Premium housing market outpacing other segments: Cameron Kusher

While whole of year data on premium housing markets by RP Data indicates a lull in activity at the top end at the beginning of this new growth phase in the property cycle, an analysis of activity across the most recent quarter suggests that conditions may be lifting.

Premium housing markets have generally recorded a larger correction in values than other price segments with the recovery rate to-date below par. However, recent results show that premium housing markets are once again beginning to outperform the broader housing market.

The September 2013 RP Data-Rismark Stratified Hedonic home value results showed that across the most expensive 25% of suburbs, capital city home values increased by 4.5% over the 12 months As a comparison, the most affordable 25% of suburbs recorded annual value growth of 6.2%, while the middle 50% of suburbs saw values rise by 6.4%.

While the results indicated that capital growth across the premium suburbs fell behind when compared to other market sectors over the past 12 month measure, recent quarterly figures provides evidence that the tide may be turning for Australia’s more expensive housing markets.

The premium market, comprising of the most expensive 25% of capital city suburbs, recorded quarterly value growth of 4.1% compared to 3.6% across the middle 50% of suburbs and 2.8% growth across the most affordable suburbs.

Previous growth and correction phase data shows us that the premium housing market is usually the slowest to respond during the early phase of the growth cycle and it appears that this has once again been the case – we have also seen the largest correction occurring in home values over the past few years within the premium housing market.

Several factors contribute to driving demand for premium housing. Higher priced sector of the market has seen the largest correction in values coupled with low mortgage rates where now, these homes become somewhat more attainable for purchasers.

A positive shift in equity markets which is evident in the 19.0% increase in the S&P/ASX 200 index over the past year has boosted household wealth coupled with a rise in consumer confidence.

Finally, we have seen early indicators of an improvement in business conditions with survey-based results and retail trade showing tentative signs of improving in recent times.

A further look in the dynamics of the market shows that between house and unit value growth within capital city premium suburbs, the annual growth in house values is noticeably stronger than unit values.

Premium house values have increased by 4.8% and unit values by 2.3% over the past twelve months. This makes the rate of growth over the year across both premium housing types the weakest for capital growth across the broad price segments.

Over the most recent three months, premium house values are 4.2% higher and unit values are 2.9% higher. The quarterly value growth for premium houses is greater than both the affordable (2.6%) and middle (3.6%) markets whereas premium unit values have underperformed both the affordable (3.9%) and middle markets (3.4%).

Based on our findings, the premium market is experiencing increasing levels of value growth however, it is largely contained to detached houses rather than units.

Across the individual capital cities, the annual rate of value growth across the premium suburbs has been weakest across all major capital cities and product types except for Melbourne houses where the value growth has been stronger than growth for the most affordable suburbs.

Over the past quarter, growth in house values has been stronger than the other sectors for houses in Melbourne and Perth and equal strongest in Sydney.

In Brisbane in Adelaide, house value growth over the quarter has been weakest within the premium suburbs. For units, growth has generally continued to be weakest across the premium sector. The exceptions were seen in Perth where value growth was strongest, and in Brisbane where value growth was stronger than that across the most affordable sector of the market.

Overall, after a lacklustre performance in the more affordable sectors of the housing market, the premium sector is starting to see a stronger growth performance.

While picking up pace, the growth across premium suburbs has largely been limited to detached houses and is very much evident within the Sydney, Melbourne and Perth where the growth cycle has been stronger than other cities

Recent high levels of auction clearance rates, particularly in Sydney and Melbourne have certainly pushed the premium housing market along.

While picking up pace, the growth across premium suburbs has largely been limited to detached houses and is very much evident within the Sydney, Melbourne and Perth where the growth cycle has been stronger than other cities.

Recent high levels of auction clearance rates, particularly in Sydney and Melbourne have certainly pushed the premium housing market along. Of course auctions are only a small overall proportion of the market however, higher priced and unique properties which are typically taken to auction are more a reflection of the performance of the premium housing sector.