The national housing market is recovering but is not yet fully recovered: Tim Lawless

The housing market recovery has broadly been underway since the end of May last year and since that time dwelling values across the combined capital cities Index have increased by 4.7% through to the end of March 2013.

Most cities reached a low point at a different time and have recorded different rates of recovery.

Darwin, at 13.9%, has recorded the largest recovery in dwelling values followed by Perth (+9.4%), Hobart (+6.9%) and Sydney (+5.4%).

At the other end of the spectrum is Adelaide (+1.5%) and Brisbane (+3.1%) where the recovery in dwelling values has been more subdued.

While the recovery is demonstrable across each city, the only city to reach a new historic high is Sydney, where values are now 0.1% higher than their previous November 2010 peak.

Interestingly, the Sydney recovery has largely been driven by higher unit values rather than detached house values.

Looking at the Sydney recovery by dwelling type shows that Sydney unit values actually reached a new high way back in May last year while house values remain -0.4% lower than their 2010 peak.

Based on the combined ‘dwellings’ index, Sydney values are now broadly 0.1% higher than their November 2010 peak.

Melbourne values recorded a more severe downturn, with values peaking in October 2010 and finding a low point at the end of May 2012.

The recovery to date hasn’t been enough to offset the decline, with values remaining -6.2% lower than their 2010 peak.

The recovery has been greater across the detached housing market (+5.2%) compared with units (+3.6%).

Of all the capital cities, Brisbane’s housing market is showing the largest gap between peak and current dwelling values.

The correction across the Brisbane housing market has been more significant than other cities and values remain -9.5% lower than when they peaked back in November 2009.

Adelaide dwelling values remain -5.5% lower compared with their September 2010 peak.

Additionally, Adelaide is recording the smallest level of dwelling value recovery to date, with dwelling values increasing by just 1.5% between the June 2012 trough and the end of March 2013.

Perth’s housing market recovery has been substantial, with values rising 9.4% since they bottomed out in late 2011.

The market trough in Perth was much earlier than most other capital cities, with Perth’s housing market responding to the strong state economy and population growth that can be attributed to the local resources sector as well as an exceptionally tight housing market and rapidly rising rents.

House values have recovered much more than unit values, rising by 10.0% compared with a 6.8% recovery across the unit market.

Hobart’s housing market has seen a recent improvement, with values now -8.7% lower than their November 2009 peaked.

Brisbane and Hobart were the two capital cities that recorded a market peak the earliest (both in November 2009) and it is no coincidence that it is these same two cities that are recording the largest gap between peak and current dwelling values.

The Hobart market bottomed out only recently (October 2012) and since that time values have risen by nearly 7%.

Darwin’s housing market has recorded both the largest correction (values were down nearly 20% from peak to trough) and the strongest recovery with values having increased by 13.9% since they found an early low point back in January 2012.

Growth rates in Darwin have recently levelled however, suggesting the market may be starting to level.

Rents continue to rocket higher though, rising by close to 15% over the past year which suggests that yields will continue to move higher as well which could drive further value growth on the back of investor demand.

Canberra’s housing market bottomed out quite early compared with other capital cities, in January 2012.

Since that time values are up 5.1%, which is a surprisingly strong recovery considering the local uncertainty that comes with a federal election and the recent softness across Canberra’s rental market (rents are down nearly 2% across Canberra’s house market).

At a combined capital cities level, values still need to recover by more 3.0% before they reach a new historic high.  Based on the rate of recovery to date, it won’t be long before the housing market moves to a new historic high.

Tim Lawless is national research director of RP Data.