What will happen to the top end of our property market in 2013?

The previous housing market recovery, which commenced in late 2008, saw conditions first improve across the most affordable sectors of the market, followed by a significant improvement across premium housing markets.

Will we see the same conditions repeated this time?

The RP Data-Rismark Stratified Hedonic Home Value Index results show that capital city home values have started to record some modest improvements over recent months, however, values generally remain lower compared with the same time last year.

Over the 12 months to September 2012, the most affordable capital city suburbs have recorded a value fall of -1.7%, the broad middle 60% of suburbs have recorded a decline of -0.3% and the most expensive suburbs have recorded a fall of -1.7%.

Although the weakness across the market has persisted, the graph highlights that the results across the three broad price segments are beginning to converge.

Most notable is the recent improvement across the most expensive suburbs nationally.

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The other important factor to note is that coming out of the Global Financial Crisis (GFC) each market sector recorded an increase in values.

The low mortgage rate environment and incentives for first time buyers saw the more affordable sectors of the market begin to grow first, which then flowed on to the premium housing market. The premium market shortly thereafter took over as the strongest performing sector.

This may provide some insight as to how any future recovery in the housing sector may take place.

Of course the recent improvements in home values on a month to month basis indicate that market conditions are starting to show a better outlook.

However, each sector of the market has been recording value falls for at least two years and values across some cities will require a significant recovery to claw back these losses.

At a combined capital city level, values across the most affordable suburbs are -3.6% below their peak, across the middle 60% they are -3.3% lower and across the premium sector they are -6.3% below their peak.

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In the most severe circumstances across individual capital city markets, the most affordable Brisbane suburbs are -13.2% below their peak, the most expensive Brisbane suburbs are -10.8% below their peak and the most expensive Melbourne suburbs are -10.4% below their peak.

On the other hand, the broad middle market in Sydney is the only sector across any city in which values are currently sitting at all-time highs.

Following on from the on-set of the GFC, capital city home values fell by a total of -6.1%. The largest value falls were recorded in Melbourne (-8.3%) and Perth (-6.8%) while the smallest declines took place in Canberra (-3.2%) and Adelaide and Darwin (both 3.3%).

Since the post-GFC housing market peak, keeping in mind that values across each capital city did grow following 2008, the most recent decline in values from the market peak to trough has been greater at -7.4%.

Across individual cities, peak to trough falls have been greatest in Darwin (-19.7%) and Hobart (-14.6%) and most modest in Sydney property markets (-5.0%) and Canberra (-5.3%).

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Since the combined capital city housing market bottomed in May 2012, capital city housing markets have recorded value increases of 2.1% to October 2012. Once again, most of the recent improvement in values has occurred within the more affordable sectors of the housing market.

The data indicates that the ongoing weakness in housing markets means that although there have been recent signs of improving market conditions, in some instances there is a very long way to go to claw back recent value declines. With lower interest rates, recent value declines and subsequent improving housing affordability there are signs of life returning to the market.

Although we don’t expect the recovery in the housing market to be rapid, it is certainly looking as if 2013 will continue to see improving market conditions such as those recorded broadly across the market since May of this year.

It will be interesting to see throughout the next 12 months whether or not the recovery mimics that of 2009 and the premium housing market takes over as the best performer.

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Want more of this type of information?


Tim Lawless

About

Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au


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