Hobart's time to shine: Cameron Kusher
The Hobart housing market has been the nation’s weakest performing capital city housing market for more than a decade.
There are now signs that the Hobart (and Tasmania’s) housing market may be in line for a steady improvement.
Over the 12 months to March 2016, home values in Hobart have increased by 4.8 percent while over the past two years values are only 4.5 percent higher highlighting that the value growth performance has been much stronger over the past year relative to the previous year.
The above chart shows the annual change in home values across all capital cities, with Hobart and the combined capital cities highlighted and the other cities in grey. Although Hobart values have increased over the past year, the recent rise must be put in context, over the past decade home values in Hobart have increased at an annual rate of 1.5 percent with values falling at an annual rate of -0.7 percent over the past five years. Hobart’s decade growth performance is well behind Perth which has recorded the second lowest annual rate of growth over the period at 3.1 percent.
It is interesting to look at the performance of the Hobart housing market in context with the performance of the Melbourne market. The previous chart shows that in 2003 and 2004 home value growth in Hobart surged. The rate of growth reached a peak of 57.9 percent annual growth in November 2003 and very shortly thereafter the growth performance in Hobart stalled and has been limited ever since.
The surge in Hobart dwellings came following a surge in Melbourne home values and at a similar time to which the rate of growth in Melbourne values began to slow. Ever since the end of the last surge in home values in Hobart, Melbourne has recorded strong rises in home values while growth in Hobart has been minimal.
Melbourne has obviously recently seen a large surge in home values meaning that many home owners have substantial levels of equity in their property. Investment in the Tasmanian housing market which offers much lower home values and superior yields may be looking attractive for those in Melbourne looking for a lifestyle investment.
While value growth in Hobart is picking up, transaction volumes are relatively steady from where they were at the end of last year and virtually unchanged from a year ago. In comparison, most other capital city housing markets are actually recording fewer property transactions than they were a year ago.
Looking at the current market, listings provides one of the best guides about the balance between buyers and sellers. As listings move lower, buyers have less choice and vendors can be less flexible on their price expectations which can push values higher. Over the 28 days to 17 April 2016 there were 376 newly advertised properties added to the Hobart housing market and 2,189 total property listings.
New listings are 1.3 percent higher than they were a year ago and fairly flat over recent weeks. Meanwhile, total listings are -26.2 percent lower than they were a year ago and as the table shows they are trending lower. In fact, the number of listings is at its lowest level since October 2010. With new listings slightly higher than a year ago and total listing much lower it suggests that there is limited new supply coming to the market with increasing demand which is causing total listing volumes to trend much lower.
One of the main drivers of the surge in Hobart home values in 2003 and 2004 was the positive migration trends for Tasmania. The above table shows that in 2003 and early 2004 both net overseas and net interstate migration were positive. The chart also shows that typically there is an outflow of residents of Tasmania to other states and territories while net overseas migration is usually positive. Over the past few quarters, for the first time in a number of years, net interstate migration to Tasmania has been positive. It is still early days but should this trend continue over the coming quarters it could be a positive for the Tasmania housing market.
People will generally only move to a new region if they are reasonably comfortable that they can find employment. The unemployment rate in Tasmania has ticked up over recent months and job creation has slowed which may act as a deterrent to make the move to a market like Hobart. However, if we look at 2003 and 2004 when home values were surging and migration to Tasmania was quite strong, job creation was stronger although the unemployment rate was in the high 6% to low 7% range compared to a similar 6.9% currently. Keep in mind that some people will move to Tasmania and Hobart as a lifestyle choice so they may be able to do their current job remotely or may commute back to the mainland a few days a week / each month. Furthermore, a proportion of people that move interstate would be retirees and therefore their decision is not reliant upon securing employment.
Tourism is likely to be a growing source of employment for those living in Tasmania. According to data from Tourism Research Australia, international visitor numbers to Tasmania increased by 19.6 percent in 2015 and have increased by 53 percent over the past five years. Meanwhile, domestic overnight trips to Tasmania increased by 17.3 percent in 2015 and have increased by 40 percent over the past five years. Should the ramp-up in tourism continue it will create even more employment opportunities in the local economy.
When you look at the housing and economic indicators for Hobart it looks like the market is well positioned to see an increase in the rate of housing demand and subsequently home values over the coming year. Of course Hobart also has the advantage of being a substantially more affordable housing market than all of the other capital cities. Any of these indicators could change and most importantly if job creation picked up pace and the unemployment rate fell it would provide further positives for the local market. Nevertheless, it looks as if the fundamentals are in place for a long-awaited improvement in value growth for the Hobart housing market.
Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him here.