RP Data – Rismark Property Value Index Release

Released Friday 29 May 2009

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

Home values continue to recover, recording a healthy 2.8% increase over the first four months of 2009

The RP Data/Rismark Australian Home Value Index out today confirmed that housing values around Australia rose by a healthy 2.8 per cent over the first four months to April 09—virtually wiping out the price falls seen in 2008 according to RP Data National Research Director Tim Lawless.*

Unlike the Australian Bureau of Statistics House Price Index, which excludes terraces, semi-detached homes, and apartments, the RP Data/Rismark International hedonic methodology, which is reported by the Reserve Bank of Australia, includes all dwellings. In addition, RP Data benefits from the largest sample of early property sales and property attributes (such as number of bedrooms, bathrooms and land area) of any index provider in Australia.

Over the first four months to April 09, every mainland capital city apart from Perth recorded an increase in home values with the most significant gains in Darwin (+5.3 per cent), Melbourne (+4.4 per cent), and Sydney (+3.9 per cent).

According to Rismark International Managing Director Christopher Joye, “Our analysis demonstrates that home values are rising in around 80 per cent of all suburbs with only the top 20 per cent of suburbs ranked by price suffering material falls.”

The recent growth in the Australian residential property market has fuelled speculation about a ‘bubble’ developing in the first home buyers market but RP Data’s Mr Lawless believes these claims are largely unjustified.

“Home values in Australia’s mortgage belts, which are the prime first home buyer markets, were flat or falling between 2004-07 while the inner city and affluent markets enjoyed consistent growth. In 2008-09 we have seen a reversal of these fortunes,” he said.

Mr Joye adds “While first-time buyer activity has certainly supported the market, people forget that 70-75 per cent of home buyers are not first timers. Also, lending standards are more conservative today than they have been for over 15 years with maximum borrowing ratios being consistently reduced.”

The return to capital growth comes as weekly rental rates start to level.

Mr Lawless said, “Rental rates across Australia have powered ahead over the last three years, providing the best gross rental yields investors have seen for a long time.

“We are now seeing growth rates for weekly rents start to level due to decreasing rental affordability which is causing many renters to consider buying a home instead of renting.

“Gross rental yields are likely to peak over the coming months suggesting that now is probably the best time for investors to roll up their sleeves and become active,” he said.

In terms of housing stock, units are continuing to outperform houses where over the first four months of 2009 values increased by 3.3 per cent while house values increased by 2.7 per cent.

In closing Mr Lawless said “The stronger performance of the unit market is due to a number of factors. Comparing median house and unit values nationally, the price gap between is just over $90,000, so the value proposition of a unit is very compelling. Additionally, units are generally located closer to the city and along transport spines which is very appealing to many Gen Y and Gen X buyers,” he said.
 
The monthly Australian capital city home value changes are as follows: January (+0.1 per cent); February (+1 per cent); March (+0.6 per cent); and April (+1 per cent). The April index results are indicative and may be subject to small revisions.

**Technical Note: Readers should be aware of two technical points. First, the monthly RP Data/Rismark Hedonic Index compares month-to-month index results. Accordingly, the first quarter of 2009 index results compare the end of March index with the end of December index like you would when measuring share market returns. This gives us the +1.8 per cent result described above. Another way to measure index returns is to combine all the months together in a quarter and compare them to the previous quarter’s pooled index. So you would combine all sales in January, February and March and compute an index value. You would then compare this to the pooled October, November, and December index value. The problem here is that because many home sales are reported by the Valuer Generals offices with a delay, the sample sizes in the more recent months are smaller than the earlier month. So in the first quarter of 2009, January’s sales dominate because there are more January sales than February and March. In practice, however, there will ultimately be a much higher number of sales in February and March. This is the approach used by the ABS. To overcome this problem, RP Data-Rismark treats each month separately. If we pool all three months like the ABS, the pooled quarterly index return is still positive +0.3 per cent (this has, in fact, revised upwards from the previous estimate of +0.1 per cent as more sales for Feb/March come through). The second consideration is that the ABS uses a “stratified median price index”. If more lower valued homes are selling because of an increase in, say, first time buyer activity, median price indices can report lower returns when house prices may be rising. RP Data/Rismark’s hedonic method overcomes this problem.

City by City Summary

Sydney

Sydney home values have increased by 2 per cent over the 12 months to April ‘09 with house values up by 0.7 per cent and unit values climbing an impressive 4.9 per cent. Over the first four months of 2009 Sydney has been one of Australia’s best performing cities with median house values up by 3.9 per cent and median unit values increasing by 4 per cent. These modest growth figures have been a long time coming for the Sydney market which has experienced virtually no value growth between 2004 and 2009. The recovery in the Sydney market is being lead by the more affordable western suburbs of Sydney; the same areas that saw the greatest value decline during the last five years. Rental yields for houses and units in Sydney remain strong with houses returning 4.7 per cent and units 5.7 per cent.

Melbourne

Melbourne home values have risen by 1.5 per cent over the 12 months to April 2009. Over this period, house values have increased by 1.0 per cent and unit values by 3 per cent. During 2009, Melbourne has been the second best performing capital city market in terms of appreciation in median dwelling values. The impressive result is reflected in the strong performance of house values which are up by 4.4 per cent during 2009 and units which have recorded value increases of 4.5 per cent. Melbourne house currently have the shortest average time on market at 32 days.

Brisbane

The falls in Brisbane property values witnessed during 2008 appear to be a thing of the past. On an annual basis dwelling values in Brisbane are still down by -3 per cent during the year with house values falling -2.9 per cent and unit values declining by -3.4 per cent. Over the first four months of 2009 Brisbane has begun to once again show positive growth. During the first four months of the year house values climbed 1.9 per cent whilst unit values fell by -0.2 per cent despite the fact Brisbane is home to mainland Australia's most affordable unit market. Rental returns for houses have softened slightly and currently sit at 4.6 per cent whilst unit rental yields continue to improve and are now recorded at 5.4 per cent.

Adelaide

Adelaide dwelling values have recorded a fall of -1.3 per cent during the year to April with Adelaide property still more affordable than any other mainland capital city. Over this period, house values have declined by 1.7 per cent whilst the value of units has increased by 0.7 per cent. During the first four months of this year property values have proven to be quite resilient with house values quite flat (+0.1 per cent) and unit values increasing by 2.9 per cent. Adelaide property is currently taking the longest time to sell with houses recording an average of 79 days to sell and units taking 71 days to sell. The city also currently has the nations softest rental yields recorded at 4.4 per cent for houses and 4.9 per cent for units. The low yields are the result of home values rising at a much more rapid pace than rental rates during 2007; a phenomenon that is common in high capital growth markets.

Perth

Perth is the only mainland capital city market to record a fall in property values during the first four months of 2009. On an annual basis Perth house values have fallen by 5.4 per cent and unit values have depreciated 7.1 per cent. The Perth market continues to buck the trend of the rest of the Australian market with house values falling by 1 per cent during the first four month of 2009 whilst units showed very slight growth of just 0.1 per cent during the period. Although Perth is currently Australia’s softest market, the slow performance needs to be viewed in light of the spectacular (and unsustainable) growth in Perth values between 2005 and mid 2007. Annualised price growth peaked around 45 per cent during the middle of 2006.

Darwin

The northern capital continues to show strong growth with the market seemingly unaffected by the Global Financial Crisis. During the 12 months to April 2009, median house values increased by 13.1 per cent and median unit values showed phenomenal growth of 18.4 per cent. During 2009 to April, house values have continued their strong performance, climbing by 5.1 per cent and units have increased by an impressive 6.0 per cent. As well as recording exceptional value growth, Darwin still has the nations best rental yields at 6.3 per cent for houses and 6.3 per cent for units.

Canberra

The last 12 months has seen a relatively flat market for Canberra with dwelling values increasing by 0.2 per cent. Over this period, house values actually fell by 0.7 per cent and unit values increased by 3.8 per cent. The first four months of this year has seen house values appreciate by 0.8 per cent and unit values increased by 2.4 per cent. Canberra remains home to the nations second best gross rental yields which sit at 5.5 per cent for houses and 5.9 per cent for units.

Ends.Additional information – please contact Mitch Koper at RP Data on 041 777 1778.

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