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Aussie Dwelling Values Fall After 17 Consecutive Monthly Gains

30 July 2010

RP Data – Rismark Home Value Index Release

  • Capital city dwelling values down 0.7% in month of June with no growth over June quarter
  • Largest fall since April ’08
  • Rest of State dwellings also realise no growth in June quarter
After 17 consecutive months of solid growth, dwelling values across Australia’s capital cities recorded their first monthly decline of 0.7% (seasonally-adjusted) in June according to the market-leading RP Data-Rismark Hedonic Home Value Index. This was the largest monthly fall in home values since April 2008. The June outcome follows on from a clear trend in the decline in monthly seasonally-adjusted growth rates in Australia’s capital cities over February (+1.0%), March (+0.9%), April (+0.6%) and May (+0.3%).

Despite the strong ‘seasonality’ in housing data, RP Data–Rismark is the only index provider to provide seasonally-adjusted results, which is the RBA’s preferred approach.

Over the June quarter, Australian dwelling values remained flat with effectively no growth (+0.1% in seasonally-adjusted terms). This represents a striking deceleration in the quarterly rate of increase in home values. Since the start of 2009, the average quarterly capital growth realised by dwellings located in Australia’s capital cities has been 3.0% (seasonally-adjusted).

The second quarter housing market freeze has been evident in both the capital city and 'Rest-of-State‘ markets, which account for about 40 per cent of all homes by number. 

The RP Data-Rismark 'Rest-of-State‘ Hedonic Index, which it developed for the RBA, registered virtually no capital growth in the June quarter (+0.3% seasonally-adjusted) and a very modest 5.2% rise over the year to June 2010. This is less than half the 10.5% annual growth recorded in Australia’s capital cities in the 12 months to end June.

The soft-landing in Australia’s housing market, which had been long anticipated by RP Data and Rismark after the double-digit capital gains of 2009, has been pervasive across all price bands (see chart). The cheapest 20% of suburbs, middle 60% of suburbs, and most expensive 20% of suburbs (ranked by price) all fell in value in the month of June. The slow-down has been led by homes in the luxury markets, which have declined in value by 1.9% since March 2010.

The RP Data–Rismark Hedonic Index is based on Australia’s largest home sales database, which captured nearly 170,000 sales in the six months to June nationally. RP Data–Rismark’s Hedonic Index is referenced by the RBA in the Statement on Monetary Policy and was the first to report the strong rebound in Australia’s housing market at the start of 2009. RP Data–Rismark’s Hedonic Index was also the first to signal the onset of a discernible slow-down in growth in the month of April 2010. The RBA has referred to this monthly deceleration in its recent Board minutes.

Unlike other measures, RP Data–Rismark’s Hedonic index is reported on a monthly basis and does not average through the quarter. When there are turning points in the housing cycle, “quarterly” house price indices clearly lag RP Data–Rismark’s more timely month-on-month measure.*

As a result of the housing market’s cooling in the June quarter, the year-on-year capital growth rate has fallen from 13.6% in the 12 months to March 2010 to 10.5% in the year to June 2010 (seasonally-adjusted).

In the June quarter, all capital cities experienced virtually no or negative growth with the exception of Adelaide where dwelling values rose by a respectable 1.1%. Adelaide also happens to be the cheapest capital city outside of Hobart with a median dwelling price of just $390,000, which is 16% less than the median dwelling price in Australia’s capital cities of $465,000. RP Data’s national research director, Tim Lawless, notes that the median dwelling price across all markets is a much lower $415,000

Dwellings in Sydney (+0.5%), Melbourne (+0.2%), Brisbane (-1.3%), Perth (-2.5%), Darwin (-0.1%) and Canberra
(-0.8%) all experienced a marked reduction in growth rates in the June quarter from the 3 per cent per quarter pace witnessed since the beginning of 2009.

Mr Lawless said, “The June results confirm the slowdown that RP Data and Rismark had been predicting for some time as the RBA lifted the headline variable mortgage rate from 5.75 per cent in the GFC to 7.4 per cent today, which is near its long-term average since the mid 1990s. The deterioration in monthly capital gains was first evidenced in RP Data–Rismark’s April results, which reported a halving in the monthly growth rate experienced over the previous year.”

Christopher Joye, Managing Director of Rismark International, added, “We’ve been forecasting a substantial deceleration in housing conditions back to single-digit annualised growth rates since October 2009. Over the long-run, house prices track purchasing power quite closely. Disposable household incomes were only projected to rise by about 5% in 2010. We’ve had 4.7% growth in dwelling values in the year-to-date. We do not expect to see the market rise much more over the remaining year subject to labour market conditions and the course of monetary policy.”

“As mortgage rates have normalised, participants in the housing market have cut their house price growth expectations, which explains the current change in conditions. This was also reflected in survey data released by NAB yesterday. According to NAB, consumers have slashed their expectations of house price growth over the next 12 months from 5.2% in March to just 1.4% in June. It’s sobering to remember here that we have had 17 consecutive monthly increases in Australian capital city home values. If the sharemarket rose for 17 months straight and then tapered, people would not think twice. It might be wise to apply the same logic to our housing market.”

Mr Lawless believes that these results will please Australia’s central bank. He said that “Combined with the latest inflation figures, the slow-down in the housing market vindicates the RBA’s decision to put interest rates on hold since May 2010. With first time buyers finding it harder to access the market as affordability has deteriorated, a freeze in capital growth will offer prospective buyers some much needed breathing room.”

“RP Data–Rismark’s results for the most expensive 20% of suburbs show a real shift in the market dynamic. Through most of 2009 and the first quarter of 2010 it was the premium markets that experienced the strongest capital growth. In recent months, the middle 60% of suburbs have outperformed. It’s likely that the top end has been adversely affected by the volatile share market and the uncertainty swirling around Europe and North America. Another variable impacting sentiment may be the federal election, with some people placing their purchase or sale plans on hold subject to seeing the full set of policy positions,” he said.

Despite the recent moderation in capital gains, the risk of a dramatic decline in Australian dwelling values remains remote. 

According to Mr Lawless, “As the RBA has independently confirmed, arguments in favour of house price “bubbles” remain, in my opinion, overstated.  Australia’s housing market has a structural shortage of roughly 200,000 homes, which has been substantiated by the National Housing Supply Council. While the inventory of unsold homes has risen of late, our Market Activity Index suggests that new listings activity will slow over the coming months. And although average time on market and vendor discounting have also expanded with the weaker conditions, these remain in line with historically reasonable levels.”

“If we saw blow-outs in average time on market, re-listings, and vendor discounting, it would set off a few alarm bells.  This, however, is not currently the case” Mr Lawless said.

* RP Data–Rismark privately compute a “stratified median price index” like that used by the ABS and others. When calculating a quarterly stratified median price index, RP Data–Rismark have been able to confirm that the growth rates are spuriously higher than the monthly hedonic measure due to the higher weight applied to the earlier months in the quarter (ie, April and May) that have more sales data. 


Additional information – please contact Mitch Koper at RP Data on 0417 771 778 or Christopher Joye on 0414 980 264.

Key statistics, tables and graphs available in the PDF (203kb).