August national results released by RP Data on 30 September showed that Australian capital city home values declined 0.2 per cent (seasonally adjusted) in August, bookending a strong run that saw home values rise by 8 per cent in the preceding year, despite poor global conditions. At the same time, homes outside capital cities stood still, showing exactly zero per cent growth.
The good news for investors is that rental markets are showing signs of recovery with capital city rents lifting by 2.9 per cent in the past 12 months.
It could be said that the Australian housing market has experienced a broad-based soft landing.
The big surprise for October was the Reserve Bank’s decision to leave rates on hold at 4.5 per cent. Markets had factored in a 76 per cent probability of a 25 basis points increase, and now, despite markets reducing the probability of a November hike to less than 50 per cent, Westpac indicates in its October economic update that everything still points to upward movement in November. The reasons are threefold.
Markets will focus on the next CPI, employment and consumer sentiment figures – all due this month.
The RBA Governor’s speech and September Board Minutes contained a very clear signal that the primary concern remains inflation risks associated with the mining boom. Its policy will be set to pre-emptively avoid inflation while rebalancing growth away from consumer/housing to investment/exports.
Westpac is of the belief that even lower than expected inflation or evidence of slowing credit and moderating housing/retail markets will not divert the RBA from its objective of improving growth with investment/exports at the expense of housing for years to come.
All of this comes as no great surprise to First National agents who have been observing a parallel shift in the marketplace towards an increasing investor presence. Both residential and commercial markets show considerable promise for the years ahead.
Key statistics from RP Data’s September Quarter Rental Review highlight that Darwin still leads the pack when it comes to the most expensive rental houses in Australia. Canberra is hot on its heels. Key statistics reveal that city and regional rental markets are in recovery:
• Weekly rents up 2.9% over last 12 months
• City unit rents increased more than houses – past five years
• Canberra and Melbourne houses recorded rental increases in September quarter
• Western Australia’s Pilbara has the most expensive rents – $1500pw
• Adelaide has the cheapest capital city rents at $320pw
Changes in capital city housing values (three months to August) are detailed below:
Sydney + 0.2% to a median of $505,000
Melbourne – 1.5% to a median of $470,000
Brisbane – 2.3% to a median of $434,000
Adelaide – 0.2% to a median of $387,500
Perth – 4.8% to a median of $460,000
Darwin – 1.4% to a median of $485,000
Canberra + 1.2% to a median of $480,000
Hobart + 1.4% to a median of $325,000
So, the weakness seen since the end of the first quarter has materialised in all cities as the effects of higher interest rates and the absence of the first home buyers boost make themselves felt. While capital growth has broadly halted, property owners are still realising positive total returns due to the effect of direct or imputed rents.
Gross rental yields across capital cities are estimated to be 4.9 per cent and houses 4.0 per cent, but on a total return basis, Australian housing has outperformed most other asset classes in the past ten years. However, if the resources boom combines with excessive consumer spending, the RBA may lift rates 4 to 6 times before the end of 2011, which could lead to further modest declines in property values.
Categories: Market Updates