Can the property market keep growing at the same rate?

Combined capital city home values rose by 2.8% over the first quarter of 2013 but the highly seasonal nature of the market suggests that this level of value growth is unlikely to be maintained throughout the rest of the year.

According to the rpdata-Rismark Home Value Index, capital city home values rose by 2.8% over the first quarter of 2013.

This represents quite strong growth over the quarter and if it were to be maintained it would result in capital city dwelling values rising 11.2% over the full calendar year.

If history is anything to go by, this rate of capital growth is unlikely to continue.

The national housing market is highly seasonal with values typically seeing a greater level of quarterly growth over the first and third quarters of the year with growth typically lower over the second and final quarters.

The first chart highlights the quarterly growth rate between the first quarter of 1996 and the first quarter of this year.

rpdata's property pulse - research article

Between 1996 and 2012, 17 years, the first quarter has recorded the strongest rate of capital appreciation in dwelling values across 10 of the 17 years.

In each instance where the 1st quarter of the year had not recorded the strongest value growth it was the 3rd quarter which had recorded the greatest value growth.

The results highlight the significant impact of seasonality on the change in capital city home values.

rpdata's property pulse - research article

On the other hand, the 2nd quarter of the year has recorded the weakest capital growth conditions on four occasions over the period whilst on all other occasions the 4th quarter has seen the lowest growth in values (note over the past two years Q2 and Q4 have recorded identical levels of value growth).

Across the period over which the analysis has been undertaken, the 2nd and 4th quarters have never recorded a greater increase in value than that of the 1st quarter.

Once again, the results re-iterate the high level of seasonality within the housing market and the fact that growth levels over the first quarter of the year won’t necessarily be reflective of the performance over the remainder of the year.

rpdata's property pulse - research article

The important thing to keep in mind is although seasonality does have an impact on the performance of home values, the housing market doesn’t exist in its own bubble separate to the rest of the economy.

Economic conditions can and do change and can change rapidly and when they do it can have a significant impact on the housing market, despite the fact that housing market conditions are typically stronger over the first and third quarters and weaker over the second and final quarters.

Mortgage rates, unemployment, housing finance commitments, retail trade and consumer sentiment in particular play a large part in determining the direction of home values and whether or not consumers are prepared to buy and sell their homes.

Overall, the data highlights that although the housing market has started the year strongly in terms of capital growth nobody should expect the same rate of growth to be carried throughout the remainder of the year. This is already evident when you look at the results of the rpdata-Rismark Daily Home Value Index.

Home values across the five major capital cities have fallen by -0.1% over the first fifteen days of April despite the recent strong capital growth conditions.

The housing market is likely to continue along a recovery path, however, we anticipate slower capital growth conditions throughout the remainder of 2013 than those which have been recorded over the first quarter of the year and the slowdown is already becoming evident in our daily index data.

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Cameron Kusher

About

Cameron Kusher is Corelogic RP Data’s senior research analyst. Cameron has a thorough understanding of the fundamentals such as demographics, trends & economics. Visit www.corelogic.com.au


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