It was a record-setting month for house prices across the country as Sydney, Melbourne and Hobart continue to lead the charge.
Sydney dwelling values increased by 2.7 per cent for the month of November, according to CoreLogic, making it the biggest monthly increase in 31 years.
At the same time, Melbourne dwelling values also jumped by 2.2 per cent, with the total increase over the last three months again the highest in the country at 6.4 per cent.
And finally, after a prolonged period of weakness, Perth property prices started to tick higher, recording a 0.4 per cent gain for the month – the first time since early 2018.
Over the past 13 years, Perth has seen house values move from being the most expensive across the capital cities to the lowest.
Across the country, Hobart and Canberra continued their strong run, recording an increase of 2.3 per cent and 1.6 per cent.
Hobart still remains the strongest market in the country over the past five years, up 43.1 per cent.
CoreLogic’s national Home Value Index surged 1.7 per cent higher over the month of November and delivered the fifth consecutive monthly increase, coupled with the largest monthly gain in the national index since 2003.
Four of Australia’s capital cities moved back into positive annual growth, led by Hobart (+4.2 per cent), Canberra (+3.0 per cent), Melbourne (+2.2 per cent) and Sydney (+1.6 per cent), while the largest declines remain in Darwin (-10.9 per cent) and Perth (-7.7 per cent).
Head of Research at CoreLogic, Tim Lawless, believes there are a variety of factors are supporting the strong gains in housing values.
“The synergy of a 75 basis points rate cut from the Reserve Bank, a loosening in loan serviceability policy from APRA, and the removal of uncertainty around taxation reform following the Federal Election outcome, are central to this recovery,” Mr Lawless said.
“Additionally, we’re seeing advertised stock levels persistently low, creating a sense of urgency in the market as buyer demand picks up.
“There’s also the prospect that interest rates are likely to fall further over the coming months and an improvement in housing affordability following the recent downturn are other factors supporting a lift in values.”
Highlights over the three months to November 2019
▶ Best performing capital city: Melbourne +6.4 per cent
▶ Weakest performing capital city: Darwin -1.1 per cent
▶ Highest rental yield: Darwin 5.9 per cent
▶ Lowest rental yields: Sydney 3.1 per cent
CoreLogic’s combined capital cities index is 4.6 per cent higher over the past three months, with values recovering by 5.7 per cent since bottoming out in June.
The combined regionals index is up a smaller 1.1 per cent over the past three months and values have recovered only 1.1 per cent since finding a floor in August.
Across the broader regional areas of the states, Tasmania is seeing the strongest growth with values up 2.2 per cent over the past three months, followed by Queensland (+1.8 per cent), New South Wales (+1.2 per cent) and Victoria (+1.0 per cent).
Demand for premium property
Tim Lawless feels that while the capital city averages are moving higher, much of the growth is coming from the higher end of the market.
“Although housing values are rising across each of the valuation cohorts, the recovery trend is most concentrated within the premium sector of the market.”
This trend is most evident in Sydney and Melbourne where the top quartile of the market is outperforming the broad ‘middle’ of the market and lower quartile.
Values across Sydney’s top quartile were up 7.4 per cent over the three months ending November, compared with a 3.8 per cent rise across the lower quartile.
Similarly, in Melbourne, top quartile values were up 8.1 per cent over the same three month period compared with a 4.2 per cent rise across the lower quartile.
Brisbane, Perth and Darwin are also recording a similar trend where premium value properties are outperforming lower value properties.
“The stronger performance across the higher value end of the market can likely be attributed to a combination of values falling more in this sector during the downturn, as well as recent adjustments to serviceability rules which has boosted borrowing capacity,” Mr Lawless said.
“Additionally, the scarcity value of detached homes in many of the blue-chip property markets is another factor supporting strong capital gains.”
“As housing values become less affordable in these high-end markets, demand is likely to ripple outwards to the more affordable areas.”
Over the past 12 months, 22 of the 46 capital city sub-regions have recorded a decline in dwelling values.
The strongest sub-regions for growth across the capital cities are now in areas of Melbourne and Sydney’s prestige market. Melbourne’s Inner East, where the median dwelling value is $1.18 million, has surged back to positive annual growth, up 8 per cent over the past 12 months.
The rapid bounce back follows a significant decline in values across the region, where values fell 18 per cent from peak to trough.
The largest declines are generally confined to areas of Perth and Darwin, which comprise eight of the 10 largest dwelling value declines over the past year.
Possible Headwinds
Despite the bounce in property prices, Mr Lawless did warn that this level of growth might not be sustainable.
“The Australian housing market is now five months into an unexpected period of rapid recovery. The question is, how long can such a high pace of capital gains be sustained?
“Annualising the growth rate over the past three months implies the national index is already tracking well above double digit annual growth (+15.3 per cent), while Sydney and Melbourne dwellings are tracking around the mid-20 per cent range for annualised capital gains based on the most recent three month trend.
“Considering wages and household income growth remains low, economic conditions are losing momentum and housing affordability is once again worsening (from an already high base in the largest cities), there are likely to be some headwinds in maintaining such a fast recovery.”
