Combined capital city home values rise over the past 18 month growth phase: RP Data
Home values across Australia entered a growth phase in the second half of 2012 and throughout 2013, according to RP Data’s latest quarterly review of the residential property market and the Australian economy.
Combined capital city home values are 7.9% higher than a year ago, and up 8.2% over the first 10 months of 2013, the report said.
Although values broadly climbed across all capital cities, there’s been a large rise in only a handful.
The annual change ranged from +11.6% in Sydney to -0.7% in Hobart. Sydney, Melbourne and Perth each had annual growth in excess of 6.5%, while, in all other cities, values either fell or rose by 3.5% or less.
Combined capital city home values are now 2.0% higher than they were at their previous peak, the report says, although this is driven entirely by Sydney where values are 9.1% higher than their previous peak.
Across all other capital cities, values remain lower than they were at the time of their respective market highs.
Property transactions rose over the year as overall sentiment improved. Over the three months to last August there were 80,310 capital city house and unit sales. Compared to the same three months in 2012, sales volumes rose 20.1% with a more significant lift in house sales to 22.3%, as opposed to unit sales of 15.4%.
Across all capital cities, home sales are reportedly higher now than they were 12 months ago. Given the ongoing improvement in both the RP Data Mortgage Activity Index and housing finance data, the report expects a further rise in transaction volumes over the coming months.
The economic data releases tend to vary on a month-to-month basis, however, generally most economic indicators relevant to housing show positive recent results.
Gross Domestic Product rose 2.6% over the 12 months to June this year, however, over the first two quarters of the year it rose a moderate 1.1%.
The Consumer Price Index had an annual rate of 2.2% over the year to September, which is at the lower end of the Reserve Bank’s target range. Over the past two quarters inflation has risen at a much faster annualised pace of 3.2%.
Official interest rates are at their lowest levels in more than 50 years and mortgage rates are low by historic standards. Given this, it is no wonder that the housing market has entered its current growth phase, the report says.
Retail trade rose by 2.9% over the year to September. The Australian dollar now sits lower than its highs of earlier this year and below parity with the US dollar, however, the Reserve Bank has described the level as ‘‘uncomfortably high’’.
Although the official forecast is for unemployment to peak at 6.25% next year, the official unemployment rate now is 5.7%, up from 5.4% a year ago. Although the unemployment rate is not rising quickly, the labour force participation rate has fallen from 65.2% a year ago to 64.8% now.
The report says commodity prices and the national terms of trade have begun to ease given that the boom in mining investment has peaked, although both measures remain well above historic averages.
Population growth is once again ramping up with inflows strongest into the largest states.
Dwelling approvals recorded a strong increase over the past year and they are now higher than the five-year average. The recent increase in housing market activity is being driven by a surge in investor and ‘upgrader’ activity with first home buyer activity at historic lows in some states.
Other key indicators of the residential property market have improved over the past 12 months. The number of residential properties advertised for sale nationally is currently -6.2% fewer than last year. The level of vendor discounting, and the average number of days on the market, have also both improved over the year.
Improvement in these measures is in-line with a rise in the number of sales taking place which is subsequently creating upwards pressure on home values.
The report says that, although conditions for higher sales and values have improved, rental markets are easing. Rental growth has grown at a slower pace than values and, subsequently, rental returns are falling across a number of markets. As more people actively purchase properties, particularly investors, pressure within the rental market is easing.
Over the final few months of 2013 and into 2014 the report anticipates that housing market conditions will remain ‘’quite strong’’.
It says capital city values are likely to continue to increase - although the rate will slow. ‘’This is anticipated due to the fact that, despite low mortgage rates, we believe affordability constraints will start to dampen the exuberant markets, such as Sydney and Melbourne.
‘’From an investors perspective the best opportunities have now probably passed in these two cities and demand from this sector may also slow. On the other hand, we would expect a pick-up in demand and value growth in Brisbane and, perhaps, Adelaide.
‘’Following strong value growth in Sydney and Melbourne, these cities are offering healthier levels of affordability and rental yields are more attractive, subsequently there is improved potential from an investment perspective.
‘’Brisbane and Adelaide have a smaller influence than Sydney and Melbourne on the combined capital cities index (due to more homes in Sydney and Melbourne) so, overall, value growth in 2014 is likely to be more sustainable than in 2013.’’
The report says that strong population growth should fuel additional demand for housing throughout 2014. ‘’Economic conditions are generally quite positive, however, the key risk remains a rise in unemployment which could potentially curtail a further increase in home values and rise in sales transactions.’’