Capital city dwelling values have shown a 1.4 per cent capital gain over the month of June 2014, with all cities apart from Adelaide and Darwin recording a rise in dwelling values.
The strong result has partially reversed last month’s 1.9 per cent fall and provides a – 0.2 per cent decline in dwelling values over the June quarter.
Over the 2013-2014 financial year the top performing cities for capital gains have been Sydney and Melbourne where dwelling values are up 15.4 per cent and 9.4 per cent respectively across each city.
The Brisbane housing market, where conditions have generally remained relatively sedate, is now gathering some pace with dwelling values moving 7.0 per cent higher over the past twelve months, the third strongest result of any capital city.
On the other hand, the index results show that the softest performances over the past year have been recorded in Hobart (2.5 per cent), Canberra (2.9 per cent) and Adelaide (2.9 per cent).
Over the current growth cycle, capital city dwelling values are up 15.5 per cent, with Sydney recording the most significant capital gain at 23.1 per cent growth since the end of May 2012.
Adelaide’s housing market recorded the least significant capital gain over the cycle to date, with dwelling values rising by 5.6 per cent.
The recent volatility in the month-to-month Index reading is likely to be a seasonal factor.
The last time we saw a negative quarterly movement in our combined capital city index was May last year.
The recent reduction in capital gains is likely a correction from the strong market conditions reported over the first quarter of the year.
Looking through the monthly movements, the trend in performance is much more important. It shows that the quarterly rate of growth peaked across the Australian housing market in August last year at 4.0 per cent.
Since that time the rate of capital gain has generally trended towards a more sustainable level. The slowdown in dwelling value appreciation will be a welcome relief to policy makers and those seeking to buy into the housing market.
From a total returns perspective, Sydney once again stood out as having provided the most outstanding performance.
Combining the capital gain with the gross rental yield over the year has provided Sydney home owners with a total return of 20.2 per cent over the financial year.
Melbourne, Darwin and Brisbane have also recorded a total gross return in excess of 12 per cent over the year.
Across the different price segments of the housing market, the broad middle -priced sector of the market is now showing the highest rate of annual change.
Dwelling values at the most affordable end of the capital city housing markets have moved 8.8 per cent higher over the past year compared with a 10.3 per cent capital gain across the most expensive suburbs and a 10.6 per cent increase across the broad middle fifty per cent of the capital city market.
Looking at rental markets, gross rental returns are currently recorded at 3.9 per cent for capital city houses and 4.6 per cent for capital city units.
The yield environment is lowest across Melbourne where gross yields are averaging just 3.4 per cent for a typical house and 4.3 per cent for units. Darwin continues to show the highest gross rental yields at 6.1 per cent for houses and 5.9 per cent for units.
With interest rates remaining low for the foreseeable future, it is doubtful that housing values will start to slide, at least not at a macro level.
What is more likely is that natural affordability constraints will start to dent buyer demand, as will the low rental yield scenario’s that are very much evident across the largest capital cities of Melbourne and Sydney.
Other indicators such as clearance rates are holding relatively firm which further reinforces the notion that the housing market isn’t set to show a market correction.
Over the month of June, clearance rates strengthened and are generally around the high 60 per cent mark across the capital cities week on week. Average selling and vendor discounting rates also levelled out at relatively strong readings, and listing numbers remain relatively tight.
Activity across RP Data valuation platforms has also held firm at relatively high levels suggesting mortgage demand isn’t dropping off just yet.