Although combined capital city home values have increased by 8.7% since the market trough in May 2012, the rate of appreciation is nowhere near as strong as the growth in values over previous phases.
The RP Data-Rismark Home Value Index results for September 2013 were released earlier this week and they showed that values are climbing across the combined capital cities of Australia.
Capital city home values have increased by 5.5% over the past 12 months and by 8.7% since their recent low point in May 2012. Although there is some clear strengthening of values, the magnitude of the increase is less than what was recorded during previous growth cycles.
If you look at more recent growth periods in the housing market, specifically at the beginning of 2001, 2007 and 2009 you can see that the rise in values during the current cycle is significantly more modest when compared with the previous three growth cycles.
Home values across the combined capital cities have been rising since May last year and are now 8.7% higher over the 17 months (including May). Over the 17 months from December 2003 to April 2002, combined capital city home values had increased by 27.6%.
The 2007 housing market recovery ran for exactly 17 months with home values rising by 15.1% over that period. Over the 17 months from December 2008 to April 2010 combined capital city home values increased by a total of 19.3%.
Value growth over the first 17 months from December 2001 was 3 times greater than value growth over the most recent growth phase. In 2007 growth was almost double that of the current period and over the same period post December 2008 values had grown at more than double the current rate of value growth.
If we look at value growth across each capital city over these three recent market growth phases there are also some interesting findings from the data.
Over the three previous growth phases you can see that it has been Melbourne that has recorded the strongest level of capital growth followed by the Sydney housing market in 2001 and 2009 and by Brisbane in 2007.
In the current recovery phase, you can see that the market has taken its lead from Sydney followed by Perth and Darwin (although capital gains in these latter two markets is now decelerating).
In 2001, Darwin showed an extremely muted response to the beginning of the market growth phase and Perth’s initial growth was lower compared with most other capital cities. In 2007, value growth through the recovery was comparatively weak in Perth, Hobart and Sydney.
In the 2009 growth phase it was Hobart, Adelaide and Brisbane which experienced the weakest rebound in home values. Looking at the current growth phase, it has once again been Hobart, Adelaide and Brisbane that have experienced the most moderate response.
Based on this data it seems as if the national housing market tends to be led by the Melbourne and Sydney housing markets with the recovery across other capital cities generally lagging behind.
The final chart also highlights this fact with the remaining capital cities tending to lag the two largest cities. The other interesting point to note is that the periods of strong capital growth in Sydney and Melbourne have tended to not be as long as those in the other major capital cities.
This was particularly noticeable in the 2001 growth phase where value growth had slowed in Sydney and Melbourne but continued for a much longer period in Brisbane, Adelaide and Perth.
Given that value growth typically commences in Sydney and Melbourne where home values tend to be much higher than those in the other major capital cities it is no surprise that growth phases tend to be shorter as affordability constraints arise.
Given that historically growth periods have tended to be shorter in Sydney and Melbourne than those in Brisbane, Adelaide and Perth it would be reasonable to anticipate that the current rate of value growth will not continue for an extended period of time.
It is also reasonable to expect that over the coming month’s value growth in Brisbane and Adelaide, where the recovery to-date has been quite muted, may start to see stronger value growth conditions as the affordability of these cities improves relative to the other major capital cities.