After a flat February result, the RP Data Rismark Home Value Index finished the March quarter in a strong fashion with dwelling values rising 2.3 per cent over the month to post a 3.5% capital gain over the first quarter of the year.
Apart from Perth, every capital city recorded a rise in dwelling values over the past three months. Melbourne posted the highest level of growth at 5.4% over the quarter with Sydney and Hobart also recording a strong result with values up 4.4% and 4.7% respectively.
According to RP Data research director Tim Lawless, half of all Australia’s capital cities are now posting record high dwelling values, with Sydney’s housing market showing the most substantial increase beyond its previous market high.
‘Sydney dwelling values are now 15.8% higher than their previous peak, substantially more than Melbourne where dwelling values are 4.7% higher than their previous peak. Perth and Canberra values have risen to be 2.9% and 1.2% higher than their previous high point, respectively,’ he explained.
Dwelling values have risen by a cumulative 15.8% since the growth cycle commenced in June 2012 and Lawless noted that a majority of this growth has occurred since June last year.
‘Dwelling values increased by just 2.9% over the first 12 months of the cycle, however, since last June, values are up by close to 13%,’ he said but added that over the long term he does not believe such a strong pace of growth can be sustained.
‘We expect housing market conditions to cool down as the year progresses. If the pace of capital gains doesn’t slow, we may see higher interest rates realised much earlier than previously expected,’ Lawless said.
Rismark’s managing director, Ben Skilbeck pointed out that seasonality is likely to be having a positive influence on the latest monthly result. ‘March and September have a history of being comparatively strong seasonal months for dwelling value changes. As such, there should be little surprise that, in the presence of high auction clearance rates and in the absence of any major economic changes, the March month delivered materially stronger performance than the flat February result,’ he said.
He also said that Brisbane’s performance is worthy of note. ‘Given this market remains 5.2% below its previous peak and has one of the best rental yields of the capital cities, we’ve been looking for the commencement of relative outperformance, in particular compared to Melbourne. With Brisbane dwelling values up 2.9% for the month ended 31 March 2014, it now looks like the 2% fall in February was representative of natural market volatility as opposed to being indicative of a downward trend,’ he explained.
Lawless agreed and said that Brisbane is likely to be the market to watch. ‘Compared with the other major capitals, Brisbane dwelling values have recorded a much softer performance despite a lift in buyer numbers and the strong yield scenario,’ he added.
Looking at the performance of the housing market across broad price segments, the premium market remains as the best performer. After posting a more substantial correction, dwelling values across the most expensive quarter of the market were up 7.2% over the past six months while the lower priced quarter of the market saw values lift by a lower 4.9% over the past six months.
Rental yields continued to taper over the month with the typical capital city house providing a gross yield of just 3.8% and units showing a higher 4.6% gross yield.
According to Lawless, gross rental yields have been falling since June 2013 when the pace of dwelling value growth picked up substantially. While capital city home values are up 12.5% since May last year, weekly rents have increased by just 1.8%.
‘The by product of this disconnection in growth rates is that yields have been eroded consistently lower. The situation is worse in Sydney and Melbourne. Since May last year Sydney home values are up 17.3% while rents have moved by only 3.5%,’ said Lawless.
‘Similarly in Melbourne, since May last year dwelling values have risen by 14.6% while rents have crept only 1.5% higher. Melbourne and Sydney are showing the lowest gross yields of any capital city at just 3.3% and 3.8% gross respectively,’ he added.
