Housing market outlook steadies

3rd Dec 2014By: Tim Lawless

Dwelling values fell by 0.3% in November across Australia’s combined capital cities according to the latest CoreLogic RP Data Home Value Index results.

In Sydney, Brisbane, Perth and Hobart values were higher over the month and lower elsewhere. Overall, combined capital city home values have increased by 7.0% over the past 12 months. As a result, it looks as though home value growth in 2014 will be lower than the 9.8% increase in 2013.

Over the three months to November 2014, combined capital city home values rose by 0.8% which shows that over this period, growth in the market is quite narrow with only Sydney (3.1%), Brisbane (1.7%) and Perth (0.4%) recording value rises. Elsewhere, values fell over the three months by -1.6% in Melbourne, -0.5% in Adelaide, -2.5% in Hobart, -2.1% in Darwin and -3.3% in Canberra.

Sydney powers on

Sydney continues as the key driver for capital growth, with home values up 13.2% over the past year. Melbourne followed as the second strongest performer, with values up 8.3%, and Brisbane home values are 6.0% higher. Elsewhere, values rose by 2.8% in Adelaide, 1.4% in both Perth and Darwin, 5.2% in Hobart and 1.7% in Canberra.

A superior rate of value growth was recorded for houses, with capital city house values 8.9% higher, compared to a 5.9% rise in unit values over the past 12 months. Across each capital city annual value growth for houses was greater than that for units over the last year.

Selling conditions are still quite favourable in the market however, stock levels are starting to rise and there are variations across the cities. Discounting levels across the combined capital cities sat at 5.5% while the average time on market is at an all-time low of 36 days. Remember that the stronger markets of Sydney and Melbourne are having a much greater impact on these figures. The number of new properties listed for sale across the combined capital cities is now 0.4% higher than a year ago.

With stock on market rising it will be very interesting to see what happens to time on market and discounting levels over the next few months.

As always, there is likely to be a continued variance in performances from city to city and region to region. Much of the growth over the past two and a half years has occurred in Sydney and Melbourne and this appears to be continuing with the rise in values only moderate outside of these cities.

Investor opportunities

The annual rate of value growth in both Sydney and Melbourne has been slowing over recent months. From an investor’s perspective, the best opportunity to enter the Sydney, Melbourne or Perth markets has likely passed, especially considering the strong value growth over the past year is now moderating and rental yields are low. The RBA has also flagged that they are concerned with the level of investment lending taking place in both Sydney and Melbourne. It will be interesting to see whether investors start to turn their attention away from these cities and towards higher yielding markets that are earlier in their value growth phase, such as Brisbane and Adelaide, where value growth is now becoming more evident and the cost of housing is significantly lower than in Sydney and Melbourne.

RP Data anticipates that the rate of capital growth, particularly in Sydney and Melbourne will continue to moderate over the coming year. As a result we may see an improvement in other markets as investors and those priced out of the Sydney and Melbourne markets look for alternatives. We believe that home values will continue to increase over the coming year however; the rate of growth will continue to slow.

Despite the signs that the housing and construction sector is picking up as mining investment slows, it does not mean that the economic changeover will be without its challenges. The likelihood of an introduction of macro prudential tools to limit the exuberance in investment lending may also have a dampening effect on the market, however it remains to see what tools will be used, as well as their effectiveness. The RBA has signaled that an announcement about macro prudential tools is unlikely before the end of the year, so this may pull forward investment demand into the next few weeks.