The latest RP Data CoreLogic home value index shows that the market was once again driven by dramatic capital gains across the Sydney and Melbourne markets where prices increased by 5% and 6.4% respectively.
The next best performing city was Canberra where prices increased by 2.5% over the three month period, driven entirely by a gain in detached house values which compensated for a 2.1% fall across the weaker apartment market.
Every other capital city has recorded much more moderate conditions over the winter with Adelaide values up 1.5%, Brisbane up 1.3% and Perth up by 1%. A modest drop in values was seen in Darwin where prices fell by 0.6% and in Hobart where they fell by 0.8%.
Property prices are now 10.9% higher over the past 12 months. However Sydney and Melbourne are the only cities to record double digit growth over the past year.
According to RP Data research director Tim Lawless, Sydney and Melbourne housing markets are driving these two tier conditions. ‘Over the latest growth cycle we have seen Sydney dwelling values increase by 27.2% and Melbourne values up by 19.5%. Sydney and
Melbourne were also the strongest performing cities during the 2009/2010 growth cycle,’ he explained.
He pointed out that since the beginning of 2009, prices have increased by a cumulative 50.1% and 46.1% respectively in Sydney and Melbourne. Looking at the remaining state capitals over the same time frame, the next best performer was Perth where values are now 15% higher, followed by Adelaide at 9.9%, Brisbane with 5.3% and Hobart where dwelling values are actually 1.5% lower.
‘Now that it is Spring, we are expecting listings numbers to rise over the coming month which will provide a real test for the housing market. Considering the ongoing high rate of auction clearance rates, a generally rapid rate of sale and the ongoing low interest rate environment, it’s likely that dwelling values rise even further over the next three months,’ said Lawless.
‘Consumer confidence is also moving in the right direction now after the post budget slump which will add fuel to the exuberant buying and selling conditions we have seen during winter,’ he added.
Rental rates are rising at a slower pace than dwelling values and RP Data expects to see a compression in rental yields across each of the capital cities. The only regions where yields have moved higher over the past 12 months have been across the Adelaide and Hobart apartment markets.
Across the combined capital cities, the typical gross yield on a house has reduced from 4.1% to 3.7% over the past 12 months. Lawless said the most significant yield compression is taking place in Sydney and Melbourne.
‘Over the past year we have seen Sydney’s gross rental yields fall from by 47 basis points, from 4.1% to 3.6%. In Melbourne, where rental yields are even lower, we have seen gross yields fall by 32 basis points over the year to reach 3.2% gross. Given the current rate of value growth and moderate rental growth, it won’t be long before Sydney yields have moved below those of Melbourne,’ he explained.
‘With yields so low in the cities where values are seeing the largest capital gains, it is clear that investors remain very much focussed on value growth rather than yield,’ he added.
Investors are currently comprising their largest proportion of new mortgage commitments since late 2003. Investor loan commitments have accounted for more than 38% of all mortgage lending for nine consecutive months, the longest period ever that investment lending has held above that level.
‘Investors are mostly concentrated across the Sydney and Melbourne apartment markets where capital gains have been strong but yields have been pushed very low. Potentially there are better investment returns to be had in the smaller capital cities where the growth trend is less mature and yields are also healthier,’ Lawless pointed out.
