14 charts that show why people are worried about Australia's property market

Participants at the auction for the property featured in ‘The Block’ TV show back in 2004. Photo: Patrick Riviere/ Getty Images

Even by its usual barbecue-stopping standards, there’s a lot to talk about in the Australian property market.

After a scorching rally over the past three years, the heat is coming out of the markets in Sydney and Melbourne.

Over the winter, the major banks, prompted by the banking regulator APRA, took steps to cool investor lending. Official data shows this is starting to have its intended effect: auction clearance rates are falling, signalling at least an end to the spectacular growth rates of recent years in the major cities.

So it appears the frenzy has passed its peak. There’s a lot of intense debate about what happens next but these charts, collated from a variety of sources from investment banks to the RBA and property analysts, tell the story of the incredible run so far. Some of them give a guide to what has happened in the past when we’ve seen rallies like this. Others show some of the recent shifts in the property market.

Let’s get started.

There has been an amazing boom in apartment developments...

Australian building approvals for apartments in structures four storeys or higher have boomed in recent years. Over the past year approvals have soared to over 70,000, representing over 30% of all new residential approvals.

... and this has been concentrated in the big eastern states, particularly NSW.

This chart breaks down the previous chart, only by state. In annual terms, high rise approvals in New South Wales, Victoria and Queensland have exploded higher since mid-2012

The amount of housing lending by banks has been partly driven by the record-low interest rates.

This chart examines the relationship between movements in the RBA cash rate and the annual change in housing debt. Since the RBA began its current easing cycle in late 2011, the annual increase in new housing debt has accelerated rapidly. Note the sharp acceleration seen when the RBA cut the cash rate below 2.5% earlier this year.

As a result, housing debt is at all-time highs.

With new housing debt accelerating quickly, so too has the total level of outstanding housing debt. Combined, credit to owner-occupiers and investors now stands at close to $1.6 trillion.

This has fuelled a surge in the ratio of debt to income. Remember, the cost of servicing debt is at all-time lows.

Shown in the top right corner of this chart, Australian household debt to income is yet again increasing. It currently sits at more than 150%. It is also worthwhile noting that this is for all households. Those who have purchased property recently using debt are likely to have significantly higher debt-to-income ratios. As a consequence of record low mortgage rates, the percentage of household income paid in interest to service debt has fallen in recent years.

However, rental yields - what investors can get if they rent a property relative to the price they paid - have fallen to record lows.

From Corelogic RP Data, this chart shows the annual declaration in rental prices for Australian homes and units. As a consequence of the sharp slowdown and higher house prices, gross rental yields for both now sit at record lows.

Capital city property prices across the nation are up almost 50% since the GFC. In Sydney, prices are up 77%.

There's Sydney and Melbourne then the rest in terms of house price growth. The average capital cities growth rate is weighted, so as the largest cities in the country, Sydney and Melbourne bring up the national average.

Housing in Sydney is particularly expensive relative to income.

This chart from Deutsche Bank Australia, using data from the ABS, shows house prices as a multiple of household wages. The average house in Sydney is nine times the average household wage, marginally shading Melbourne at 8. The ratio in Brisbane, the third largest capital city in Australia, is significantly less at 5.5 times.

There's a lot of development underway but people don't think it's a great time to buy.

In this chart UBS investigates the relationship that exists between Australian residential building approvals versus whether now is a good time to buy a dwelling, a component in the Westpac-MI consumer sentiment survey. Building approvals currently sit at record highs, right when sentiment levels towards the housing market are softening.

In Sydney, less than one in three people thinks it's a good time to buy...

In the latest CoreLogic RP Data-TEG Rewards survey of housing market sentiment, only 29.7% of survey respondents believed it was a good time to buy a property in Sydney, significantly lower than levels seen in other capital cities.

... but more than four out of five people think it's a good time to sell.

From the same survey, 82.8% of respondents indicated that now is a good time to sell a property in Sydney. Combined with the former chart, this indicates that while many people believe now is a good time to sell, not many think it's a good time to buy in Australia's largest capital city.

Recently, in line with increases in interest rates on investor loans by major banks, auction clearance rates have started to fall, indicating some demand coming out of the market.

As auction clearance rates rise in Sydney and Melbourne, so to do prices. When they fall, prices tend to follow suit. Both are softening in Sydney and Melbourne, particularly the former.

Falls in clearance rates are associated with falls in growth in house prices. This is different to falls in the value of houses. Many are wondering if this will happen next.

Similar to the previous chart, this tracks the relationship between national auction clearance rates and the change in house prices.

For now, people are mainly expecting a slowdown in house price growth, while in the mining states, people are expecting a slight fall.

From the NAB's latest residential housing survey comes price expectations for this year and next. While there are exceptions to the rule, it is clear than on balance most expect price growth to decelerate quicker than what was the case earlier in the year.

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