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Rismark Home Value Index Release
Thursday, July 01, 2010
Australian capital cities have recorded their second consecutive month of single digit annualised growth. Capital city values were up 0.6 per cent in May while ‘Rest of State’ markets recorded a fall of -0.9 per cent.
The deceleration in capital growth rates first evidenced in RP Data-Rismark’s April index results has continued in May, with capital city home values rising just 0.6 per cent (0.5 per cent seasonally adjusted) and non-capital city values falling by -0.9 per cent (-0.2 per cent seasonally adjusted) over the month.
RP Data’s director of research Tim Lawless said RP Data-Rismark’s May index results reinforce mounting speculation that the Australian real estate market is transitioning towards a lower and more sustainable growth path, which will be encouraging for the RBA.
“This second consecutive month of single-digit annualised gains sends a signal that the double-digit growth rates recorded since January 2009 are behind us. The signposts have been in the market for several months now with lower auction clearance rates, fewer housing finance commitments, and weakening consumer confidence,” he said
Rismark International managing director Christopher Joye, expects to see more of the same over the remainder of the year.
“With disposable household incomes forecast to increase by only around 5 per cent in 2010, we have long predicted subdued dwelling price performance for this year. There is, however, some good news for borrowers on the horizon. Employment growth remains robust with unemployment forecast to fall back in line with its 4-5 per cent “full-employment” level. More importantly, the futures market is pricing in just one further rate hike through to 2012, which means borrowing costs should remain steady. The latest population growth estimates also show that net overseas migration is running at over 200k per annum, which is well above the government’s long-term forecast of 180k.”
RP Data-Rismark’s new “Rest of State” Hedonic Index, which was developed for the RBA, shows that the disconnect between the capital city and non-capital city markets, is as wide as ever.
According to RP Data’s Tim Lawless, “In the 12 months to May 2010, home values in Australia’s capital cities grew by around 12 per cent. In contrast, growth in the non-capital city regions has been just 5.8 per cent. Since around 40 per cent of all homes are not located in the capital cities, being able to accurately measure the price dynamics in the rest of state markets using our hedonic index technology is a very important development.”
Rismark’s Christopher Joye added, “This is simply a function of demand and supply. The demand for homes is stronger in the major conurbations whereas the supply of new dwellings has been weak. In comparison, the smaller metro and regional markets have relatively less demand combined with much more elastic housing supply.”
According to RP Data’s Tim Lawless, Melbourne’s value growth has been spectacular.
“When you include the strong capital gains recorded prior to the GFC, which was 21 per cent over the 2007 calendar year, Melbourne home values have risen by 51 per cent in less than 3 and a half years. The gap between Melbourne and Sydney dwelling prices is now just 7.2 per cent, which is the narrowest on record.”
At the other end of the growth spectrum, the Perth market continues to show signs of weakness. Perth is the only capital city to record a quarterly decline, with home values down -2.1 per cent over the three months to end May. Perth home values are currently -2.7 per cent below their March 2010 peak. While the recovering resources sector has yet to make a large impact on the Perth housing market, continued population growth, employment growth and slowly improving affordability should eventually see a more enduring upswing.
Tim Lawless said he believed concerns in some quarters about a big market correction taking place are overstated.
“The market’s underlying fundamentals are such that any material fall in home values is unlikely. Housing supply remains very low at a time when housing demand is healthy, interest rates appear to be on hold for the foreseeable future, and the Australian economy is performing well compared to all other developed countries”, he said.
Consistent with the moderation in housing market conditions, Rismark’s latest estimate of Australia’s “dwelling price-to-income ratio” remained steady at 4.6 times. This is in line with Rismark’s estimate of the average national dwelling-price-to-income ratio since the end of 2003 of 4.4 times. In a recent speech, the Deputy Governor of the RBA Ric Battellino confirmed this analysis, which is the first to compare all-regions dwelling prices with all-regions incomes, commenting:
“People feel that house prices in Australia are quite high, and that’s quite often because the ratio of house prices to income that are published for Australia tend to focus mainly on prices in the cities, and they are quite elevated. But, if you look across the whole country, the ratio of house prices to income is not that different from most other countries...
[T]he house prices in cities aren’t high relative to the income in the cities because most of the figures you see published on house prices to income – what they do is they measure house prices in the city and express it as a proportion of income of the whole country. But, if you do house prices relative to the incomes of the people living in those areas, then the prices in the cities also are quite reasonable."
Other leading indicators suggest that the Australian market remains relatively healthy. The total number of properties available for sale is about the same as last year, with RP Data currently tracking 207,664 properties being advertised for sale – almost identical to the figure from 12 months ago (207,788 homes). The average selling time is now about 39 days for houses and 31 days for units. The average level of vendor discounting remains at about 5.5 per cent suggesting vendors are not having to cut prices dramatically to sell a property.
RP Data’s Tim Lawless said, “If we were seeing the number of properties available for sale increasing dramatically, the average selling time blowing out, or vendors providing large discounts on their asking prices it would set off a few alarm bells. This, however, is not currently the case.”
- RP Data
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