30 June 2009

RP Data – Rismark Home Value Index Release

Out today, the monthly RP Data-Rismark International, national  Home Value Index confirmed that home values in Australia continued to trend upwards over the month of May to now reach a national median of $468,819; just 0.1 per cent, or $520, shy of their peak in February 2008.

Based on Australia’s largest property database, which includes around 90,000 capital city home sales in 2009 alone, the monthly RP Data-Rismark National Home Value Index recorded an overall increase of 0.9 per cent in the month of May, and a remarkable 3.9 per cent gain over the first five months of 2009. During the 12 months to May 2009, Australian home values have increased by 1.6 per cent.

RP Data head of research Tim Lawless said, “These latest results herald a national residential market recovery.”

“It’s important to note that it has taken just 15 months for values to recover from the February ‘08 peak.  I believe these results are encouraging, especially when we take a closer look at other Western markets around the world where prices are mostly in decline,” Mr Lawless said.

Rismark International managing director Christopher Joye concurred with Mr Lawless’ comments and said,  “The February RP Data-Rismark Index results were the first clear signs of the so-called economic ‘green shoots’. All of the subsequent evidence—housing finance approvals, auction clearance rates, and other independent house price data—has affirmed this story of an incredibly resilient housing market.”

“The recovery in Australia’s housing market, which has defied countless doomsayers, has in turn been the cornerstone of the Australian economy’s stability in 2009. The robust rise in Australian home values this year has given builders and developers confidence to hire labour and buy materials to invest in new homes. It has also given existing owners the confidence that their largest investment has been a secure store of wealth while other asset-classes have been decimated”, Mr Joye said. 

The improvement in market conditions during 2009 has been largely driven by an increase in owner-occupier (as opposed to investor) activity, which, according to ABS data, is up 23 per cent over the year.

According to Mr Lawless, although investor activity remains low, investment interest is likely to gather pace in the second half of 2009.

“Investors and first home buyers typically compete for similar housing stock. As first home buyer demand starts to taper leading up to the wind back of the first home buyer’s boost, it is likely investor participation will grow. Investors are becoming increasingly attracted to the strong rental yields that are creating positive cash flow opportunities within key markets around Australia.” 

The RBA, which subscribes to the RP Data-Rismark Index data, confirmed its findings in their June Board Minutes, which noted that “dwelling prices showed a modest rise in April, following gains in the previous few months.” RP Data-Rismark was the only major index provider that the RBA covered to publicly release its April results.  

The Australian Bureau of Statistics housing finance data in April also showed the first signs of a rebound in investor participation.

Given the capital gains recorded across most cities, growth in rental yields is now flattening.  The gross annualised rental yield for units is now 5.3 per cent while house rental yields are slightly lower at 4.5 per cent.

In terms of property types, units continue to outperform houses. Over the first five months of 2009 unit values increased by 4.5 per cent while house values rose by 3.7 per cent.

Mr Lawless said, “The stronger performance of the unit market is due to a number of factors.”

“Comparing median house and unit values nationally, the price gap between is just over $90,000, so the affordability proposition for units is compelling.  Units are generally located closer to the city and along transport spines which is very appealing to many Gen Y and Gen X buyers.”

*Technical Note: Readers should be aware of three technical points. First, the monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Accordingly, the first quarter of 2009 index results compare the end of March index with the end of December index. Another way to measure index returns is to combine all the months together in a quarter and compare them to the previous quarter’s pooled index. So you would combine all sales in January, February and March and compute an index value. You would then compare this to the pooled October, November, and December index value. The problem here is that because many home sales are reported by the Valuer Generals offices with a 1-3 month delay, the sample sizes in the more recent months are smaller than the earlier month. So in the first quarter of 2009, January’s sales will dominate because there are more January sales than February and March. In practice, however, there will in the end be a much higher number of sales in February and March. This is the approach used by the ABS. To overcome this problem, RP Data-Rismark treats each month separately. The other issue is that the ABS uses a stratified median price index. If more lower valued homes are selling because of an increase in, say, first time buyer activity, median price indices can report lower returns when in fact house prices be rising. RP Data-Rismark’s hedonic regression method overcomes this problem. Finally, unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.

City by City Summary

Sydney

Sydney home values have increased by 3.5 per cent over the 12 months to May 2009 with house values up by 2.5 per cent and unit values climbing an impressive 5.7 per cent.  Over the first five months of 2009 Sydney has been one of Australia’s best performing cities with median house values up by 5.1 per cent and median unit values increasing by 5.4 per cent.  Growth in Sydney home values has been a long time coming, with Australia’s largest property market recording virtually no value growth between 2004 and 2009.  The recovery in the Sydney market is being lead by the more affordable western suburbs of Sydney; the same areas that saw the greatest value decline during the last five years.   Rental yields for houses and units in Sydney remain strong with houses returning 4.6 per cent and units 5.6 per cent.

Melbourne

Melbourne home values have risen  by 3.5 per cent over the 12 months to May 2009.  Over this period, house values have increased by 3.3 per cent and unit values by 4.5 per cent.  Over the first five months of 2009, Melbourne has been the best performing capital city market in terms of appreciation in median dwelling values.  The impressive result is reflected in the strong performance of house values which are up by 5.9 per cent during 2009 and units which have recorded value increases of 6.7 per cent.  Melbourne houses (together with Sydney) currently have the shortest average time on market at 29 days.

Brisbane

Brisbane home values remain slightly in the red on an annual basis, with home values -0.5 per cent lower in May than the same time last year.  Over the first five months of 2009 Brisbane has begun to once again show positive growth.  During the first five months of the year house values increased 1.6 per cent whilst unit values fell by -0.3 per cent despite the fact Brisbane is home to mainland Australia’s most affordable unit market.  Rental returns for houses have softened slightly and currently sit at 4.6 per cent whilst unit rental yields continue to improve and are now recorded at 5.5 per cent.

Adelaide

Adelaide home values have recorded a fall of -0.7 per cent during the year to May with Adelaide being the only mainland capital city with a median home value under $400,000.  Over this period, house values have declined by -1.3 per cent whilst the value of units has increased by 1.7 per cent.  During the first five months of this year property values have proven to be quite resilient with house values quite flat (-0.2 per cent) and unit values increasing by 3.0 per cent.  The city also is recording comparatively low rental yields, with houses averaging a 4.3 per cent gross return and 5.0 per cent for units.  The low yields are the result of home values rising at a much more rapid pace than rental rates during 2007; a phenomenon that is common in high capital growth markets.

Perth

Perth is the only mainland capital city market to record a fall in property values during the first five months of 2009.  On an annual basis Perth house values have fallen by -4.6 per cent and unit values have depreciated -5.1 per cent.  The Perth market continues to buck the trend of the rest of the Australian market with house values falling by -0.5 per cent during the first five months of 2009 whilst units values are down -0.3 per cent during the period.  Although Perth is currently Australia’s softest market, the slow performance needs to be viewed in light of the spectacular (and unsustainable) growth in Perth values between 2005 and mid 2007.  Annualised price growth peaked around 45 per cent during the middle of 2006.

Darwin

The northern capital continues to show strong growth with the market seemingly unaffected by the Global Financial Crisis.  During the 12 months to May 2009, median house values increased by 14.8 per cent and median unit values showed phenomenal growth of 13.1 per cent.  During 2009 to May, house values have continued their strong performance, climbing by 4.8 per cent and units have increased by an impressive 7.6 per cent.  As well as recording exceptional value growth, Darwin still has the nations best rental yields at 6.3 per cent for houses and 6.3 per cent for units.

Canberra

The last 12 months has seen a relatively flat market for Canberra with dwelling values falling by -0.2 per cent.  Over this period, house values actually fell by -1.2 per cent and unit values increased by 4.1 per cent.  The first five months of this year has seen house values appreciate by 1.7 per cent and unit values increased by 3.3 per cent.  Canberra remains home to the nations second best gross rental yields which sit at 5.4 per cent for houses and 5.7 per cent for units.

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

Detailed tables available in the PDF (174kb). 

NOTE:

*RP Data and Rismark recommends that caution be used when interpreting property indices results as these results can vary depending on the methodology used and sample size.

In all RP Data and Rismark published indices, methodology is clearly indicated. For more information on the RP Data-Rismark indices, please visit the Property Indices section in this site.