Home values flat in April as heat comes out of Australia’s housing market
31 May 2010
RP Data – Rismark Home Value Index Release
Home values flat in April as heat comes out of Australia’s housing market
Housing markets outside the capital cities record no growth in 2010
The slowdown in capital growth comes on the back of 16 months of strong rises in home values. The anemic growth in April also contrasts strikingly with the market’s circa one per cent per month capital gains since the start of 2009.
Across Australian capital cities, home values were 11.9 per cent higher in the 12 months to April 2010.
In the month of April all cities recorded capital gains substantially less than the national average of one per cent per month in the previous 12 months, with Melbourne’s monthly growth rate halving from 1.6 per cent per month in the year to March to just 0.8 per cent in April.
Several cities recorded a dip in home values in April, with Brisbane values down 1.2 per cent, Perth values down 0.9 per cent and Darwin recording a 0.3 per cent fall. While both Brisbane and Perth have been consistently weak performers over the last year, Darwin dwellings have risen in value by 54 per cent since the start of 2007.
According to Tim Lawless, RP Data’s Director of Research, the April results are the lowest monthly capital gain since the end of the GFC-induced downturn in December 2008.
“A wide range of indicators have been hinting that a slowdown was on the cards. We are in a market now that has lower auction clearances, weaker home loan approvals, and lower consumer confidence. Combined with the six recent interest rate rises, and the fact that home values have recorded very large gains across key markets since the start of 2009, it is not surprising to see values start to track sideways,” Mr Lawless said.
Christopher Joye, CEO of Rismark International, added, “We have been forecasting a cooling in capital growth rates back down to single digit levels since October last year. Australian disposable household incomes rose by 11.5 per cent in 2009—unsurprisingly, the cost of housing increased by almost exactly the same amount. In 2010, disposable household income growth will be less than 5 per cent. Over the long-run, residential property values track purchasing power quite closely. We believe 2010 will be no different in this regard.”
Australia’s non-capital city markets, which while often ignored account for 40 per cent of all dwellings, have been experiencing significantly lower rates of growth in house values than their capital city counterparts.
Based on the RP Data-Rismark Rest of State Hedonic Index, house values in the non-capital city regions have been appreciating at less than half the rate of the capitals. Over the twelve months to end April 2010, the rest of state markets recorded capital growth of just 5.6 per cent compared with 11.6 per cent growth in the value of capital city houses.
Mr Lawless said that the rest of state markets have been underperforming compared with the capital cities throughout 2009—this trend has continued in 2010. In fact, over the last four months we have seen regional home values fall slightly by -0.1 per cent.
Rismark’s Christopher Joye added, “Housing costs in capital cities have risen more rapidly than the rest of state markets, which still account for 40 per cent of all homes, due to a confluence of stronger demand and less responsive housing supply in metro areas.”
Since 2003 Australian home values have tracked almost exactly one to one with disposable incomes. After the big boost to incomes care of the government’s fiscal stimulus and much lower interest rates during the GFC, the cost of Australian housing rose rapidly in 2010 in response to much stronger purchasing power. As interest rates have normalised, and disposable income growth falls back to 3-5 per cent in calendar year 2010, it is natural to expect the cost of housing to follow suit.
According to RP Data’s Tim Lawless, “The RBA will be encouraged by the cooling in capital growth rates and relieved to see that the six rate hikes have taken some steam out of the market. Alongside other weaker economic data, this will likely contribute to the RBA keeping rates on hold for the next few months at least. The futures market is currently pricing no rate hikes for the rest of the year.”
Rismark’s Christopher Joye continued, “The RBA’s Dr Luci Ellis recently stated that ‘we do not have a credit-fuelled speculative [housing] boom on our hands.’ This confirmed what we had been arguing for a long time now: the change in the cost of Australian housing was being driven by demand - and supply-side fundamentals, not higher debt levels. Credit growth is currently very weak, and we expect that in 2010 home values will broadly track disposable incomes. The April results are important since they provide the first credible evidence of a genuine moderation in conditions consistent with the recent weakening in auction clearance rate and housing finance data. The RBA will no doubt also chalk this one up to a victory for their recent ‘jawboning’.”
While capital growth rates have slowed, other indicators suggest that Australia’s residential property sector remains reasonably healthy.
Last week RP Data was monitoring 211,200 residential property listings in the market worth an estimated $134.6 billion. This is a slightly lower level of ‘stock on market’ than 12 months ago despite the fact that the number of newly advertised properties entering the market has been higher for most of 2010. This is at a time when mortgage rates are 160 basis points higher than they were 12 months ago.
RP Data’s Tim Lawless added, “We are seeing more properties selling than what is being added to the market each week which indicates that buyers have been out numbering sellers. RP Data has recorded more than 80,000 properties being prepared for sale over the last month suggesting that the number of new listings entering the market are likely to remain healthy over the coming month.”
“We closely monitor a range of critical real-time variables to give us insights on the ability of the market to clear volumes at stable prices, including the new listings, agent prelisting activity, the average number of days properties stay on the market before they are sold, and the extent to which vendors discount their homes to crystallize a sale” Mr Lawless said.
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 (324kb).