CoreLogic’s monthly Hedonic Home Value Index has reported a 1.4 percent rise in the value of capital city dwellings in February.
The strong capital gain over February was led by Canberra (+3.2 percent) and Sydney (+2.6 percent), with Melbourne (+1.5 percent) and Hobart (+1 percent) also returning significant increases.
In contrast, dwelling values were down over the month across Darwin (-4.3 percent), Perth (-2.4 percent) and Brisbane (-0.4 percent).
“At a combined capital city level, growth conditions have been rebounding since the middle of last year when, on two separate occasions, interest rates were cut, and investor demand commenced trending higher,” CoreLogic head of research Tim Lawless said.
“Prior to capital gains accelerating halfway through last year, the growth trend had been moderating, reaching a cyclical low point over the twelve months ended July 2016 when the annual change in capital city dwelling values slowed to 6.1 percent.”
A new cyclical high for annual growth rates according to Lawless, the February results mark a new high point in the current growth cycle, with capital city dwelling values increasing by 11.7 percent over the past twelve months.
“The annual growth rate across the combined capitals hasn’t been this strong since the twelve months ending June 2010.
“In Sydney, where the annual rate of growth is now 18.4 percent, this is the highest annual growth rate since the twelve months ending December 2002 when the housing boom of the early 2000’s started to slow.”
The latest CoreLogic results take the current housing growth cycle into its 58th month. Sydney, and Melbourne have remained at the top of the capital gain tables over the past two cycles.
Since the beginning of 2009, Sydney dwelling values have more than doubled, rising by 104.5 percent while Melbourne values are 87.7 percent higher.
The next best-performing capital city over the same period was Canberra where dwelling values have risen by a comparatively modest 37.4 percent.
“The strong growth conditions across Sydney have provided a substantial wealth boost for homeowners, however, the flipside is that housing costs are becoming increasingly out of reach.
This is especially true for price-sensitive segments of the market such as first-time buyers and low-income families.”
“Affordability challenges are most pronounced across the Sydney housing market where, based on September 2016 data, dwelling prices are almost 8.5 times higher than gross household incomes. The second most expensive capital city, Melbourne, has a dwelling price to income ratio of 7.1.”
As a consequence, housing affordability has shown a marked improvement in these regions, with the dwelling price to income ratio tracking at 5.7 in Brisbane, 5.5 in Perth and 4.5 in Darwin based on September 2016 data.
On rental markets, Lawless said it remained soft which is resulting in rental yields slipping to a new record low while dwelling values continued to rise.
“Despite the record low rental yields on offer, investor demand remains high, suggesting investors are likely to be relying on a negative gearing strategy to compensate for their cash flow losses. It also indicates that investors are speculating on future capital gains.”
“The latest housing finance data from the Australian Bureau of Statistics indicates that investors comprise approximately 57 percent of new mortgage demand across New South Wales (excluding refinanced loans).
“This is substantially higher than the long-run average, which is slightly above one-third.”
“Overall, the latest results from the CoreLogic Hedonic Index highlights the performance diversity across Australia’s housing market. The continuation of the capital gains rebound is likely to create further discomfort among policy makers, particularly in light of the growing debate around affordability and the high level of demand from investors.”
“I remain of the view that housing market conditions will moderate during 2017 due to affordability constraints impacting on housing demand, as well as higher supply levels and an eventual slowing of investment demand brought about either through changed policies from Australian lenders or via regulatory changes aimed at slowing credit growth across the investment sector, ” Lawless said.