But the latest home value index from Core Logic RP Data shows that a two tier housing market persisted over the first month of 2015 as performance varied substantially between capital cities.
The largest cities, which have more influence over the combined capital city index due to the high number of dwellings, continued to push the aggregate index higher. Melbourne values were up 2.7% compared with December and Sydney values increased by 1.4%. Hobart also recorded a strong monthly result with values up 1.6%.
Three capital cities recorded a decline in values over the month, with Darwin down 1.3%, Adelaide down 1.2% and Perth values down 0.6%.
The quarterly data shows a clearer picture for housing market conditions, with the combined capitals index recording a 1.9% over the three months ending January 2015.
While Sydney continued to be the standout for capital gains, the most significant increase in values over the past three months was recorded in Hobart with a rise of 4.4%, eclipsing the 2.4% capital gain in Sydney, which was the second highest quarterly reading across the capitals.
According to the firm’s head of research, Tim Lawless, having Hobart produce the strongest results over the past quarter is certainly a unique occurrence. ‘Generally, Hobart has recorded the lowest rate of capital gain since the onset of the global financial crisis, however housing market conditions have been improving,’ he said.
‘Local economic conditions have been improving and Hobart homes are the most affordable of any capital city. Additionally the market is benefitting from the return of lifestyle buyers. After Darwin, the southernmost capital is also showing the second highest gross rental yields of any other capital city,’ he added.
Despite Hobart’s strong quarterly capital gain, Sydney still holds as the city with the highest rate of capital gain over the past 12 months where property values are currently 13% higher.
The annual gain in property prices across the combined capitals index was 8% at the end of January, ranging from a 13% gain in Sydney to a 0.3% reduction in Canberra. Sydney has also shown the highest aggregated capital growth of any capital city in the years since the global downturn.
Lawless pointed out that since the beginning of 2009, Sydney has been a stand out housing market. From January 2009 through to January 2015 Sydney home values have increased by 57%. The second highest rate of growth over the same period has been in Melbourne where values are 50% higher.
There is a significant gap between the next best performers over the same six year period. Darwin has seen less than half the level of growth at 24%, followed by Canberra at 18% and Perth at 17%.
At the other end of the spectrum is Hobart where homes values are unmoved over the six year period, while Brisbane values are 9% higher and Adelaide values up 10%.
According to Lawless, despite the strong start to the year, there is evidence that some heat is leaving the housing market. ‘In a sign that housing market conditions are gradually cooling, the rolling annual rate of capital gain has been trending lower. At the end of January the annual rate of dwelling value growth across the combined capitals index had slowed to 8%, down from the early 2014 peak of 11.5%,’ he explained.
‘The gradual slowdown is spread broadly with all capital cities currently recording a slower annual rate of appreciation compared with recent peaks. This slower rate of appreciation should provide some comfort to regulators that housing demand is starting to taper, despite the historically low interest rate environment,’ he said.
He also pointed out that diminishing affordability levels are likely blocking many price sensitive buyers such as first time buyers and low income families from the market. Additionally, lower rental yields and the prospect of tighter lending conditions for investment loans is likely to moderate the investor segment of the market as well.
The index also shows that houses and units showed an equal rate of capital gain over the month, however the longer trend is clearly showing detached housing to be the stronger performer for capital growth.
Across the combined capitals index, detached housing values were 8.2% higher over the past 12 months, compared with a 6.2% capital gain for unit values. The lower rate of capital gain in the unit market was apparent across most capital cities. The only capital cities where apartments showed a higher capital gain than detached houses were Adelaide were houses were up 2.9% and units up 4.5%, and Canberra with houses down 0.5% and units up 1.4%.
Lawless explained that the lower rate of capital gain across the apartment market coincides with higher supply levels across the medium to high density housing sector. Based on recent data from the Australian Bureau of Statistics, apartment approvals reached an all-time high in November, which, according to Lawless, is possibly keeping a lid on capital gains across the multi-unit sector of the market.
As capital gains continue to run strong, at least at the combined capital city level, rental markets remain weak. Weekly rents have hardly moved over the past year, up by just 1.7% over the past 12 months.
‘With dwelling values rising at nearly five times the pace of rents, we are seeing a consistent deterioration in rental yields. A typical Melbourne house is now showing a gross yield of just 3.2%, which is the lowest of any capital city. Sydney isn’t far behind with houses providing an average gross yield of 3.5%,’ said Lawless.
