The first six months of 2014 have shown a mixed performance across Australia’s capital city housing markets. According to the RP Data–Rismark Home Value Index, values across the combined capital cities have increased by a cumulative 3.3 per cent over the first half of the year. The first quarter was substantially stronger than the second quarter, with values up 6.5 per cent over the three months ending March 2014 compared with a 0.2 per cent fall over the June quarter.
Based on data for the most recent quarter it appears that capital gains across the housing market are slowing down following two years of growth. The market started its growth phase back in 2012 and over the past two years we have seen a cumulative capital gain of 15.5 per cent.
To date, the most substantial growth conditions have been recorded across the Sydney housing market where dwelling values have moved 23.1 per cent higher since June 2012 and 5.5 per cent higher over the first half of 2014. Sydney’s long-term growth cycle has been relatively weak, with dwelling values rising by just 3.4 per cent per annum over the past decade.
Housing affordability in Sydney remains an issue, with the median house price now around the $800,000 mark.
The second highest capital gain over the first half of 2014 was recorded in Hobart, where dwelling values have moved 4.2 per cent higher. The rise in values across Australia’s most affordable capital city come after a substantial correction; even with the recent capital gain, Hobart dwelling values remain 8.3 per cent below their previous 2009 peak.
Melbourne’s housing market has recorded the third highest capital gain over the first half of 2014, with dwelling values up 2.9 per cent. The six-monthly rate of growth is a substantial slowdown from the frothy conditions of 2009 and 2010 where the rolling six-monthly rate of capital gain peaked at 12.2 per cent in November 2009. Melbourne’s long-term growth cycle has been much stronger than Sydney’s with dwelling values rising by 5.8 per cent year-on-year over the past decade. Such strong value gains at a time when rental rates aren’t rising anywhere near the same pace has compressed rental yields substantially where houses are returning a typical gross yield of just 3.4 per cent and units are providing a slightly higher 4.3 per cent yield.
Brisbane’s housing market has recorded the fourth highest rate of capital gain so far this year with dwelling values moving 2.3 per cent higher. Brisbane’s housing market has been a relatively soft performer since the end of 2007 with the rate of capital gain substantially underperforming the capital city average over the past two growth cycles. The weak performance has seen a substantial valuation gap open up between Brisbane and the other major capital cities. Additionally, rental yields are much healthier than what is being recorded in Melbourne and Sydney, with houses returning an average gross yield of 4.5 per cent and units providing a higher 5.4 per cent gross yield.
Darwin dwelling values have risen by 1.9 per cent over the first half of the year, the fourth highest gain across the capital city markets. Over the long term, the Darwin housing market has provided the highest annual rate of capital gain, with values rising, on average, by 8.4 per cent per annum over the past decade. Despite the strong long-term capital gains, Darwin rental yields remain the highest of any capital city at 6.1 per cent gross for houses and 5.9 per cent gross for units.
Canberra’s housing market has slowed substantially over the second half of 2013 and first half of 2014. Dwelling values were 1.5 per cent higher over first half of 2014 and rental markets have started to track backwards.
Adelaide dwelling values have been virtually flat over the 2014 year to date, up by just 0.8 per cent. Perth’s housing market moved through the peak of its growth phase late last year, with dwelling values moving 0.1 per cent lower over the first half of 2014. Despite the recent slowdown, the Perth market has seen one of the strongest cumulative rates of capital gain over the current cycle, with dwelling values up 15.2 per cent since bottoming out in late 2011.
It is our view that the rate of capital gain will continue to taper over the second half of 2014. Perth and Canberra have already moved through the peak of their growth cycle, while Melbourne and Sydney are also likely to have recently moved through the peak of their cycle. The capital city markets to watch are likely to be Brisbane and Hobart where growth conditions have been comparatively sedate, rental yields are much healthier and affordability hurdles are less of an issue.
Tim Lawless, national research director, RP Data