Premium housing markets have generally recorded a larger correction in values than other price segments and the recovery rate has been below par. More recently though, premium housing markets are once again outperforming the broader housing market.
According to the RP Data-Rismark Stratified Hedonic Index, capital city home values across the most expensive 25% of suburbs have increased by 4.5% over the 12 months to September 2013. In comparison, the most affordable 25% of suburbs have recorded annual value growth of 6.2% and the middle 50% of suburbs have seen values rise by 6.4%. The results indicate that capital growth across the premium suburbs has lagged the other sectors of the market over a 12 month measure.
When you look at the figures on a quarterly basis you see that the tide may be turning for more expensive housing markets. Premium suburbs (ie the most expensive 25% of capital city suburbs) have recorded quarterly value growth of 4.1% compared to 3.6% across the middle 50% of suburbs and 2.8% growth across the most affordable suburbs.
If we look to previous market growth and correction phases we see that it has been the premium housing market which is usually the slowest to respond during the early phase of the growth cycle and it appears that this has once again been the case. We have also seen the largest correction in home values over the past few years occur within the premium housing market.
Additionally, there are a number of other factors which are likely to drive increasing levels of demand for premium housing. The higher priced sector of the market has seen the largest correction in values and with low mortgage rates, these homes become somewhat more attainable for purchasers that could previously only aspire to buy into the more exclusive housing markets.
Equity markets have shifted higher with the S&P/ASX 200 index up 19.0% over the past year boosting household wealth whilst consumer confidence has also shifted much higher over the year. Finally we have seen early indicators of an improvement in business conditions, with survey based results and retail trade showing recent tentative signs of improvement.
Focussing on the differences between houses and unit value growth within capital city premium suburbs, the annual growth in house values is noticeably stronger than unit values. Over the past year, premium house values have increased by 4.8% and unit values by 2.3%.
That rate of growth over the year makes both premium housing types the weakest capital growth performers across the broad price segments. Over the most recent three months, premium house values are 4.2% higher and unit values are 2.9% higher.
The quarterly value growth for premium houses is greater than both the affordable (2.6%) and middle (3.6%) markets whereas premium unit values have underperformed both the affordable (3.9%) and middle markets (3.4%). The data suggests that the premium market is experiencing increasing levels of value growth however, it is largely contained to detached houses rather than units.
Across the individual capital cities, the annual rate of value growth across the premium suburbs has been weakest across all major capital cities and product types except for Melbourne houses where the value growth has been stronger than growth for the most affordable suburbs.
Over the past quarter, growth in house values has been stronger than the other sectors for houses in Melbourne and Perth and equal strongest in Sydney. In Brisbane in Adelaide house value growth over the quarter has been weakest within the premium suburbs.
For units, growth has generally continued to be weakest across the premium sector. The exceptions have been in Perth where value growth was strongest and in Brisbane where value growth was stronger than that across the most affordable sector of the market.
Overall it seems that after having lagged the performance of the more affordable sectors of the housing market, the premium sector of the market is starting to see a stronger growth performance. To-date, the faster pace of growth across premium suburbs has largely been limited to detached houses and is very much evident within the Sydney, Melbourne and Perth housing markets where the growth cycle has been stronger than other cities.
The improving premium sector of the housing market is also reflected by the recent very high levels of auction clearance rates, particularly in Sydney and Melbourne. Of course auctions are only a small overall proportion of the market however, it is typically higher priced and unique properties which are taken to auction which is more reflective of the performance of the premium housing sector.