in capital city home values over current
growth phase - to April 2016
0%
5%
10%
15%
Darwin Perth Hobart Adelaide Canberra Brisbane Sydney Melbourne Combined
Capitals
0%
10%
20%
30%
40%
50%
60%
Sydney Melbourne Brisbane Adelaide Perth Hobart Darwin Canberra Australian
capitals
-10%
0%
10%
20%
30%
40%
50%
Sydney Melbourne Brisbane Adelaide Perth Hobart Darwin Canberra Australian
capitals
Value increases during their current growth phase highlight un-even nature of value growth
 At the combined capital city level, home values reached their most recent low point in May 2012 and since that
time home values have increased by a total of 34.5%.
 Although headline figures may indicate a robust rate of growth in home values, on a city-by-city basis the
figures show significant variation.
 Sydney (52.7%) and Melbourne (37.1%) are the only cities where values have risen by more than 20% over the
current growth cycle.
 Across the remaining capital cities, cumulative growth has been recorded at: 18.4% in Brisbane, 14.1% in
Adelaide, 12.8% in Perth, 11.8% in Hobart, 13.3% in Darwin and 11.7% in Canberra.
Since the financial crisis growth has been centred on Sydney and Melbourne
 Throughout the 2008 calendar year home values peaked in March and fell by -6.1% to their low point in
December 2008 which was the low point for home values throughout the financial crisis. Since that time to April
2016, combined capital city home values have increased by 51.7%.
 Although the combined capital city index increase in values has been strong, the growth has been driven by the
nation’s two largest capitals where values have risen by 80.2% in Sydney and by 67.8% in Melbourne.
 All other capital cities have seen value growth of less than 30% since the end of 2008.
 Cumulative growth across the remaining capitals has been recorded at: 14.7% in Brisbane, 16.2% in Adelaide,
12.8% in Perth, 2.3% in Hobart, 21.9% in Darwin and 25.3% in Canberra.
Melbourne is the only city in which home values have
increased by more than 10% over the past year
 Only three capital cities, Sydney, Melbourne and
Brisbane have recorded value growth of more than 5%
over the past year.
 Home values in Sydney have increased by 8.9% over the
past year, Melbourne values are 10.1% higher and
Brisbane values are up 6.2%.
 Home values have fallen in Perth and Darwin over the
past year, down -2.1% and -3.7% respectively.
 Across the remaining cities, annual value growth has
been recorded at: 3.6% in Adelaide, 1.1% in Hobart and
4.5% in Canberra.
The total return from residential housing over the past
year has been far better than returns across most other
asset classes
 The CoreLogic Accumulation Index tracks the total
returns from residential property across each capital city,
factoring in capital gains plus the gross rental yield, prior
to factoring in holding costs such as interest payments,
management fees and maintenance costs.
 The growth in this index over the year provides insight
into why the level of activity by investors in the housing
market has been so strong over recent years. Across the
combined capital cities, total returns have been recorded
at 11.2% over the 12 months to April 2016.
 Sydney (12.7%), Melbourne (13.6%) and Brisbane
(11.0%) have each recorded total returns in excess of
10%.
 Across the remaining cities total returns have been
recorded at: 8.0% in Adelaide, 1.9% in Perth, 6.5% in Hobart, 1.7% in Darwin and 9.0% in Canberra.
 From an investment perspective, few other asset classes are offering these levels of returns, a factor which has
likely contributed to the recent high level of investment activity, particularly within markets such as Sydney and
Melbourne where total returns have been the highest. Many investors continue to view investment in housing
as a less volatile and a relatively ‘safe’ asset class for investments, despite the high entry and exit costs, which
has encouraged heightened investment activity over recent years.

5.3%
3.4%
0.8%
Home values in Hobart remain below their previous
cyclical peak while values have fallen in Darwin and
Perth
 At the end of April 2016, combined capital city home
values were 23.6% higher than they were at the time of
their previous October 2010 peak.
 Although combined capital city home values are higher
than their peak, Hobart home values are still -5.6% lower
than their previous peak.
 Recent declines in home values in Perth and Darwin
have seen home values move -4.2% and -9.0%
respectively below their previous peak.
When adjusted for inflation values are below their recent
peak in every capital city except Sydney and Melbourne
 Focusing on the nominal change in capital city home
values only tells part of the story.
 Inflation data is only released each quarter in Australia so
the latest information available is to March 2016.
 When you factor in the impact of inflation, home values at
this time were still lower than their previous peaks across
all capital cities except for Sydney and Melbourne.
 Across the combined capital cities, inflation adjusted
home values are currently 9.3% higher than their
previous cyclical peak in September 2010.
 Home values in Brisbane (-10.9%), Adelaide (-7.4%),
Perth (-14.1%), Hobart (-16.5%), Darwin (-17.2%) and
Canberra (-6.7%) are still lower, in real terms, than they
were at their previous peak.
6
 Inflation adjusted home values in Sydney are 23.7% higher than their previous peak while in Melbourne they are
9.0% higher.
The most expensive suburbs have recorded the lowest rate of value growth over the past year
 Over the 12 months to April 2016, the most affordable 25% of capital city suburbs recorded the highest rate of
value growth while the most expensive 25% recorded the slowest rate of value growth.
 Each of the three broad market segments analysed have recorded growing values over the 12 months to April
2016. The most affordable suburbs recorded an annual value increase of 9.8%. The middle 50% of suburbs
recorded an 8.0% increase, while the most expensive 25% recorded a 6.2% increase.
 Over the past three months the trends are unchanged with the most affordable suburbs recording a value rise of
5.3% compared to a 3.4% increase across the middle market and a 0.8% increase across the most expensive
suburbs.
Change in home values from previous peak, inflation adjusted vs.
non inflation adjusted - to March 2016
Difference between median house and unit prices - three months to
April 2016
Annual change in home values across market segments - to
April 2016
-10%
-5%
0%
5%
10%
15%
20%
25%
Apr-02 Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16
Low 25% Middle 50% Top 25%
$0
$50,000
$100,000
$150,000
$200,000
$250,000
capitals
-5%
0%
5%
10%
15%
capitals
Real Nominal
Sydney unit prices remain more expensive than house prices in all other
capital cities
 As at April 2016, the median selling price of a house across the combined
capital cities was $602,500 and the median unit price was $510,100.
 This is a difference in selling prices of $92,400 or 18%.
 The median unit price in Sydney ($680,000) is higher than the median house
price in all other capital cities
 The gap between median house and median unit prices is at least $100,000 in
all capital cities except for Hobart and Darwin.

Transaction activity continues to trend lower
 Based on CoreLogic’s estimate of dwelling transactions,
the annual number of home sales is lower than levels
recorded one year ago.
 Over the 12 months to April 2016 there were an
estimated 339,026 house and 132,081 unit sales across
the country. Annual house sales are -3.7% lower than
they were a year earlier. The number of unit sales has
decreased by -9.7% over the year.
 Although unit sales are much lower than a year ago, it is
important to note those figures don’t include off-the-plan
sales which aren’t counted until settlement. Given this,
we would expect unit sales to revise higher.
 Focusing specifically on the capital city markets, there
were an estimated 208,354 house sales and 96,195 unit
sales over the 12 months to April 2016.
 Affordability constraints, which are becoming particularly
apparent in the detached housing market, are pushing
more buyers towards the unit market due to more
affordable price points and due to the fact that units are
typically located more strategically; closer to the city
centre and along transport spines.
7
 Furthermore, India and China are now the largest sources of migrants to
Australia, many of whom are more comfortable with high density housing.
 Dwelling approvals data (which will be covered later in the report)
indicates that many developers believe that emerging trends will see
more buyers choosing multi-unit dwellings as opposed to detached
houses.
 Annual capital city house sales are -5.7% lower than they were a year
earlier. The number of settled unit sales has fallen by -12.2% over the
year.
 Sales volumes remain much lower than the previous transactional peaks
recorded in 2007 and between 2001 and 2003.
There has been an ongoing decline in the number of homes selling at
more affordable price points
 Based on reported sales activity throughout the 12 months to April 2016,
the majority of homes have transacted at prices greater than $400,000.
Across the nation, 66.8% of houses and 59.5% of units sold over the year
for more than $400,000.
 Focusing specifically on the combined capital city markets it becomes
obvious that housing in these centres is significantly more expensive.
Just 19.5% of all houses and 30.7% of all units sold across the capital
cities over the year had a selling price of less than $400,000.
 Over recent years there has been a sharp reduction in the number of
homes selling at more affordable price points as home values have
trended higher.
 The reduction in the availability of affordable homes within Australian
capital cities is a significant policy challenge which involves a range of
policy response initiatives including better infrastructure linkages between
emerging population centres and major working nodes, a more efficient
and strategic release of land supply and more focus on medium to high
density housing options.
 We have been seeing a higher proportion of units approved for
construction in the capital cities which is likely to be a response to the
diminishing supply of more affordable houses available for sale.
 Although there are more units being built it is important to note that a
majority of these new units sell for in excess of $400,000.
Monthly number of house and unit sales nationally
Annual number of sales by price point - to April 2016
0
10000
20000
30000
40000
50000
Apr-96 Apr-01 Apr-06 Apr-11 Apr-16
Houses (6 mth avg) Units (6 mth avg)
0% 5% 10% 15% 20% 25% 30% 35% 40%
Less than 200K
200K to 400K
400K to 600K
600K to 800K
800K to 1m
1m to 2m
Greater than 2m
Units Houses
40.5%
Across the nation:
33.2%
Sold over the year for
less than $400,000
339,026
Sales over the 12
months to Apr 16:
132,081

0%
2%
4%
6%
8%
10%
$0
$100
$200
$300
$400
$500
$600
Apr-98 Apr-01 Apr-04 Apr-07 Apr-10 Apr-13 Apr-16
Weekly rent (LHS)
Gross rental yield (RHS)
Vendors are starting to lose some leverage in
negotiating the contract price as discounting levels
trend slightly higher
 Vendor discounting figures are measured across those
residential properties that sold at a price lower than their
originally advertised price. The figure is the percentage
difference between the initial list price and the ultimate
contract price.
 As at March 2016, the typical house across the combined
capital cities had sold for 5.6% less than the initial list
price and units for 5.3% less.
 Discounting levels have softened over the year for
houses and units, having been recorded at 5.8% for
houses and 5.5% for units in March 2015.
 The slightly lower discounting levels reflect that vendors
are setting more appropriate initial listing prices on their
properties and subsequently having to offer less
discounts from that price in order to sell.
Average selling times have increased a little over the
past year
 Time on market figures are calculated by measuring the
difference between the date at which a residential
property is first advertised for sale and the date at which
the property ultimately sells (based on contract date and
excluding auction sales). The figure represents the
average number of days it takes to sell a home across
the region.
 In March 2016, houses and units across the combined
capital cities were taking an average of 43 days and 41
days to sell respectively.
 At the same time a year ago, houses took an average of
38 days to sell and units took 39 days.
 The average time on market is still quite low and only
slightly higher than a year ago however, in Sydney and
Melbourne time on market figures have risen from their
recent lows.
8
Rental rates have fallen over the year signalling the weakest market
conditions on record
 Over the 12 months to April 2016, rental rates have fallen by -0.2% marking
the weakest conditions on record (CoreLogic rental data extends back to
1996).
 Combined capital city house rental rates have fallen by -0.5% over the year to
$486/week and unit rents have increased by 1.2% to $467/week. At the same
time in 2015, house rents had increased by 1.6% over the year and unit rents
were 1.9% higher.
 Gross rental yields for houses have fallen from 3.6% in April 2015 to 3.3% in
April 2016.
 Similarly, rental yields for units have fallen to 4.2% in April 2016 from 4.5% at
the same time a year ago.
 Rental yields are now at record low levels for both houses and units.
 Rental yields on investment properties are generally low which suggests many
investors are utilising negative gearing to reduce their tax liability and
speculating on capital growth whilst unconcerned about the low yield scenario.
 With many investors now having to provide larger deposits and investment
loans incurring higher interest rates we may see more investors starting to
place higher importance on the rental component of their investment rather
than solely focusing on value growth.
Average level of vendor discounting across the combined capital
cities
Average number of days on market for home across the combined
capital cities
Combined capital city rental rates and yields
Across the combined
capital cities:
5.6%
-0.5%
5.3%
1.2%
-10%
-8%
-6%
-4%
-2%
0%
Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16
Houses Units
0
20
40
60
80
100
Houses Units

Houses Units
Median price $885,000 $680,000
Quarterly value change 3.8% 4.4%
12 month value change 8.4% 11.5%
5 year annual value change 8.3% 6.9%
Value change from previous market peak 46.2% 36.9%
Estimated 12 month sales volumes 53,324 34,216
Average time on market (days)* 40 32
Average vendor discount* -5.2% -4.3%
Median rental rate $619 $546
Gross rental yield 3.1% 4.0%
Average hold period (years)* 11.5 8.5
Key statistics - to April 2016
Sydney
Home values in Sydney have appreciated at the second fastest pace (following on from Melbourne) of all capital city
markets over the past year. While home values have risen, the rate of value growth has begun to slow. The
average time on market has risen from record low levels in mid-2015, while vendors continue to provide little in the
way of discounts on their price expectations. Additionally, rental growth has slowed and yields have fallen to record
lows.
Sydney Housing Market Overview
9
Values
 +3.9% over the quarter
 +8.9% past 12 months
 +8.0%pa last five years
 +6.1%pa last ten years
 +6.6%pa last 15 years
 +45.1% higher than previous peak
 +52.7% over the current growth phase
Annual sales volumes
 87,540 sales over the year
 -14.1% over the year
 Sales down from a recent peak of
113,663 in May 2014
Rents
 +0.9% quarter
 +1.4% over the year
Yields
 -0.1 percentage point over the quarter
 -0.3 percentage points over the year
Selling time
 -3 days over the quarter
 +5 days over the year
Vendor discounting
 -1.1 percentage points over the quarter
-10%
-5%
0%
5%
10%
15%
20%
25%
Apr-00 Apr-02 Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16
Quarterly change Annual change
Annual and quarterly change in Sydney home values
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Apr-96 Apr-00 Apr-04 Apr-08 Apr-12 Apr-16
Monthly number of house and unit sales across Sydney
* Data to March 2016

Houses Units
Median price $642,000 $489,000
Quarterly value change 1.0% -0.7%
Value change from previous market peak 21.2% 7.5%
Melbourne
Over the 12 months to April 2016, Melbourne has recorded the strongest growth in home values. Discounting levels
and time on market levels have fallen across the city over the year with time on market for the city currently sitting
close to its record low. Although value growth has been strong, sluggish rental growth has resulted in Melbourne
recording the lowest rental yields of any capital city. More recently the rate of value growth has begun to decelerate
however, this slowing is occurring at a moderate pace.
Melbourne Housing Market Overview
10
Values
97,817 in July 2015
Rents
 +0.5% quarter
Yields
 No change over the quarter
Selling time
 -10 days over the year
Vendor discounting
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Annual and quarterly change in Melbourne home values
Monthly number of house and unit sales across Melbourne
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000

Houses Units
Median price $500,000 $382,500
Value change from previous market peak 4.7% -3.5%
Brisbane
Home values in Brisbane have only recorded moderate growth over the past year and throughout the recent growth
phase. Discounting levels are trending lower while homes are taking longer to sell. Rental rates are falling across
the city due to the large construction boom currently underway. The pricing differential between Brisbane and
Sydney and Melbourne has also widened significantly over recent years, providing a strong affordability advantage
for the Brisbane market.
Brisbane Housing Market Overview
11
Values
55,208 in October 2015
Rents
 +0.5% quarter
Yields
Selling time
 +12 days over the quarter
 +1 day over the year
Vendor discounting
 -0.1 percentage point over the year
Annual and quarterly change in Brisbane home values
Monthly number of house and unit sales across Brisbane
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
1,000
2,000
3,000
4,000
5,000
6,000

Houses Units
Median price $440,000 $340,000
Adelaide
Adelaide home values have recorded only a moderate rise over the past year and throughout the current growth
phase Adelaide has recorded total growth of less than 15%. The number of home sales are rising across the city
and the average time on market has reduced. On the other hand, discounting levels have increased a little and
rental growth is moderate. Overall the Adelaide housing market is fairly steady.
Adelaide Housing Market Overview
12
Values
 +4.8% lower than previous peak
 27,772 sales over year
28,139 in November 2015
Rents
 +1.6% quarter
Yields
Selling time
Vendor discounting
 +0.2 percentage points over the year
Annual and quarterly change in Adelaide home values
Monthly number of house and unit sales across Adelaide
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0
500
1,000
1,500
2,000
2,500
3,000

Houses Units
Median price $523,500 $415,000
12 month value change -2.2% 0.1%
Value change from previous market peak -4.2% -6.6%
Perth
Home values across Perth have recorded a fall over the past year which has been driven by weaker economic
conditions related to a slump in resource sector investment and a sharp slowdown in population growth to the state.
As a result of the overall softer economic conditions, there has also been a fall in transactions and rental rates while
stock on the market has increased over the past year, likely foreshadowing weaker housing market conditions.
Perth Housing Market Overview
13
Values
 -2.1% past 12 months
 -4.2% lower than previous peak
43,113 in December 2013
Rents
 -1.4% quarter
Yields
Selling time
Vendor discounting
 +0.1 percentage points over the
quarter
Annual and quarterly change in Perth home values
Monthly number of house and unit sales across Perth
-20%
-10%
0%
10%
20%
30%
40%
50%
0
1,000
2,000
3,000
4,000
5,000
6,000

Houses Units
Median price $350,000 $290,000
Quarterly value change -0.5% 1.3%
5 year annual value change -0.9% 1.0%
Hobart
Hobart sales volumes are fairly steady over the past year while home values have recorded a moderate rise over the
past year. Hobart is also seeing a reduction in selling times and less discounting which would tend to indicate
improving housing market conditions. Furthermore, the city has comparatively high levels of rental growth as well as
some of the highest rental yields across the capital cities.
Hobart Housing Market Overview
14
Values
 -0.3% over the quarter
 -0.8%pa last five years
 Unchanged over the year
4,667 in November 2015
Rents
 +2.0% quarter
Yields
quarter
 No change over the year
Selling time
Vendor discounting
quarter
Annual and quarterly change in Hobart home values
Monthly number of house and unit sales across Hobart
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
0
100
200
300
400
500
600

Houses Units
Median price $555,000 $482,400
12 month value change -5.2% 2.4%
Estimated 12 month sales volumes 1,479 864
Darwin
Home values in Darwin surged earlier than most other capital cities in the current growth phase. Weaker economic
conditions related to the end of the resource investment boom have hit Darwin which is seeing home values fall. In
line with the fall in home values there has been a fall in rents and increases in the level of discounting and time on
market. We anticipate that the softness evident across the Darwin housing market is likely to persist as the pipeline
of capital expenditure winds out.
Darwin Housing Market Overview
15
Values
 -3.7% past 12 months
3,287 in October 2014
Rents
 -1.6% quarter
 No change annually last five years
Yields
Selling time
Vendor discounting
Annual and quarterly change in Darwin home values
Monthly number of house and unit sales across Darwin
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0
50
100
150
200
250
300
350

Houses Units
Median price $605,000 $405,000
Canberra
The housing market in Canberra slowed substantially after the announcement of budget cutbacks and job shedding
in the 2014 Federal Budget. Both values and rental rates have started to record moderate levels of growth over the
past year with growth largely contained to detached houses rather than units.
Canberra Housing Market Overview
16
Values
8,312 in February 2014.
Rents
 +2.3% quarter
 No change annually last five years
Yields
 +0.1 percentage point over the quarter
 -0.1 percentage point over the year
Selling time
Vendor discounting
Annual and quarterly change in Canberra home values
Monthly number of house and unit sales across Canberra
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0
200
400
600
800
1,000

Perth coastline

$0
$2
$4
$6
$8
$10
$12
$14
$billion
Construction Established
$0
$2
$4
$6
$8
$10
$12
$billion
Construction
Purchase of new
Refinance
Established
Subsequent purchasers are the key source of housing
finance demand
 Looking at the raw value of housing finance commitments
on a rolling 6 month average basis across different buyer
types provides an insight into the current housing market
dynamics.
 Demand from the investment sector has slowed sharply
over times and owner occupier non-first home buyers are
now the largest source of demand.
 Although refinance is a smaller segment, it has continued
to trend higher.
 Despite the slowdown, investors along with subsequent
purchasers are the main drivers of current market activity.
The value of owner occupier housing finance
commitments has increased 11.8% over the past year
 The value of owner occupier housing finance
commitments is split into four categories: construction of
dwellings, purchase of new dwellings, refinance of
established dwellings and purchase of established
dwellings.
 In March 2016, $1.8 billion worth of commitments were
for construction of dwellings, $0.9 billion was for purchase
of new dwellings, $7.0 billion was for refinance of
established dwellings and $11.1 billion was for purchase
of established dwellings.
 The year-on-year changes were recorded at: +1.7% for
construction of dwellings, -7.9% for purchase of new
dwellings, +14.7% for refinances of established dwellings
and +13.9% for purchase of established dwellings.
 The data shows that although all segments are
increasing, refinances and purchase of established
dwellings are the key drivers of current growth.
Economic Overview
18
The value of investor housing finance commitment has fallen by -13.0% over the past year
 The value of investment housing finance commitments is split into two categories: new construction and
established homes.
 In March 2016, there was $1.8 billion worth of commitments for new construction and $10.2 billion worth of
commitments for established homes.
 The year-on-year changes have been recorded at +97.1% for new construction which recorded a record high
value in March 2016 and -20.9% for commitments for established homes.
 The data highlights that investor demand has eased substantially since the middle of 2015, however a large
number of mortgages have been reclassified by lenders, from investment purposes to owner occupier which
makes it difficult to know exactly how much investor demand has slowed. It also shows that investors
overwhelmingly prefer to purchase existing stock rather than new housing.
0%
10%
20%
30%
40%
50%
60%
First Home Buyers
Owner occupier non-first home buyers
Owner occupier refinances
Investors
12 month average proportion of housing finance commitments by
borrower type
Value of owner occupier housing finance commitments
Value of investor housing finance commitments
Source: CoreLogic, ABS

0%
10%
20%
30%
40%
50%
60%
Monthly 6 month average
0%
5%
10%
15%
20%
25%
30%
0%
5%
10%
15%
20%
25%
30%
35%
0
5,000
10,000
15,000
20,000
25,000
Mar 96 Mar 00 Mar 04 Mar 08 Mar 12 Mar 16
Number of housing finance commitments
Percentage of total housing finance commitments
 Additionally, it is important to note that this data only measures first home buyer finance commitments for owner
occupation. Anecdotally a growing number of first time buyers are purchasing investment properties.
 With investor demand slowing sharply there may be increasing scope for first home buyer demand to pick-up a
little over the coming year although affordability constraints are likely to limit any significant resurgence.
Fixed rate mortgage lending has increased over recent months
 Housing finance data reveals that in March 2016, 85.1% of new loans to owner occupiers were on a variable or
‘floating’ mortgage rate.
 Unlike some other countries, Australian’s overwhelmingly prefer to take out variable rate mortgages rather than
fixed rate loans.
 The other factor to keep in mind is that the usual length of a fixed rate mortgage in Australia is quite short,
typically being three years or less.
 Although the proportion of fixed rate mortgage is low it is currently at its highest level since November 2014.
 The fact that most Australian’s are on a variable rate has important implications for changes in monetary policy.
Essentially, having a large proportion of households with variable mortgage rates means that when the Reserve
Bank adjusts official interest rates it has an almost immediate impact on consumer attitudes and spending
patterns.
 When you consider that the mortgage is often most people’s single largest liability, changes to monetary policy
have a virtual immediate impact on consumer spending and saving behaviour.
Economic Overview
19
Number and proportion of owner occupier housing finance
commitments to first home buyers
Proportion of owner occupier finance commitments on a variable
mortgage rate
Most housing finance commitments for new stock are to
owner occupiers not investors
 Looking at the new components of housing finance
commitments (owner occupier – construction of
dwellings, owner occupier – purchase of new dwellings
and investment – construction of new dwellings) there
was $4.5 billion worth of commitments in March 2016, a
record high.
 Of this figure, 60.0% of all of these finance commitments
for new housing were to owner occupiers, with the
remaining 40% of commitments to investors.
 This data indicates that home purchases overwhelmingly
buy existing stock however, it should be remembered that
new housing makes up less than 2% of total housing
stock.
First home buyers continue to languish
 In March 2016, there were 8,136 housing finance
commitments to owner occupier first home buyers.
 The number of owner occupier first home buyer housing
finance commitments has fallen -7.5% over the year.
 First home buyers accounted for just 14.2% of all owner
occupier housing finance commitments over the month
which is their lowest level since May 2004.
 The weakness from the first home buyer segment has
been apparent since early 2010 when the temporary
‘boost’ on first home buyer incentives was removed.
Over the 12 months to December 2015 there were
101,356 commitments by first home buyers which was
much lower than the peak of 190,023 commitments over
the 12 months to November 2009.
 Within the major capital cities there has been a significant
decline in affordable housing options for first home
buyers which is contributing to their low activity level.
Proportion of total housing finance commitments for new housing

Number of dwelling approvals nationally, houses vs units
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Mar-86 Mar-91 Mar-96 Mar-01 Mar-06 Mar-11 Mar-16
Dwelling approvals remain at high levels but have
started to ease from record highs
 Over the 12 months to March 2016 there have been
232,180 dwellings approved for construction, which is
close to a record high.
 The annual number of dwelling approvals has increased
by 6.0% over the past year.
 In March 2016 there were 19,371 dwelling approvals
which is down -7.1% from the recent all-time high of
20,861 approvals in May 2015.
 The private sector is almost entirely responsible for new
dwelling construction in Australia. This is highlighted by
the fact that over the past year, 98.5% of all dwelling
approvals were granted to the private sector compared
with the public sector.
 In March 2016 there were 9,865 houses and 9,506 units
approved for construction.
 House approvals are-0.8% lower year-on-year while unit
approvals are -11.8% lower than they were in March
2015.
 Dwelling approvals have recently hit record highs fueled
by unit approvals. Importantly, just because a unit project
is approved for construction does not mean it will be
constructed right away. With value growth and sales
slowing it is anticipated that fewer of the recently
approved houses and units will be constructed in the
short-term with a larger proportion likely to be deferred or
withdrawn.
Capital city unit approvals remain high but have fallen
from their peak
 Across the combined capital cities, there were 76,978
houses and 102,204 units approved for construction over
the 12 months to March 2016.
 The number of house approvals increased by 0.6% over
the year and unit approvals were 21.4% higher.
 Over the past 12 months, 57.0% of all capital city dwelling
approvals were for units and unit approvals have now
consistently outnumbered house approvals since July
2013.
Economic Overview
20
 Although demand for units is growing, unit developments are less likely than houses to commence construction
and complete. This may be attributed to the requirement for a certain level of pre-sales across a new apartment
development before work proceeds as well as the ‘all or nothing’ nature of a large scale unit project (compared
with a greenfield detached housing project where the new housing delivery can more easily be phased).
 It remains to be seen whether the proportion of units that don’t proceed to the construction phase moves higher
as due to high supply levels in some precincts as well as tighter business lending criteria for developers.
Official interest rates have been cut to 1.75%
 The Reserve Bank most recently cut official interest rates to 1.75% in May 2016, citing weak inflation as the
reason.
 On an historic basis, official interest rates are at record lows and subsequently mortgage rates have also shifted
to lows not seen since the 1960’s.
 The ‘out of cycle’ mortgage rate rises implemented in 2015 have now been largely reversed as most banks
have passed on the full cash rate cut to their mortgage rates.
 The standard variable mortgage rate for an owner occupier is now 5.4% however, investors can expect to pay
an additional 30 basis points over this rate.
 At the time of writing, the ASX cash rate futures market suggests that official interest rates will be cut by 25
basis points by September of this year.
Annual number of major capital city dwelling approvals
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Mar-88 Mar-95 Mar-02 Mar-09 Mar-16
Sydney Melbourne Brisbane
Adelaide Perth
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
May-92 May-96 May-00 May-04 May-08 May-12 May-16
Standard variable mortgage rate
Discounted variable rate
3 yr fixed rate
Cash rate
Cash rate vs. standard variable mortgage rate vs. discounted
variable mortgage rate vs. three year fixed mortgage rate
Source: CoreLogic, RBA

The impact of low mortgage rates
 The low interest rate environment is also impacting on the
type of investment vehicles investors’ target. Safe
investments such as government bonds and term
deposits are showing very low returns. Australian
Government 10 year bonds were returning just 2.52% at
the end of April 2016 while the 12 month term deposit
rate was just 2.4%.
 The low returns from ‘safe’ investment classes are seeing
investors move to slightly riskier investment classes.
 Over the 12 months to April 2016, housing, which shows
a much higher risk profile relative to bonds and term
deposits, has recorded much stronger returns, particularly
when you factor in both value growth and rental returns.
The unemployment rate is now at its lowest level since
July 2013
 The national unemployment rate was recorded at 5.7% in
April 2016, steady over the month and at its lowest level
since July 2013.
 At the same time a year ago, the national unemployment
rate was recorded at 6.2%.
 The number of employed persons has increased by 2.1%
over the past year.
 Full-time employment has increased by 1.0% over the
year compared to a much greater 4.5% increase in part-
time employment.
 While employment is increasing, it is largely being driven
by part-time employment and a near record-high
underemployment rate suggests many part-time workers
would like to work more hours.
 The recent improvement in employment conditions bodes
well for housing demand however, it should be noted that
most of the increase in jobs has been on a part-time
basis rather than full-time.
Economic Overview
21
Both headline and underlying inflation are below the RBA’s target range and the weak reading has been
the impetus for the recent cut to official interest rates
 The Consumer Price Index (CPI) fell by -0.2% over the March 2016 quarter which was the first quarterly fall in
headline inflation since December 2008.
 Headline inflation recorded an increase of 1.3% over the 12 months to March 2016.
 The RBA has a target band for inflation of between 2.0% and 3.0% throughout the cycle so the March 2016
read for headline inflation was well below the target band.
 Headline inflation has now been below the RBA’s target range for the past 6 quarters which hasn’t happened
since late 1999.
 The RBA looks at headline inflation, however they pay closer attention to their preferred two measures of
underlying inflation; the trimmed mean and weighted median. These two measures of underlying inflation were
recorded at 1.7% and 1.4% respectively with inflation calculated by these measures also outside of the RBA’s
target range.
 The RBA’s latest forecasts indicate that they expect headline inflation to remain below 2% until the end of 2016
and between 1.5% and 2.5% until the end of 2018. Given these forecasts, the RBA will have scope to cut
interest rates further over the coming months if they feel it is necessary.
-2%
0%
2%
4%
6%
8%
10%
Headline inflation
Underlying inflation
RBA Target range
Headline and underlying inflation over time
0%
2%
4%
6%
8%
10%
10 yr Government bonds
Cash rate
12 month term deposit rates
Cash rate vs. 10 year Government bonds vs.12 month term deposits
National unemployment rate
0%
2%
4%
6%
8%
10%
12%
Apr-86 Apr-91 Apr-96 Apr-01 Apr-06 Apr-11 Apr-16
Unemployment rate (6 mth avg)

Housing costs are growing at a rate which is slightly
greater than headline inflation
 Housing is a component of the bundle of goods used to
measure inflation and it actually has the largest weighting
which reflects the fact that, for most people, costs relating
to housing are what they spend the greatest slice of their
income on.
 The inflation data does not measure escalation in the cost
of existing homes, rather it only measures purchases of
new homes by owner occupiers.
 Over the 12 months to March 2016, housing costs have
increased by 1.7% which is its slowest annual pace of
growth since December 1998.
 Electricity and utilities costs have actually fallen over the
past year while the cost of rates has risen by the greatest
amount.
Australia’s pace of economic growth was strong in late
2015 but can it last?
 Gross Domestic Product (GDP) data from the ABS to
December 2015 shows that the Australian economy grew
by 3.0% over the 12 month period.
 Although headline economic growth was solid over the
year, on a per capita basis economic growth was
recorded at a much lower 1.7%. This result indicates that
the strong rate of population growth recently is also
significantly contributing to economic growth.
 Economic growth over the past year has been at an
above average level however, forecasts indicate that
economic growth will slow over the coming year
 Over the past decade economic growth has averaged
2.7% pa and over the past two decades it has averaged
3.2% pa.
Economic Overview
22
The household savings ratio is now at its lowest level since September 2008
 Over the December 2015 quarter, the household savings ratio was recorded at 7.6% down from 8.7% over the
previous quarter and at its lowest level since September 2008.
 Compared to savings levels through the 1990’s and early to mid-2000’s savings levels remain elevated
however, they have started to ease from their recent highs.
 Over the past eight quarters the household savings ratio has been below 10%, this hasn’t happened for such a
sustained period since September 2008.
 As the chart shows, the household savings ratio started to rise in the mid-2000’s and has been much higher
since September 2008.
 More recently the ratio has started to fall which is in line with a pick-up in retail sales and growing demand for
housing credit.
 With low returns on cash savings we have seen consumers starting to open their wallets again. As a result we
may see further declines in household savings over the coming quarters although ongoing consumer caution
suggests any decline is likely to remain fairly moderate with the household savings ratio unlikely to slump back
to levels recorded throughout the mid-2000’s.
CPI Housing sub-categories, annual change to March 2016
Quarterly and annual change in gross domestic product (GDP)
Household savings ratio
-3% -2% -1% 0% 1% 2% 3% 4% 5%
Electricity
Utilities
Water and Sewerage
Rents
Maintenance & Repair of Dwelling
Housing
Gas and Other Household Fuels
Other Housing
New Dwelling Purchase by OO
Property Rates and Charges
-5%
0%
5%
10%
15%
20%
25%
Dec-65 Dec-75 Dec-85 Dec-95 Dec-05 Dec-15
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Dec-85 Dec-91 Dec-97 Dec-03 Dec-09 Dec-15
Quarterly change
Annual change

Households are heavily indebted, largely due to housing
debt
 According to the RBA, the ratio of total household debt to
disposable income as at December 2015 was 186.3%.
Of this total, a record high 133.8% was housing debt.
 Housing and household debt are trending higher and both
are at record high levels.
 Although housing debt is very high, it is clearly also a
function of high house prices across the country. Despite
housing debt to disposable income sitting at 133.8%, total
housing assets to disposable income were recorded at
471.3%.
 Housing debt may be very high however; the value of
those assets is significantly more than the value of that
debt.
 It should be noted that this is a national view and the ratio
of housing debt to assets is likely to be much lower for
recent purchasers and in areas where home values have
seen very little growth over recent years.
Disposable incomes have fallen over the past year
 Although mortgage rates are low and home values are
increasing, real household disposable incomes have
fallen over the past year.
 Over the 12 months to December 2015, household
disposable incomes fell by -1.1%.
 Disposable incomes have now been falling on an annual
basis for each of the past four quarters.
 The annual change in disposable incomes has been
consistently below 2% for the past 14 quarters.
 Over the past 20 years, household disposable incomes
have increased at a compound annual rate of 3.4% which
indicates current household income growth is significantly
lower that average.
Economic Overview
23
 With disposable income growth low, the ability of households to spend more on housing as values rise is likely
to reduce. It also impacts on their ability to pay more for rent as well as purchase goods and services.
Population growth continues to slow
 As at the end of the September 2015 quarter, the national resident population was estimated to be 23.9 million
persons.
 The population increased by 317,083 persons or 1.3% over the year.
 Population growth remains strong on an historic basis however, the rate of growth is trending lower, largely due
to a slowdown in net overseas migration.
 Over the 12 months to September 2015, there were 167,652 net migrants to the country accounting for 53.5%
of total population growth with the remaining 46.5% (145,585) coming from natural increase.
 The annual number of net overseas migrants was at its lowest level since September 2006 in September 2015.
 More up-to-date overseas arrivals data shows an ongoing slowdown in net permanent and long-term arrivals to
Australia, foreshadowing a further slowdown of net overseas migration over the coming quarters.
 The slowdown in overseas migration means less demand for housing as well as potentially having an impact on
other forms of spending throughout the economy.
Debt to disposable income - household debt vs. housing debt
Annual change in household disposable incomes
Quarterly increase in population - net overseas migration vs. natural
increase
0%
50%
100%
150%
200%
Dec-91 Dec-97 Dec-03 Dec-09 Dec-15
Household debt
Housing debt
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Dec-75 Dec-80 Dec-85 Dec-90 Dec-95 Dec-00 Dec-05 Dec-10 Dec-15
0
20,000
40,000
60,000
80,000
100,000
Sep-95 Sep-00 Sep-05 Sep-10 Sep-15
Natural increase Net overseas migration

0%
5%
10%
15%
20%
25%
30%
35%
Owner occupier Investor
Victoria remains the destination of choice for interstate
migrants
 At a national level interstate migration cancels out across
the states, however recent trends in home value growth
are somewhat explained by the change in migration flows
between the states and territories.
 Over the 12 months to September 2015, Victoria and
Queensland are the only two states to have recorded
positive interstate migration.
 While net interstate migration remains negative in New
South Wales, the rate of migration is close to record
levels.
 Victoria is recording a record high net gain from interstate
migration while Queensland net interstate migration is at
a near record low but has started to increase over recent
quarters.
 New South Wales has always been a net loser from
interstate migration however, interstate departures from
New South Wales to other states and territories have
declined significantly since the financial crisis.
 Victoria has also generally recorded a net loss from
interstate migration however, the inflow of interstate
migrants has now consistently been positive since March
2009.
 The slowdown in the outflow of residents from New South
Wales and Victoria has had a significant impact on net
interstate migration to Queensland and Western
Australia.
 Western Australia recorded a net loss of 2,721 residents,
its lowest level of interstate migration since March 2003.
Housing credit keeps expanding with investment lending
gathering the most pace
 Over the 12 months to March 2016, total housing credit
Economic Overview
24
has increased by 7.2%, having eased from a recent peak of 7.5% in November 2015.
 Owner occupier housing credit has risen by 7.2% over the past year while investor housing credit has increased
by 7.0%.
 Owner occupier housing credit is expanding at its fastest pace since September 2010 while investor housing
credit has slowed from a recent peak of 11.0%pa in May 2015 and is now rising at its slowest pace since
November 2013.
 With APRA implementing a 10%pa cap on investment mortgage growth, as well as premiums now being paid
on investment related mortgages, there has been a sharp slowdown in credit growth for this segment of lending
and it now sits comfortably below that level and perhaps there is some scope for lenders to increase mortgage
lending to investors.
Banks have much more credit outstanding for housing than for business and personal lending
 As at March 2016, the total value of outstanding credit to Australian authorised deposit-taking institutions (ADIs)
was $2.5 trillion.
 Looking at the break-down of where this credit is outstanding shows that most is in the form of mortgages. With
$1.5 trillion outstanding for mortgages, mortgages account for 61.0% of outstanding credit compared to $847
billion (33.3%) to business and $145 billion (5.7%) for other personal loans.
 Australian ADIs have a clear preference for mortgage lending over personal and business lending.
 In fact, housing has consistently accounted for more than half of all outstanding credit to ADIs since April 2003.
 The low arrears rates over recent years has resulted in this preference by ADIs with business and personal
lending significantly more risky than mortgage lending over recent years.
Annual change in outstanding housing credit - owner occupiers vs.
investors
Net annual interstate migration across the major states
Total outstanding credit to Australian ADIs -
housing vs. business vs other personal
0%
10%
20%
30%
40%
50%
60%
70%
Housing Business Other personal
-60,000
-40,000
-20,000
0
20,000
40,000
60,000
80,000
Sep-91 Sep-95 Sep-99 Sep-03 Sep-07 Sep-11 Sep-15
NSW Vic Qld
SA WA

May interest rate cut drives consumer sentiment higher
following the Federal Budget
 According to Westpac and the Melbourne Institute, the
Index of Consumer Sentiment was recorded at 103.2
points in May 2016.
 A reading above 100 points indicates that respondents
are more optimistic than pessimistic.
 The 103.2 reading represents the highest reading for
consumer sentiment since January 2014.
 Sentiment has generally been negative since the
beginning of 2014 however, interest rate cuts have
resulted in an increase and a reading above 100 each
time they have occurred.
Retail trade is still rising
 Over the 12 months to March 2016, retail trade has
increased by 3.6%.
 Although retail trade continues to expand, it has
increased by a fairly moderate 0.4% over the first quarter
of 2016.
 Retail trade has increased over the year in each state
and territory.
 Retail trade increases have been strongest in New South
Wales, Victoria and the Australian Capital Territory over
the past year.
 Household goods retailing has seen the greatest increase
in trade over the year, up 5.8%, indicating that these
retailers are clearly benefitting from the lift in home values
and sales.
 There have also been significant annual increases in
turnover for clothing, footwear and personal accessory
retailing (5.2%) and other retailing (3.6%).
 Growth in retail trade for department stores (1.7%), food
retailing (2.9%) and cafes, restaurants and takeaway food
services (3.0%) has been much milder over the year.
Economic Overview
25
Business conditions stable while confidence dips
 The monthly NAB Business Survey measures current business conditions and businesses levels of confidence.
 Business conditions are currently recorded at 9 points which is down a little over recent months but indicates that
conditions are quite strong.
 While business conditions are reasonably strong, business confidence is not quite as strong but remains positive
sitting at 5 points.
 The data suggests that although business conditions are reasonable, the strong conditions have not yet fully
flowed into a sustained lift in confidence.
 It should be noted that there has not been a negative result for business confidence since November 2012.
 Confidence is important given that if it increases businesses will generally be more inclined to borrow money and
furthermore they would generally be more inclined to create new roles for staff.
 Business confidence is vital in creating new jobs and driving a sustainable reduction in the unemployment rate.
Monthly consumer sentiment nationally
Annual and quarterly change in retail trade
Business confidence vs business conditions
60
70
80
90
100
110
120
130
May-86 May-91 May-96 May-01 May-06 May-11 May-16
-15%
-10%
-5%
0%
5%
10%
15%
20%
Monthly change Annual change
Source: CoreLogic, Westpac-Melbourne Institute
Source: CoreLogic, NAB
-40
-30
-20
-10
0
10
20
30
Apr-00 Apr-04 Apr-08 Apr-12 Apr-16
Business conditions
Business confidence

Where to From Here
At a broad national level, capital city housing markets have generally responded positively to the stimulus of low
interest rates. The number of homes transacting has risen over recent years but is now starting to fall and the value
of Australian dwellings have also risen. While the headline combined capital cities data indicates a resurgent
market, digging deeper shows that is not necessarily the case across all cities and product types. Although the
number of sales and the value of homes have increased across each of the capital city housing markets during some
point over the past three years, the strongest increases in home values have been experienced in our two largest
cities, Sydney and Melbourne. These two cities continue to see the strongest increases in values although across
each city the rate of growth has been slowing. While home sales have risen across the cities, sales volumes have
remained well below previous peaks.
Across the combined capital cities, home values have been broadly rising since June 2012. Over this period; home
values have increased across all cities, however Sydney and Melbourne have recorded much greater increases, with
all other capital cities recording cumulative growth of less than 20%. Ever since values started to rise in January
2009 following falls of around 6% over the nine months during the financial crisis of 2008, Sydney and Melbourne
have been the standouts for capital growth. Over this period Sydney home values are 80.2% higher, Melbourne
values are 67.8% higher and Canberra has recorded the third greatest increase in values at a comparatively
moderate 25.3%. This data suggests that interest rates are not the only reason for capital growth, particularly
considering that the growth has been very much focused in Sydney and Melbourne. Demographic factors and
economic conditions in Sydney and Melbourne are likely to be major contributors to the strong housing market
conditions that have been evident over the past two growth cycles.
Combined capital city home values have increased by 7.3% over the past year, which is much lower than the 11.1%
annual value change recorded in July 2015. Over recent months there has been evidence that the rate of value
growth is starting to slow, particularly in Sydney and Melbourne as investor housing demand is dampened by both
tighter lending conditions as well as market factors such as affordability constraints and low rental yields. It will be
interesting to see whether the recent interest rate cut results in growth in these two markets starting to accelerate
once more.
With values having lifted over the past three and a half years, this has been a positive development for those who
already own a home, particularly considering most Australians choose to store a majority of their wealth in residential
housing. For those people that don’t already own a home, higher prices make it more difficult to save a deposit for
their first home. Unfortunately, the fact that so few homes are built by the public sector means that the private sector
generally needs to see an increase in sales activity and some associated increase in home values to make it
financially viable to develop new housing. As a result, we are seeing low levels of purchasing activity by first home
buyers across most states, despite the fact that mortgage rates are at historically low levels. Anecdotally, it appears
that more first time buyers are choosing to buy an investment property rather than a principal place of residence,
which means they are not counted in the official first home buyer statistics from the Australia Bureau of Statistics.
26

Where to From Here
With values rising we have seen a significant upswing in dwelling approvals and construction over the year. Over
the 12 months to December 2015 there were a record high 232,180 houses and units approved for construction
which is slightly lower than the recent record high. This has resulted in a much needed improvement in housing
supply, particularly within capital cities where the supply deficiency is often greatest. Although approvals have risen
we have seen record high levels of unit approvals which are less likely to progress through to the commencement
phase and ultimately constructed compared to houses. Given that investment demand has slowed it will be
interesting to see just how many of these units being approved for construction are ultimately completed.
Furthermore, we are watching closely in markets such as Melbourne and Brisbane where new unit supply levels are
untested at a time when rental growth is already at record low levels and value growth for units is much lower than it
is for houses.
With values rising by the greatest amount in Sydney and Melbourne we have over recent years seen a substantial
pick-up in activity in these areas (and others) by the investor segment of the market. The recent changes to lending
policies for the investment segment has caused demand to slow however, as a proportion of all lending, investment
remains high on an historic basis. The recent heightened level of investment activity isn’t without risks. Housing is
typically viewed as a long-term asset class, if investors are entering the market chasing short-term capital gains
there is the risk of these investors trying to exit just as quickly once those gains are no longer there. Of course,
housing is not a liquid asset and most investors are targeting similar properties (particularly inner-city units). If many
looked to exit the market at the same point in the future it could place downwards pressure on values across this
segment of the market. Furthermore, there is a rising level of potential valuation and subsequent settlement risk on
projects under construction given that borrowers may now need to find larger deposits and rental demand for these
projects may not be as strong as they were set to be a few years ago.
With financial markets expecting interest rates to fall even lower later this year, we anticipate dwelling values will
continue to increase. Although values are expected to rise further we anticipate that it is likely to occur at a more
moderate pace, particularly as banks continue to adjust their lending policies to ensure that they meet APRA’s
guidelines and these guidelines continue to evolve.
In Sydney and Melbourne in particular, the much higher rate of value growth is showing signs of moderating. The
differential in housing costs between these cities and other capitals has expanded significantly and prospective
buyers at the more affordable end of the market are now likely being priced out of ownership. These factors, as well
as very low rental yields, are likely to be the primary barriers to higher housing demand in these locations.
Notwithstanding the fact that home values have been recording consistently strong growth in these two markets for
more than three years now.
Overall, home values are expected to continue to rise however, the trend rate of growth is likely to continue to slow
over the coming months. Demand in the housing market is expected to be driven more by owner occupiers over the
coming months rather than the investment segment where demand has stabilised and although it is lower than
recent times is still quite strong on an historic basis. It seems unlikely that the low level of activity by first home
buyers will reverse any time soon despite low mortgage rates. While it is anticipated that values will continue to rise,
the moderation of rental markets is likely to persist as more new housing stock comes on line. The weakest rental
market conditions on record can be attributed to the recent very high level of investment activity which inherently
creates a higher level of rental homes available for occupation. The new rental stock is adding to the rental market
pool and giving renters more power at the time of lease renewal. Meanwhile wage growth is at record lows which
means renters can’t pay more for accommodation.
27

Where to From Here
Based on these conditions it is clear why regulators such as APRA, ASIC and the RBA are vigilant about the lending
sector maintaining prudent lending standards. From a buyer’s perspective, they must consider that mortgage rates
are at historic low levels and over the life of a mortgage they are likely to vary. As such they need to factor in a
buffer and ensure that they can repay the mortgage once mortgage rates eventually move higher. Investors in
particular should tread carefully, we are now four years into this growth phase and it is surely now closer to its end
than its commencement. Although returns are currently strong relative to other asset classes, yields are at record
lows and capital gains which have been the primary driver of these returns are at the mature end of the growth cycle.
Of course housing is not a liquid asset that is easy or cheap to dispose of once conditions change.
Although the housing market is recording growth and dwelling approvals have increased significantly, the rest of the
economy is not as strong. Consumer sentiment has improved but remains at a relatively neutral setting. Wages are
growing at their lowest annual rate on record. The unemployment rate has improved over recent months but
remains well above the average over the past decade. Population growth is slowing and although this may be a
seen as a good thing by some, GDP per capita is already increasing well below the rate of headline GDP and this
may drag down economic growth. Commodity prices have sunk significantly since peaking in late 2011, however
are now showing signs of trending higher. Finally business conditions and business confidence are improving but
the improvement is still in its early stages. The bright spots for the economy outside of housing have been the
continued strength of retail trade and the booming tourism sector, thanks in large to the fall in the Australian dollar.
Despite the RBA having stated that they are looking for housing to fill the void left by the slowing resources sector,
the housing market is still facing some headwinds despite the low mortgage rate environment. Rental yields have
been compressed and affordability is becoming problematic in cities such as Sydney and Melbourne where values
have moved substantially higher. We would argue that the economy as a whole needs more than just housing as a
positive to effectively manage the transition as resource investment slows. The recent fall in the Australian dollar is
beginning to assist other sectors such as tourism, manufacturing and education and further falls would assist these
sectors even further.
28

Market Scorecard: Monitor and measure performance of an individual office or a Franchise brand month on month
through a detailed view of the Real Estate Listing and Sales market share across Australia. With the ability to gather
market share statistics within your active market this product is designed to identify the competing brands and
independents at a suburb, postcode, user defined territory and State level. Easily locate growth opportunities and
market hotspots allowing you to view the performance of the established offices in these new areas of interest.
Market Trends: Detailed housing market indicators down to the suburb level, with data in time series or snapshot
delivered monthly. CoreLogic’s Market Trends data is segmented across houses and units. The Market Trends data
includes key housing market metrics such as median prices, median values, transaction volumes, rental statistics,
vendor metrics such as average selling time and vendor discounting rates.
CoreLogic Indices: The suite of CoreLogic Indices range from simple market measurements such as median prices
through to repeat sales indices and our flagship hedonic home value indices. The CoreLogic Hedonic index has
been specifically designed to track the value of a portfolio of properties over time and is relied upon by Australian
regulators and industry as the most up to date and accurate measurement of housing market performance.
Economist Pack: A suite of indices and indicators designed specifically for Australian economic commentators who
require the most up to date and detailed view of housing market conditions. The economist pack includes the
CoreLogic Hedonic indices for capital cities and ‘rest of state’ indices, the stratified hedonic index, hedonic total
return index, auction clearance rates and median prices.
Investor Concentration Report: Understanding ownership concentrations is an important part of assessing risk.
Areas with high investor concentrations are typically allocated higher risk ratings due to the over-representation of a
particular segment of the market. Through a series of rules and logic, CoreLogic has flagged the likely ownership
type of every residential property nationally as either owner occupied, investor owned or government owned.
Mortgage Market Trend Report: CoreLogic is in a unique position to monitor mortgage related housing market
activity. Transaction volumes, dwelling values and mortgage related valuation events all comprise our Mortgage
market trend report which provides an invaluable tool for mortgage industry benchmarking and strategy.
About CoreLogic
CoreLogic Australia is a wholly owned subsidiary of CoreLogic (NYSE: CLGX), which is the largest property data
and analytics company in the world. CoreLogic provides property information, analytics and services across
Australia, New Zealand and Asia, and recently expanded its service offering through the purchase of project activity
and building cost information provider Cordell. With Australia’s most comprehensive property databases, the
company’s combined data offering is derived from public, contributory and proprietary sources and includes over 500
million decision points spanning over three decades of collection, providing detailed coverage of property and other
encumbrances such as tenancy, location, hazard risk and related performance information.
With over 20,000 customers and 150,000 end users, CoreLogic is the leading provider of property data, analytics
and related services to consumers, investors, real estate, mortgage, finance, banking, building services, insurance,
developers, wealth management and government. CoreLogic delivers value to clients through unique data,
analytics, workflow technology, advisory and geo spatial services. Clients rely on CoreLogic to help identify and
manage growth opportunities, improve performance and mitigate risk. CoreLogic employs over 650 people across
Australia and in New Zealand. For more information call 1300 734 318 or visit www.corelogic.com.au
29
Granular Data and Analytics Driving Growth in your Business
CoreLogic produces an advanced suite of housing market analytics that provides key insights for understanding
housing market conditions at a granular geographic level. Granular data is often used for portfolio analysis and
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professionals valuable modules which provide essential analytics and insights for decision making and strategy
formation within the residential property asset class. We can tailor reports to suit your business requirements.
Call us on 1300 734 318 or email us at ask@corelogic.com.au or visit us at www.corelogic.com.au

Disclaimers
In compiling this publication, RP Data Pty Ltd trading as CoreLogic has relied upon information supplied by a number of
external sources. CoreLogic does not warrant its accuracy or completeness and to the full extent allowed by law excludes
liability in contract, tort or otherwise, for any loss or damage sustained by subscribers, or by any other person or body
corporate arising from or in connection with the supply or use of the whole or any part of the information in this publication
through any cause whatsoever and limits any liability it may have to the amount paid to CoreLogic for the supply of such
information.
Queensland Data
Based on or contains data provided by the State of Queensland (Department of Natural Resources and Mines) 2015. In
consideration of the State permitting use of this data you acknowledge and agree that the State gives no warranty in
relation to the data (including accuracy, reliability, completeness, currency or suitability) and accepts no liability (including
without limitation, liability in negligence) for any loss, damage or costs (including consequential damage) relating to any
use of the data. Data must not be used for direct marketing or be used in breach of the privacy laws
South Australian Data
This information is based on data supplied by the South Australian Government and is published by permission. The
South Australian Government does not accept any responsibility for the accuracy or completeness of the published
information or suitability for any purpose of the published information or the underlying data.
New South Wales Data
Contains property sales information provided under licence from the Land and Property Information (“LPI”). CoreLogic is
authorised as a Property Sales Information provider by the LPI.
Victorian Data
The State of Victoria owns the copyright in the Property Sales Data which constitutes the basis of this report and
reproduction of that data in any way without the consent of the State of Victoria will constitute a breach of the Copyright Act
1968 (Cth). The State of Victoria does not warrant the accuracy or completeness of the information contained in this report
and any person using or relying upon such information does so on the basis that the State of Victoria accepts no
responsibility or liability whatsoever for any errors, faults, defects or omissions in the information supplied.
Western Australian Data
Based on information provided by and with the permission of the Western Australian Land Information Authority (2015)
trading as Landgate.
Australian Capital Territory Data
The Territory Data is the property of the Australian Capital Territory. No part of it may in any form or by any means
(electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or
transmitted without prior written permission. Enquiries should be directed to: Director, Customer Services ACT Planning
and Land Authority GPO Box 1908 Canberra ACT 2601.
Tasmanian Data
This product incorporates data that is copyright owned by the Crown in Right of Tasmania. The data has been used in the
product with the permission of the Crown in Right of Tasmania. The Crown in Right of Tasmania and its employees and
agents:
a) give no warranty regarding the data's accuracy, completeness, currency or suitability for any particular purpose; and
b) do not accept liability howsoever arising, including but not limited to negligence for any loss resulting from the use of or
reliance upon the data.
Base data from the LIST © State of Tasmania http://www.thelist.tas.gov.au
30

Email us at ask@corelogic.com.au
1300 734 318
www.corelogic.com.au

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