29 January 2010

RP Data – Rismark Home Value Index Release

After recording a stellar performance over most of 2009 the Australian residential property market ended 2009 on a softer note with national home values virtually flat during the month of December.

Australian home values recorded a -0.3 per cent fall in the month of December as the seasonal effect of the summer slowdown combined with rising interest rates and fading first time buyers put a dampener on what has otherwise been a very strong year for Australian residential real estate.

While capital growth across all homes in the December quarter was the weakest of the year, values were still up an impressive 2.1 per cent. (Note that this is less than half the growth recorded by ‘median price’ index providers, which have had their results influenced by the return of upgraders to the market buying more expensive homes combined with the withdrawal of first timers. RP Data-Rismark’s “hedonic” index is not affected by the changes in the composition of homes sold over time.)

All capital cities recorded strong capital gains during 2009 with the most spectacular results seen in the Darwin and Melbourne markets where home values were up 16.6 per cent and 15.6 per cent respectively.

The weakest market during the year was Adelaide with values rising 6.2 per cent. Residential property in Brisbane achieved a slightly better outcome with 7.3 per cent growth. Arguably one of the most interesting stories of 2009 has been the recovery of the Perth property market with values increasing by 7.1 per cent after cumulative losses of 7.9 per cent since September 2007.

According to Tim Lawless, rpdata.com’s head of research, the market drivers changed considerably over the year.

“The strongest gains were recorded early in the year with national home values up 3.1 per cent over the first quarter of ‘09.  The market was being led by first home buyers and consequently the most affordable end of the market saw a 3.9 per cent lift in values.”

“Over the second and third quarters it was upgraders in the middle and the top ends of the market that generated the strongest gains.  The top 20 per cent of Australia’s most expensive postcodes increased in value by 9.5 per cent over the last three quarters of the year compared to 4.1 per cent growth in cheapest 20 per cent of postcodes.”

According to Christopher Joye, managing director of Rismark International, “We are projecting that the housing market will cool as mortgage rates normalise back to 7-8% levels. This implies that capital growth rates will fall back to single digit levels consistent with expected change in the incomes of prospective buyers.”

“It pays to remember that the price of Australian homes is only around 4.1 times disposable household incomes, which has been unchanged since September 2003. This tells us that over the last six years Australian house price have very closely tracked changes in household incomes. Contrary to popular myth, Australia’s house price-to-income ratio is not unusually high, nor has it risen in recent times” Mr Joye said.

Rental market
Rental markets around the country have failed to keep pace with the rapid growth in home values resulting in lower rental yields across every capital city.  Nationally, rental rates are down about 2.5 per cent which has resulted in rental yields being eroded.

Melbourne’s dramatic rate of capital growth together with a modest fall in weekly rents saw rental yields fall.  Melbourne’s gross rental yield for houses is now the lowest of any capital city at just 3.7 per cent.
Darwin, on the other hand, has seen rental yields remain the highest in the nation despite the consistently strong increases in property values.  Rental rates in Darwin are up more than 8 per cent over the year providing a gross rental yield of 5.7 per cent for houses and 5.9 per cent for units.

Units outperform houses
2009 saw Australian unit values increase by 13.5 per cent compared with house values up 10.4 per cent.  The trend was the consistent across every capital city, with units returning a strong gain over the year.

According to Mr Lawless, “The higher gains in the unit market are a deviation from normal performances.  Historically houses have tended to outperform units.  The recent reversal in fortunes has occurred due to more buyers leaning towards units because they have a more affordable price tag and are often located in more strategic locations in relation to transport and amenity than many detached housing options.  Other factors may also include changing housing preferences, particularly amongst baby boomers, and more highly targeted unit developments being delivered to the market.”

City by City

Sydney  It is often forgotten that between December 2003 and December 2006 Sydney home values fell by over 6 per cent. 2009 finally saw Sydney home values recover with the December ‘09 home value now 5.8 per cent higher than the previous Feb ’04 peak. Rental yields in Sydney are slightly higher than the national average with houses returning a gross yield of 4.2 per cent and units returning 5.1 per cent. The median price of a Sydney house over the December quarter was $600,000 and the median price of a Sydney unit was $430,000.

Melbourne  Similar to Sydney, between the end of 2003 and end of 2005 Melbourne home values only rose by 2.8 per cent.  The Melbourne market recovered much sooner than Sydney’s and home values recorded a strong surge in 2007 (up 21 per cent compared to a 7 per cent gain in Sydney).  2009 was another big year for the Melbourne market with house values rising a further 14.9 per cent and unit values up 18.0 per cent. With such strong capital gains and a relatively flat rental market Melbourne rental yields suffered.  Houses are now providing a gross rental return of 3.7 per cent (the lowest in the nation) and units are returning 4.3 per cent (the second lowest in the nation after Perth). The median price of a Melbourne house over the December quarter was $499,000 and the median price of a Melbourne unit was $410,750.

Brisbane  The Brisbane market remained comparatively subdued during 2009 with values increasing by 7.3 per cent over the year.  The comparatively weak performance can partly be attributed to the strong gains recorded in 2007 where Brisbane values gained 24.6 per cent over the year.  Gross rental yields in Brisbane remain above the national average with houses returning 4.4 per cent and units returning 5.0 per cent.  2010 is likely to see Brisbane outperform the national average due to the fact it is in a later stage of the cycle, together with ongoing strong population growth and the benefit of several major infrastructure projects coming to fruition. The median house price in Brisbane is now $463,000 and the median unit price $383,600

Adelaide  returned the weakest result of 2009 with home values increasing by a comparatively mild 6.2 per cent.  Taking into account the strong growth of 2007 (home values were up 24.4 per cent) and the relatively stable market conditions of 2008 (Adelaide values actually gained 3.3 per cent in ‘08) the South Australian capital has actually outperformed the national average over the three year period by about ten per cent. The city still provides some of the Australia’s most affordable metro housing with median prices at $380,000 for houses and $310,125 for units.

Perth  After the exceptional gains recorded in the Perth market during 2006, when annual growth peaked at 46 per cent half way through the year, the market underperformed the national average. Perth home values had been falling since September 2007 with a total decline of 7.9% at their nadir in December 2008. In 2009 residential property in Perth has staged a solid comeback with capital gains of 7.1% over the year to nearly recover their 2007 peak.  Gross rental yields remain below the national average, despite the weak rate of capital growth.  Rental yields on houses are 3.9 per cent and units are returning gross 4.2 per cent (the lowest of any capital city). The median house price in Perth is $490,000 and the median unit price is $400,000.

Darwin  The standout performer over the last year has been Darwin with home values up 16.6 per cent over the calendar year.  In 2008 Darwin values gained 11.2 per cent, in 2007 values were up 14.1 per cent and in 2005 and 2006 values increased more than 20 per cent in each year.  Such a consistently strong performance has seen Darwin move from being one of the cheapest cities to buy a home to one of the most expensive. Darwin’s median house price has broken the $500,000 mark and is now at $510,000.  The median unit price, despite the large gains, remains relatively affordable compared to other capital cities at $376,000 (only Adelaide and Hobart have recorded a lower median unit price).

Canberra  The Canberra housing market has recorded the third strongest performance, with home values up 14.7 per cent over 2009.  Unit values made the most significant jump, increasing by 23 per cent over the year – a performance second only to Darwin. Canberra median house prices are now the second highest in the nation after Sydney.  The median house price is now $560,000, just $40,000 lower than Sydney.  Median unit prices are the third highest of any capital city at $404,000.

Hobart  Over the year to November 2009 Hobart values have gained 12.4 per cent, a result that has bettered the national average by just under two per cent.  Rental yields are also above average with houses providing a gross return of 4.9 per cent (the second highest rental yield for houses after Darwin) and units returning 5.3 per cent. The Tasmanian capital remains the most affordable capital city by a long stretch with a median house price of $351,000 and a median unit price of $269,000. 

Notes

Seasonality of data
On a raw basis, the December quarter result was the weakest in 2009. This reflects the standard seasonal slowdown that we expect to see over summer. If we seasonally-adjust the data, the December quarter was in line with the growth we saw during the rest of the year.

Median prices
Median price indices are adversely affected by changes in the composition of buyers in the market. RP Data-Rismark’s “hedonic” index, which explicitly controls for capital improvements and each property’s specific location, land size, and number of bedrooms/bathrooms, is not influenced by these changes.  However, RP Data-Rismark report simple median prices alongside the hedonic index results so that media know what the 50th per centile sales transaction was in the relevant period. These median prices have no direct bearing on RP Data-Rismark’s Hedonic Index.

Comments on median price indices from Christopher Joye, managing director of Rismark International: 

“In the first quarter of 2009, some median index providers reported misleading results, claiming that house prices were falling when in fact they were rising rapidly. The medians were being dragged down by a surge in first time buyers purchasing cheap homes in the first three months of 2009. The RP Data-Rismark Hedonic Indices, in contrast, reported strong growth of circa 3 per cent in the first quarter in 2009.
 
“Since the first quarter, the RP Data-Rismark Hedonic Index has shown stable growth. In comparison, the median price indices are being artificially boosted by the fading of first time buyers and the return of upgraders buying more expensive homes, which drag the medians upwards. At the current time, the true rates of capital gains across Australia are likely to be substantially less than those reported by median price suppliers.”


Ends. 

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 (289kb).