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House prices growth flattens in Sydney, latest index shows

Overall there was a 0.9% rise in capital city property prices over the month and a 4% rise in the September quarter, the CoreLogic RP Data home value index shows.

However, across the capital cities, the month on month results ranged from a 2.4% rise in Melbourne to a 1.9% fall in Hobart while Sydney, posted a month on month gain of just 0.1% in September.

During the September quarter, half of Australia’s capital cities posted a decline in dwelling values with Hobart down 2% over the three months. In Adelaide values slipped by 1.6%, in Perth they fell by 0.7% and Canberra values were down 0.4%.

The most substantial capital gains over the quarter were achieved in Melbourne where dwelling values were up by 7.4% followed by Sydney at 4.6 %, Brisbane at 1.9% and Darwin up by 0.4%.

Head of research Tim Lawless pointed out that the flat growth rate in Sydney comes after dwelling values increased by 16.7% over the past 12 months and they are 49.6% higher over the growth cycle to date.

‘The slower month on month reading across the Sydney market comes at a time when auction clearance rates have slipped to the low 70% range from week to week and the number of advertised properties has risen,’ said Lawless.

‘Vendors are still enjoying strong selling conditions, but it looks like buyers are slowly regaining some leverage in what has been a very hot market. Meanwhile, while half of Australia’s capital cities have seen values rise over the past quarter and year, the other half did not fare as well,’ he added.

In Darwin, dwelling values fell by 3.9% over the 12 months to the end of September, while in Perth values were 0.9% lower over the year. Adelaide home values dropped by 0.3% and Hobart values are 0.2% lower.

Weakening labour markets, slower population growth and less demand for housing is placing downwards pressure on prices to differing degrees across these markets, according to Lawless.

Looking at which sector of the housing market is driving the highest capital gains, across the combined capital cities it has been the most expensive quartile of the market where growth has been the most substantial.

Across the combined capitals, the top quartile of dwellings based on value has recorded growth of 12.3% over the past 12 months, while the most affordable end of the market has recorded a lower growth rate of 8.5%.

‘This trend holds true across Sydney and Melbourne, however in Brisbane, Adelaide and Perth it is actually the most affordable end of the housing market that has recorded the best results,’ Lawless said.

CoreLogic's analysis of houses versus apartments reveals some substantial differences in market performances across the capital cities. At a capital city level over the quarter, the results don’t show a great deal of difference with house values up 4% and unit values rising by a slightly lower 3.9%.

Over the year there were stronger result for detached housing compared with apartments. Capital city house values are up 11.6% over the past 12 months compared with a 7.3% rise in unit values.

The Melbourne market shows the most material difference between product types with house values up 15.6% over the past year compared with a 3.7% rise in unit values. Similarly, in Sydney, house values are 17.6% higher and unit values have risen by a lower annual rate of 12.6%.

The only capital city where apartments have outperformed detached houses over the past 12 months has been in Hobart where apartments comprise only around one fifth of dwelling sales. Across the combined capitals cities, the majority of dwelling approvals have been for units as opposed to houses which is potentially limiting the pace of capital gains across this segment of the market.

Turning the focus to rental markets and rental yields, the trend towards lower gross rental yields has continued over the September quarter, with weekly rents slipping 0.8% lower for houses across the combined capital cities and remaining flat for units.

While dwelling values continued to rise over the September quarter, at least across the combined capitals, rental rates slipped lower for houses and remained steady for units which has pushed gross rental yields even lower. Gross rental yields are at a record low across Sydney, Melbourne and Canberra.

The lowest gross rental yields can be found in Melbourne where the typical house is now providing a gross return of just 2.9% and units are providing a gross return of 4.1%. Similarly, in Sydney, gross yields are also at a record low with houses providing a gross return of 3.1% and units yielding 4.1%.

‘We’re also seeing relatively weak rental conditions across the other capital cities, however capital gains haven’t been high enough to push gross rental yields substantially lower. With the first month of spring behind us, it is clear that housing market conditions are being tested, particularly in Sydney,’ Lawless explained.

‘The number of auctions held over the month of September was 31% higher compared with September 2014 and new listing numbers are ramping up at a faster rate than last year as well. The fact that clearance rates have held above 70% in Sydney and Melbourne in the face of substantially higher auction numbers suggests that selling conditions remain strong despite the softer growth figure in Sydney over the month,’ he added.