Housing market outlook
Cameron Kusher, Senior Research Analyst, CoreLogic RP Data
Home values across the combined capital cities continued to rise in August however, they did so at a much more moderate pace.
Sydney continues to see strong increases in values with dwelling values in the city moving 1.1% higher over the month. The growth in values over the month sees the total value of Australian housing remain at $6 trillion.
Across the CoreLogic RP Data combined capital city index, dwelling values increased by 0.3% in August, by 5.3% over the 3 months to August and have risen by 10.2% over the past 12 months. The softer growth conditions in August have seen the annual rate of value growth slow from 11.1% growth at the end of July 2015.
Australia’s largest city, Sydney, remains the hottest housing market, with dwelling values moving 17.6% higher over the past year. House values were up by 18.6% over the year and unit values increased by a lower 12.7%. While dwelling values are rapidly rising, rental rates across Sydney are increasing by only 2.3% per annum which has resulted in gross rental yields shifting to record lows.
In Melbourne, growth conditions have picked up over the past three months, with Melbourne recording a higher rolling quarterly rate of growth than Sydney at 8.0%. Detached houses continue to be the main driver of Melbourne’s appreciating home values. House values were 11.5% higher over the year compared with a 2.9% gain in unit values. Similar to Sydney, rental growth has been subdued across the Melbourne region with dwelling rents increasing by just 2.2% over the past 12 months.
Brisbane’s housing market was the third strongest performer for growth in dwelling values across the capital cities over the past 12 months, with values rising 3.9%. The capital gain has been driven almost exclusively by the detached housing sector where house values have moved 4.3% higher over the year compared with a 0.5% rise in unit values.
Adelaide’s home values have fallen by 0.1% over the three months to August 2015 however, they are 1.8% higher over the past year. This increase in home values places Adelaide as the fourth strongest market for capital gains. The 1.8% rise in home values has been comprised of a 1.8% increase in house values and a 1.2% rise in unit values. The sharper rise in home values relative to rents has seen a slight moderation in gross rental yields which are currently recorded at 4.1% for houses and 4.7% for units.
Perth’s home values have fallen slightly over the past year with dwelling values across the westernmost capital city down by 1.8% over the past 12 months. The decline in dwelling values has been much greater across the unit market where values have fallen by 5.2% over the year compared with house values which were 1.5% lower. The local rental market is seeing larger declines, with house rents down 5.6% and unit rents falling by 6.8%.
Although there have been on and off again signs of an improvement in Hobart’s housing market, conditions remain relatively flat across the city. Over the past 12 months Hobart home values have increased by 1.5% with 1.4% of that growth coming over the first eight months of this year. House values have increased by 1.7% over the year compared to a 0.6% fall in unit values. House rents are up 1.2% over the past 12 months and unit rents are 4.2% higher.
Darwin’s housing market is well into a correction with dwelling values down 4.6% over the past year. House values have recorded a larger fall than unit values, down 4.8% compared with a 3.7% fall in unit values. Weekly rents are also moving lower; house rents have fallen by 10.8% over the year and unit rents are down 9.1%. Despite the sharp fall in weekly rents, Darwin’s gross rental yields are still the highest of any capital city for detached houses at 5.5% and equal highest with Hobart for units at 5.5%.
The housing market in Canberra had been showing signs of growth lately, however recent weakness has seen home values fall by 0.9% over the past year. Canberra is also one of the few cities where the annual rate of growth for unit values (0.9%) has been greater than houses (-1.0%). Rental rates had been recently declining however, house rents have increased by 0.7% over the past year while unit rents have fallen by 0.3%.
The housing markets around Australia are as diverse as ever. While markets are booming in Sydney and Melbourne, they are softening in Darwin, Perth and to a lesser extent Canberra. Across the regional areas of the country we are seeing coastal and lifestyle markets broadly bouncing back in value as buyer demand ramps up after a long slump, while towns reliant on the resources sector are moving through a downturn.
The diversity in the housing market highlights the different growth drivers that are evident from region to region. The economies of Sydney and Melbourne are relatively sheltered from the downturn in the resources sector and are benefitting from a very healthy services sector and positive population inflows while the mining states and territories are experiencing softer economic conditions and a wind down in population growth.
The moderation in the rate of growth across our combined capital cities index in August is likely to be a positive development for Australian regulators such as the Reserve Bank and APRA who have been highlighting concerns about the strong rate of value growth in Sydney and Melbourne. Of course it is only one month and it will be interesting to see whether the slowing trend will persist, particularly as we head into the busy Spring selling season.