The combined capital cities index recorded no change overall during February with Sydney, Hobart and Darwin the only capital cities to record a slight lift in dwelling values.
The index recorded zero month on month growth. This follows eight successive monthly increases where dwelling values rose by 10% and values are up 13.2% since June 2012. Also, recent growth has taken capital city dwelling values to 4.8% higher than their previous peak in October 2010.
‘The February market results are in stark contrast to earlier readings where capital city dwelling values moved 2.6% higher over the past three months. The likelihood is that the weak reading for February is an adjustment from the strong readings in December and January rather than the beginning of a flat to negative growth phase across the macro level housing market,’ said TP Data research director Tim Lawless.
Additional metrics tracked by RP Data show that buyer demand remained very strong in February with RP Data’s valuation platforms recording a record month for average daily levels of mortgage related activity. Also, auction clearance rates remained strong and with little slippage in vendor discounting levels or average selling times.
However, Lawless said there will need to be further months of flat to negative movements before it can be said confidently that the housing market is slowing.
‘Our view is that housing market conditions will start to wind down later this year as affordability constraints and low rental yields dampen market conditions. Additionally, with a belief that mortgage rates are likely to start tightening later this year, it may help to quell some of the exuberance we have been seeing,’ he explained.
Rismark International chief executive officer Ben Skilbeck, pointed out that Sydney continued to be the standout performer. ‘When looking at individual capital cities, the Sydney market has had a surprising run of nine successive month end increases totalling 14.1%. In keeping with what other capital cities have experienced, we would have expected some dips along the growth trajectory over a nine month period,’ he said.
‘Despite the recent strong Sydney capital gains, over the past decade Sydney values have compounded at just 2.9% per annum. Arguably this market is playing catch up before settling into a more sustainable rate of growth,’ he added.
The February results show that the premium end of the housing market continued to gather pace while at the more affordable end of the market, capital gains have been slowing.
Dwelling values across the most expensive quarter of capital city housing markets are up 3.8% over the three months to February 2013, and 6.8% over the past six months while homes at the most affordable end of the market have seen values remain flat over the past three months and have risen by a lower 3.5% over the past six months.
Lawless said the stronger performance of premium properties as the growth cycle matures is typical. ‘We saw the same trend in 2009 where the most expensive market also recorded the strongest capital gains, as well as during the 2007 growth cycle. The trend is likely being compounded by the low number of first home buyers active in the market place who normally drive demand at the more affordable price points,’ he explained.
Although rents are rising, rental yields have suffered over the past growth cycle due to capital gains outpacing rental markets. The bi-product of strong capital gains combined with less impressive rental growth has been yield compression.
‘Since June 2012 dwelling values are up slightly more than 13% while rents have risen by less than 5%. Gross dwelling yields have slipped from 4.3% in May 2012 to 4% and are as low as 3.4% for the typical Melbourne detached house,’ Lawless pointed out.
Looking forward, Skilbeck said that uninterrupted successive month on month increases are unlikely even in the event positive market environments and high auction clearance rates are maintained.
‘Factors such as seasonality, buyer sentiment, perspectives on aspects contributing to future affordability and vendor expectations all contribute to market volatility. As with any market, it takes two or three months for trends to be differentiated from natural market volatility,’ he explained.
‘In particular, it will be interesting to see whether Brisbane’s 2% decline this month is simply natural volatility or if it’s indicative of the city’s struggle to trend toward its 2009 peak,’ he added.
