RP Data – Rismark Property Value Index Release

Released 30 April 2009

For expanded Media Release click here to view the PDF document (278kb)

Residential Property Values Bounce Back in March Quarter ‘09

Australia’s housing market has continued to defy the sceptics during the first quarter of 2009 with the indicative capital city RP Data‐Rismark National Dwelling Value Index up 1.6 per cent in the three months to end March 2009. (This result compares the monthly index values at end March 2009 with end December 2008.) Most of the growth in residential property values has come in February (+0.9 per cent) and the March indicative estimates (+0.6 per cent). The month of January was flat.

Australia’s residential property market has proven to be consistently resilient and follows on from modest circa 3 per cent falls in the value of capital city homes during 2008, which was primarily a result of mortgage rates peaking at 9.6 per cent in August 2008.

By comparison, the ASX All Ordinaries Accumulation Index fell in value by ‐31 per cent over the 12 months to end March 2009 while the Listed Property Trust Accumulation Index fell by ‐58 per cent.

RP Data/Rismark International confirmed that improvements in housing affordability are central to what appears to be the start of a slow house price recovery.
 
According to Christopher Joye, Managing Director of Rismark International, “This gradual recovery in Australian house prices has been driven by the 40 per cent fall in home loan rates to 5.7 per cent, which are now at their lowest levels since July 1968.”

"The ratio of total household interest payments to disposable income has fallen rapidly from 15 per cent to 10 per cent as a consequence.

“Consumers are also voluntarily deleveraging through higher levels of savings with Australia's household savings rate now at its highest level since the late 1980s. This augurs well for the ability of future home buyers to service their debt.”

According to Tim Lawless, RP Data’s Director of Research, the stabilisation in the Australian residential housing market should be viewed as a positive sign by the construction sector.

“These results represent good news for the building industry and should provide a boost to developer confidence,” he said.

“As the market improves further we would expect the construction industry to ramp up new dwelling commencements in a much needed attempt to remedy Australia's large housing shortage.”

“A lift in construction activity will certainly have a positive effect on the economy by boosting jobs, incomes, demand for building products and services, and retail sales for home appliances and furnishings,” Mr Lawless said.

However, Mr Lawless does have some concerns about current government charges and levies; he believes these still present a major hurdle to a wholesale recovery in the construction sector.

There have also been some misplaced concerns that the boost to the First Home Buyers Grant has artificially driven price growth across the entire housing market.

“While the Grant has certainly helped spark demand, the key driver of the housing market’s resilience has been the fall in mortgage rates to 40 year lows. It is important to remember that first-time buyers represent less than 30 per cent of all property sales.” Mr Lawless said.

In addition, he said that in many of the mortgage belt markets where first home buyer sales are now occurring there had been a level of underperformance with both real and nominal house price falls recorded between 2004 and 2008. This was particularly true in the western suburbs of Sydney.

“Price growth in these areas in 2009 is likely to be a welcome change for existing owners,” Mr Lawless said.

CLARIFICATION: On a quarterly basis (i.e., comparing the first quarter of 2009 with the fourth quarter of 2008), which is the method used by the ABS, Australian residential property values are up 0.1 per cent according to the quarterly RP Data-Rismark Hedonic Index. Quarterly index estimates are ‘transaction-weighted’. Since January currently has the largest number of sales (given the delays in getting 100 per cent of sales for February and March), January has a higher weight in the quarterly index and therefore puts a downward bias on the results (since January was flat). Consequently, a monthly index gives more accurate estimates of changes in residential property values over time.

City by City

Sydney
The quarterly data reveals Sydney is now one of the best performing capital cities in terms of value growth, with houses up 2.4 per cent in value and units up 2.5 per cent over the first three months of 2009. A return to modest growth has been a long-time coming for Australia’s largest city. In fact, housing values are still $16,000 lower now than they were back at the 2004 peak highlighting the lackluster performance of the last four years. Rental yields in Sydney are now the third highest in the nation after Darwin and Canberra. The improvement in rental yields is due to several successive years of strong rental growth coupled with relatively flat property values resulting in improved rental returns for landlords.

Melbourne
Over the last quarter Melbourne has been the third best performing capital city in terms of improvement in the median dwelling value. House values have risen 2.3 per cent and unit values have risen 2.8 per cent over the first three months of the year. Melbourne also stands out as recording the shortest average time on market for houses, with the average house selling in just 41 days compared to the national average of 55 days.

Brisbane
The slowdown during 2008 hit Brisbane harder than many other capital cities, which is largely due to prices perhaps overshooting the mark in ’07. Brisbane had a stellar run in 2007 with dwelling values increasing by 25 per cent over the calendar year – the highest annual rate of growth of any capital city during that period. Over the last 12 months Brisbane residential values have fallen 3.4 per cent across both the houses and units market. Modest growth has returned to the Brisbane market during 2009 with the first three months of year seeing house values up 1.4 per cent and unit values up 0.4 per cent. Rental returns are approximately on par with the national average with houses providing a gross yield of 4.7 per cent and units 5.4 per cent.

Adelaide
The Adelaide market has slowed considerably after a prolonged run of price growth which started in early 2007 and didn’t end until half way through 2008. Housing values in Adelaide increased by 24.3 per cent during the 2007 calendar year. Over the last quarter Adelaide values have slipped by -0.3 per cent due mainly to falls in house values (down 0.5 per cent) rather than unit values (up 0.4 per cent). Houses and units are averaging 81 days and 73 days to sell respectively, the longest average selling time of any mainland capital city.

Perth
Perth dwelling values peaked in September 2007 at $507,000 and have since declined by 8.1 per cent or just over $41,000. Values are still falling in the Western capital; however the rate of decline has eased during 2009. Over the March quarter house and unit values fell by -0.7 per cent; a far cry from 2.7 per cent quarterly fall recorded over the three months ending October last year. Rental yields in Perth have been improving month on month also, with the average gross yields on a Perth house now higher than the national average (4.7 per cent v 4.6 per cent).

Darwin
Darwin property values have been the standout performers, recording consistent improvements quarter on quarter since late 2004. Over the last 12 months Darwin is the only capital city to record an increase in housing values, with house values up 6.7 per cent and unit values up 13.6 per cent over the 12 months to March 09. Such strong capital growth typically erodes rental yields, as rental rates rarely move this fast, however in the case of Darwin the rental market has moved in parallel with housing values, consistently providing the best rental yields of any capital city. Over the March quarter the average house and unit was providing a gross rental yield of 6.3 per cent.

Canberra
Canberra dwelling values have fallen -2.7 per cent over the 12 months to March 2009, with a bounce back over the first quarter of 1.4 per cent. House values were up 1.3 per cent over the first three months of ‘09 and unit values were up by 1.7 per cent. Canberra is recording the second highest rental yields in the nation after Darwin, with houses returning a gross yield of 5.6 per cent and units returning a gross yield of 6.1 per cent.

Ends. Detailed tables available in the PDF.

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. More information on the RP Data‐Rismark indices can be found here: http://www.rpdata.net.au/indices/

For media enquiries contact:

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