The slowdown in the rate of capital growth comes after a very strong 2.3% month on month rise in March and 3.5% increase over the first quarter of the year, the data from the RP Data Rismark combined capital city index also shows.
Melbourne saw values fall 0.5% and Canberra was down 1.1% in April while growth across the other capital cities ranged from 0.2% in Perth and Hobart to 2.1% in Adelaide.
Every capital city recorded an increase over the past three months with the largest capital gains being recorded in Darwin at 5.1% and Sydney at 4.1%.
Since the housing market moved out of its correction phase at the end of May 2012, dwelling values across the combined capital city index have increased by a cumulative 16.1% through to the end of April 2014.
According to RP Data’s Tim Lawless, the strong market conditions have sparked a new round of debate around the sustainability of recent rates of housing value growth and the impact on affordability for housing, particularly in Sydney and Melbourne.
‘The reduction in the rate of capital gains across the combined capital cities housing market brings growth back into a more sustainable range and will be a welcome relief for first home buyers,’ he said.
‘A lower rate of capital gains in Sydney and Melbourne where dwelling values surged 22.5% and 16.4% respectively over the current growth cycle, may now signal that these markets are moving through their growth cycle peak. However, we will need to see a few more months of data before we can establish whether a slowing trend is now evident in these cities. We have recently seen auction clearance rates move lower in both of these markets,’ he explained.
Ben Skilbeck, chief executive officer of Rismark, pointed out that that while the Sydney housing market recorded yet another increase in April, it was the lowest rate of monthly growth since its run of 11 consecutive month end increases commencing June 2013.
‘The last time Sydney strung together 11 consecutive month end increases was in November 2007 when the market added 14.7% and before that in November 2002 when it delivered 19.6% growth. The record for Sydney consecutive growth months was 12 recorded in Nov 1996,’ he explained.
Lawless also pointed out that the slowdown in housing value growth will likely be another factor that will help keep the current low interest rate setting in place. ‘The RBA has been keeping a close eye on the housing market, and while their commentary hasn’t signalled any housing market alarm bells, the lower rate of growth will be another signal that official interest rates don’t need to move higher,’ he added.
The data also shows that Sydney’s median house price has broken the $800,000 mark for the first time on record. The median house price in Sydney was recorded at $802,000 over the three months ending April 2014. Lawless said this probably reflects an increase in activity at the more expensive end of Sydney’s housing market.
Lawless added that while median prices aren’t great for measuring the performance of the housing market, they are useful for understanding the relativity of housing prices from region to region. Sydney’s median house price is currently 30% higher than Melbourne’s and 68% higher than Brisbane’s.
‘Relative to the national market, Sydney has a high share of expensive homes and it is this market segment that has outperformed in the recovery. Over the past 12 months the divergence between the expensive and affordable ends of the market is evident with the most expensive 25% of the housing market increasing by 11.6% as compared to 9.1% for the most affordable 25% of the market,’ Skilbeck said.
The index shows that rental yields continue to suffer as dwelling values move higher at a faster pace than rental rates, particularly in those cities recording very high rates of capital growth. Over the past year capital city rents have increased by just 2.3% while dwelling values are up by 11.5%.
Gross rental yields on a typical Melbourne house are sitting at 3.3% and Sydney gross yields are a bit higher at 3.7%. According to Lawless such a scenario of low yields in these two cities suggests that housing values have moved out of step with rental rates which is likely to dampen some of the investor exuberance we have seen in both of these markets.
‘I wouldn’t be surprised if Brisbane, where home values are much more affordable and rental yields are comparatively healthy, will start to see an increase in investor related demand based on Brisbane’s early stage in the growth cycle and comparatively healthy rental yields,’ he said.
