And during the three months to the end of January there was a 2.7% rise in prices, according to the RP Data-Rismark Home Value Index.
It means that since the beginning of the current growth cycle in June 2012 values have increased by 13.2% and are now 4.8% higher than their previous peak in October 2010.
However, RP Data research director Tim Lawless said that capital city housing markets continue to be a mixed bag. ‘Sydney and Melbourne were the clear drivers for capital gains over the past year, with values up 13.4% and 11.9% respectively over the 12 months ending January 2014. Excluding Perth, every other capital city has recorded growth of less than 5% over the past year,’ he explained.
He pointed out that these latest housing market results are likely to dampen further speculation around a cut to interest rates over the short to medium term. ‘Together with the higher than expected inflation reading and a lower Aussie dollar, the sustained growth in dwelling values is another factor the RBA is likely to consider when deliberating on any movement in the cash rate,’ he said.
As far as Sydney and Melbourne are concerned, Lawless is expecting that the current exuberant conditions will wind down over the coming year due to the very low yield environment, increasing affordability constraints and higher levels of housing supply impacting the market.
He added that Melbourne, where values were up 3.4% over the three months to the end of January 2014, continues to offer an upside surprise with strong capital gains recorded despite the city showing the lowest rental yields of any other capital and a lift in supply across the inner city and outer fringe housing markets. Local dwelling values also surpassed their previous 2010 market peak and are now 2.6% higher than the previous record highs.
Rismark’s chief executive officer Ben Skilbeck, said that while a moderation in growth is expected for Melbourne and, to a lesser extent, Sydney, strong population growth, an increasing appetite for housing credit and positive consumer sentiment means prices are unlikely to decline in the near term.
‘Growth in outstanding housing borrowings has increased meaningfully from its lows. Most noticeable is investor borrowing which for the calendar year 2013 grew by 7% compared to 3% in 2011. While we are yet to observe a significant increase in owner occupier borrowing, lending commitments to this segment for the month of November, the latest available, are 19% higher than the same time last year,’ he explained.
The index also shows that the premium sector of the housing market has gathered pace over the past six months and is now showing the highest capital gains compared with the broad middle segment and most affordable segments of the housing market.
Dwelling values across the most expensive quarter of the capital city markets were up 6.7% over the past six months compared with 5.8% growth across the broad middle market sector and 4.7% growth in the most affordable quarter of the market.
Premium property values have risen by 10.1% over the past 12 months compared with a 9.5% and 7.5% capital gain across the middle market and most affordable quarter of the market respectively.
Rental rates continued to grow at a slower pace than property values and further eroded rental yields across the capital cities, the index report also shows. The markets where dwelling values have shown the most appreciation, Melbourne and Sydney, are now showing gross yields for houses below 4% while the typical gross yield on a Melbourne and Sydney unit are higher at 4.2% and 4.7% gross respectively, however, they are lower than in all other capital cities.
According to Lawless, such a yield environment may potentially start acting as a disincentive to investors. ‘With gross yields low in Melbourne, and not a lot better in Sydney, together with the fact that both these markets are well advanced in their growth cycle, it would suggest that investment fundamentals in these markets are waning. It is my view that investors will start seeking out the higher yields of Brisbane where the market is also far earlier in the growth cycle,’ he said.
Skilbeck said that when Sydney’s recent growth is put into the context of the past 10 years, continued momentum, albeit at a slower pace than the past six months, is expected.
‘Sydney’s annualised 10 year growth to 31 January 2013 is a very modest 3%, less than half the rate of national household disposable income growth over the period. The same argument, however, does not apply to Melbourne which has had 6% annualised 10 year growth and today has the worst rental yields of the capital cities,’ he added.
