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House prices close out 2019 with more strength

It was another strong month of house price growth in December, as the year-end rally stayed true to form across the country.

Across the major capital cities, dwelling values increased by 1.2 per cent, marking yet another solid monthly performance, according to the latest data from CoreLogic.

Again it was Sydney and Melbourne leading the price increase, with dwelling values up by 1.7 per cent and 1.4 per cent respectively. Australia’s largest two cities continue to do the bulk of the heavy lifting for prices across the country and over the course of the year were up 5.3 per cent.

The rate of growth across the country was a little slower in December, down to 1.1 per cent compared to 1.7 per cent in the prior month.

Source: Corelogic

However, transactions slowed down considerably during the holiday period. The real test for house prices will likely come in 2020 when more stock starts to hit the market on the back of higher prices, particularly in Sydney and Melbourne.

Around the country, a number of the other major capital cities saw only minimal growth, with Brisbane and Adelaide the only others to see significant moves with 0.7 per cent and 0.5 per cent increases respectively.

Darwin continued to be the weakest market in the country, falling by -0.5 per cent

Highlights over the three months to December 2019

▶ Best performing capital city: Sydney +6.2 per cent

▶ Weakest performing capital city: Darwin -1.4 per cent

▶ Highest rental yield: Darwin 5.9 per cent

▶ Lowest rental yields: Sydney 3.0 per cent

CoreLogic’s Asia Pacific head of research, Tim Lawless, said 2019 ended in a far different fashion from where it began.

“The positive year-end results mask what has been a year of two distinct halves – we saw capital city dwelling values fall by 3.8 per cent over the first six months of 2019 and then rebound by 7.0 per cent over the second half of the year,” Mr Lawless said.

“The housing value rebound was spurred on by lower mortgage rates, a relaxation in borrower serviceability assessments, improved housing affordability and renewed certainty around property taxation policies post the federal election.

“Lower advertised stock levels persisted providing additional upwards pressure on prices amidst rising buyer activity.”

Despite a strong rebound over the second half of 2019, property values across most regions of Australia are still below their previous record highs.

Nationally, the CoreLogic index recorded a peak in October 2017; dwelling values remained 3.1 per cent below their record high at the end of 2019.

If the current quarterly rate of growth persists into 2020, the national housing market will record a nominal recovery in March as dwelling values push higher to new record highs. 

Mr Lawless believes that while house price growth is positive, household incomes aren’t keeping up.

“A nominal recovery in housing values implies home owners are becoming wealthier, which may also help to support household spending,” he said.

“However, the flipside is that housing affordability is set to deteriorate even further as dwelling values outpace growth in household incomes, signaling a set-back for those saving for a deposit.” 

The only regions where housing values are currently tracking at new record highs are Hobart, Canberra and regional Tasmania.

Premium property in demand
The premium markets experienced the fastest rate of capital gains with the top quartile of capital city dwelling values rising by 5.6 per cent in 2019 compared with a 1.1 per cent fall across lower quartile properties. 

This trend was most centred on Sydney and Melbourne. Sydney’s top quartile properties recorded a 7.0 per cent rise values over the year compared with a 1.4 per cent lift in values across the lower quartile.

Similarly, in Melbourne, top quartile property values are up 7.6 per cent compared with a 3.7 per cent rise in lower quartile values over the year.

Rents remain firm
Rental markets held reasonably firm in December, with the national rental index up 0.1 per cent over the month and 0.2 per cent higher over the December quarter.

On an annual basis, rents were only 1.2 per cent higher nationally. 

Although rental growth remained sluggish over the year, conditions have picked up from 2018 when the annual growth in national rents was only half a per cent.

The subtle improvement in rental growth comes after a material reduction in investment activity as well as a slump in new residential construction, implying less new rental supply.

Hobart remains the tightest rental market, with rents up 6.0 per cent over the year, followed by Perth with a 2.1 per cent rise in rents, while rents trended lower over the year in Sydney (-1.0 per cent) and Darwin (-2.1 per cent).

The outlook for 2020
Tim Lawless believes that in 2020, it’s unlikely we’ll see such a rapid rise in capital gains as seen throughout the second half of 2019 despite the expectation that mortgage rates will move lower over the first half of the year.

“Housing values are expected to rise through 2020 across most regions, however, the year may bring about a change in the growth dynamic with the larger cities seeing a slowdown in the rapid rate of growth recorded through the second half of 2019,” Mr Lawless said.

“In contrast, smaller capitals such as Brisbane and Perth, as well as key regional centres and lifestyle markets could see an improvement in conditions as buyers are attracted to affordable prices coupled with job opportunities and lifestyle factors.”

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