The CoreLogic RP Data hedonic home value index is signalling a partial recovery in capital city dwelling values in December with preliminary readings indicating a slight increase in capital city dwelling values over the month, however, not enough to offset the 1.5% fall recorded in November.
The first 22 days of the month have seen dwelling values across the five city aggregate index rise by 0.4%, driven by a bounce in Melbourne, Perth and Brisbane values, while the index for Sydney has moved a further 0.5% lower over the month to date.
Auction clearance rates during December appear to have found a new floor, with the Sydney clearance hovering around the high 50% mark while Melbourne’s reading has been slightly higher around the mid 60% mark.
With conditions softening during the normally active spring season and over the first month of summer, the outlook for the housing market in 2016 is looking less positive than the strong growth conditions seen through the first three quarters of 2015.
Over the past five years dwelling values have increased by 21.2% across Australia’s combined capital cities, equating to an annual compounding growth rate of 5.5% per annum.
The markets were fragmented.
Of course, growth conditions have varied substantially from city to city, with the Sydney property market showing the highest capital gain at 40.6% followed by the Melbourne housing market where values have increased by 18.7%.
Highlighting the two-tiered nature of capital gains over the past half-decade, the next best performing city has been Canberra where dwelling values are up 5.4% and Brisbane with a similar growth rate of 5.2%.
Adelaide values are up 3.8% and Perth has seen a rise of 2.4% while the remaining capital cities are actually showing values lower now than they were at the end of 2010;.
Hobart values are 5.2% lower and Darwin values are down 5.1%.
Within the most recent half decade period there has actually been two distinct cycles.
Dwelling values were falling between November 2010 and May 2012; down by 7.4% from peak to trough as interest rates rose and stimulus aimed at first home buyers was removed.
It wasn’t until June of 2012 that dwelling values started to broadly rise.
The next best performing capital city, Brisbane, has seen dwelling values rise by a much lower 5.2% over the same period.
While dwelling values rose broadly, weekly rents have hardly done anything.
In fact, house rents have risen by just 0.1% over the past twelve months. Just like dwelling values, rental growth has also been diverse but broadly soft across the capitals.
House rents increased the fastest in Melbourne and Sydney (up 2.1% and 1.7% over the year), however, compared with the rate of appreciation in home values, the rental growth is very mild. Rents were down over the past twelve months across three of the eight capital cities; with Darwin house rents down 13.7%,
Perth house rents 7.4% lower and Brisbane house rents virtually flat at -0.2%. The weak rental conditions have pushed rental yields to new record lows during 2015.
Before the capital gain cycle kicked in at the middle of 2012, capital city yields were averaging 4.3% and they have since dropped to 3.5%.
Melbourne rental yields have fared the worst, falling from a recent peak of 3.8% to the lowest of any capital city at 3.1%. Sydney isn’t that far behind though, with the typical dwelling yield falling from 4.5% to 3.4%.
The highest rental yields can now be found in Hobart and Darwin, both averaging 5.4%, however while Hobart yields are slowly rising, the same can’t be said for Darwin where yields are slipping due to the large falls in rents that is occurring.
The year ahead.
As we move into 2016, it is clear the housing market was slowing over the final months of 2015, setting the scene for more sedate conditions in the new year.
Clearance rates have slipped from the high 80% mark around the middle of the year to the low 60% range in December.
Listing numbers are rising, homes are taking longer to sell and value growth slowed sharply in Sydney and Melbourne towards the end of the year.
Over the past twelve months the only capital cities where values have slipped have been Darwin (-4.2%) and Perth (-4.1%), however over the past three months we saw five of the eight capital cities record a decline in dwelling values, with Sydney values down 1.0%, Melbourne at -0.5%, Perth at -1.9%, Hobart values were down -2.9% and Darwin values were -1.7% lower.
We may see further value declines in Sydney and Melbourne during 2016, however considering the high rate of population growth and stronger economic conditions in these cities, I would be surprised if the fall was more than 5% before conditions start to level.
With jobs growth picking up across the region we are likely to see some improvement in migration numbers that could spur values higher in the new year.
The trend in Perth and Darwin also looks set to remain weak with no improvement in downtrend in either values or rents apparent just yet.
The city that is showing the most promise for capital gains in 2016 is Brisbane, or for that matter, the broader South East Queensland market place.
Yields are much higher compared with Sydney and Melbourne, the rate of capital gain has been moderate but sustainable to date, and affordability is far superior to the two larger cities as well.
The Canberra housing market has also been showing tentative signs of growing values along with Hobart however, we are not quite as confident that any sustainable increase in values in these markets will come to fruition.