July dwelling values reach a new high says CoreLogic
According to the CoreLogic Home Value Index results for July, dwelling values for the combined capitals have risen by 0.8 per cent over the month – a new record high. This rise now takes the capital city dwelling values 6.3 per cent higher over the first seven months of the year.
Even though dwelling values are rising overall for the combined capitals, four out of eight Australian capital cities have seen a fall in dwelling values over the month of July. Darwin experienced the greatest fall with a decline of -6.2 per cent for the month, -7 per cent for the quarter and -7.5 per cent YOY. Following this was Perth (-0.9 per cent for the month), Brisbane (-0.8 per cent) and then Canberra (-0.7 per cent).
Whilst these four capital cities experienced a decline, the rate of growth across the combined capitals aggregate index also slowed down slightly after a good April and May. Sydney and Melbourne have experienced a slowdown in their annual rate of growth, with July indices showing Sydney sitting at 9.1 per cent capital gain, whilst Melbourne sits at 7.5 per cent over the last 12 months.
Sydney still ranks as the strongest growing city for July with an increase of 1.3 per cent for the month and 5.6 per cent for the quarter. This is followed by Melbourne and Hobart who both saw dwelling values increase 1.1 per cent for the month, but Melbourne only saw dwelling values increase by 3.5 per cent for the quarter compared to Hobart’s 5.2 per cent increase.
The annual rate of growth for the last 12 months is now tracking at 6.1 per cent, compared to October last year which saw figures hit a peak of 11.1 per cent across the combined capitals. The current 6.1 per cent is reported as the slowest annual rate of appreciation since September 2013.
Compared to this time last year, both Sydney and Melbourne’s capital gains reached a peak with dwelling values rising by 18.4 per cent per annum for Sydney and 14.2 per cent per annum for Melbourne. That is pretty much double what it is today. However, it is important to bear in mind that the growth that both Sydney and Melbourne are seeing today is still good growth and should not be overshadowed by the extreme growth experienced by both markets last year.
The median dwelling prices in both Sydney and Melbourne have also come down a lot since its peak last year and now sits at $775,000 and $585,000 respectively. Sydney units now sit at approximately $670,000 compared to $482,500 for Melbourne. Brisbane still remains the most affordable out of the three cities with the average unit priced at $395,000.
According to CoreLogic Head of Research Tim Lawless, “This demonstrates the strength in the Sydney and Melbourne growth trend with dwelling values across the two largest capitals recording a cumulative 61.3 per cent and 42.0 per cent over the cycle to date.”
He also added, “The recent moderation in the rate of capital gains should be viewed as a positive sign that growth in dwelling values may be returning to more sustainable levels. However, the growth trend rate is still tracking considerably faster than income growth resulting in a deterioration of housing affordability.”
Rental yields however remain fairly average for cities and historic lows for others. Brisbane in particular is experiencing good rental yields with 4.2 per cent for houses and 5.3 per cent for units. Sydney in comparison achieves 2.9 per cent for houses and 3.9 per cent for units, whilst Melbourne is pretty much similar with 2.8 per cent for house and 4.0 per cent rental yield for units. Melbourne now records the lowest gross yield for houses (2.8 per cent), whilst Sydney has the lowest yield for units at 3.9 per cent.
The falling rental yields is down to a recent fall in weekly rents. Mr Lawless states, “If the pace of capital gains continues to trend lower, low rental yields are likely to lead to financing challenges due to tighter serviceability requirements and the impact on cash flow, not to mention a potential increase in rental supply resulting in higher vacancy rates.”
With Brisbane the most affordable city out of Sydney and Melbourne and one of the stronger candidates for good rental yields, it will be interesting to see whether Brisbane will pick up the slack over the next few months, especially as interest rates still remain low, the election is now over and the introduction of the $20,000 first home owner grant (an increase of $5,000 for 12 months from 1 July 2016) has now in effect.
Published on 2nd of August 2016 by Marty Stanowich