RP Data Media Information

Thursday 29th February, 2008

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During the year to January 2008, Australian house values increased by 13.97 per cent or $60,657, to reach $494,788. This strong result for the country's housing market has eclipsed the share market, with the S&P / ASX 200 falling by 2.13 per cent for the same period.

National house values are now approaching $500,000 for the average family home. A further increase 1.1 per cent in growth will potentially confirm this.

According to Tim Lawless, RP Data’s research director, the ongoing rise in housing prices is great news for property owners and investors who are now around $60,000 wealthier over the year. On the flip-side, buyers already struggling to meet housing market price increases are likely to see their opportunities lost.

"Right now it takes more than 37 per cent of the average family income to service a home loan. This is a double whammy because rental rates are also increasing at a rapid rate"

“The question is, where will these people head to now?" Mr. Lawless said.

The unit market is now a major beneficiary of the affordability crisis with units appreciating at a faster rate than houses nationally. In addition, more land and housing releases in regional locations and city fringes which are well serviced by transport options are the other obvious alternatives.

Rismark International's CEO, Christopher Joye, said, "The resilience of the Australian residential property market in spite of 7 interest rate hikes since March 2005 has been remarkable. Ironically, the RBA’s contradictory monetary policy stance has only served to exacerbate the housing supply constraints that are underpinning the price growth."

Units continue to outperform houses nationally

Nationally, unit values have been increasing at a higher rate than houses. Over the year to January 2008 unit values nationally increased by 16.31% while house values increased by 13.97%. The strong performance of the unit market is due to primarily to affordability constraints pushing more potential house buyers into the unit market. In addition, better quality unit stock is catering to increased levels of demand for unit style living, particularly in the inner city areas. Demand for prestigious unit style living is mainly derived from the empty nester segment who often looking to downsize from their home in the suburbs.

Best and worst performers

Adelaide best performer Over the last year the Adelaide market has consistently been the top performer. The combined house and unit market increased in value by 28.16% over the last year. Adelaide house values have risen from $355,641 in January last year to $416,870 at the end of January this year – an increase of $86,799. Despite such strong value increases Adelaide houses are still the most affordable in the nation. Adelaide dwellings should continue to improve in value over the year, however it is difficult to see the rate of growth being maintained at this level. It is more than likely the Adelaide market will start to cool over the coming months as prices reach a critical level of affordability and growth recedes to more sustainable levels.

Brisbane and Melbourne value growth above 20% over the year Brisbane and Melbourne markets have been the second and third best performers based on annual change in dwelling values. Over the year Brisbane dwelling values increased by 23.34% and Melbourne dwellings values increased by 22.97%.

Sydney continues to improve The performance of the Sydney market has continued to improve. Last month the annual growth rate for Sydney dwelling values was 7.37%, this month the growth rate has increased again to 8.39%.

Perth remains relatively flat Perth value growth has remained in positive territory over the last twelve months, recording an increase in dwelling values of 0.84%. This rate of growth is a slight improvement over last month, however the quarterly results for Perth show a 2.01% decline in dwelling values in the three months ending January 2008. The poor performance of the Perth market is despite the fact that Western Australia has the highest population growth rate in the nation and the strongest economy of any state or territory. To put it simply, Perth housing prices are too high and rental yields are too low to be attractive to buyers.

Two tiered market becomes even more evident

The disparity between affluent suburbs and the mortgage belt continues to widen. This trend is most apparent in Sydney, where the affluent inner suburbs and metro coastal areas have recorded value growth mostly above 10% per annum. In comparison the outer fringes of the market remain very flat. We are seeing an emergence of this trend in the outskirts of Melbourne and the southern outer fringes of Perth also.

The factors behind this trend are simply that borrowing capacity has not been reached within the inner ring suburbs and coastal markets of Australia, while the mortgage belt areas are suffering from low demand due to affordability constraints. The white knight for these outer regions may be the return of investors during 2008. With rental yields in many of these areas now above 6%, these outer markets are starting to look very attractive to the investment market.

For media enquiries contact:

Mitch Koper, National Communications Manager, RP Data Limited – 0417 771 778 or mitch.koper@rpdata.com