The RP Data-Rismark Stratified Hedonic Index segments the housing market performance across broad value bands: the most affordable 25% of dwellings, the broad middle 50% of dwellings and the most expensive 25% of dwellings.
The Index provides a useful insight about how price based segments of each market are performing.
Broadly speaking, premium housing markets tend to show greater volatility; across the benchmark combined capital cities index we have seen the premium housing market record the most substantial declines during each correction phase of the market, while during the growth phase premium housing markets have shown a slightly higher rate of growth (at least over the past two cycles). Conversely, the more affordable segments of the housing market have typically shown more stable results.
Over the past decade it is clear that this stability across the most affordable housing markets has resulted in a higher rate of long term capital growth.
The most affordable quarter of the capital city housing markets have recorded an annual growth rate of 6.5% compared with a 4.6% annual capital gain across the broad middle priced segment of the housing market and just 3.5% per annum across the most expensive quarter of capital city housing markets.
Over the past six months, as the housing market continues to recover, we are starting to see some convergence in performance across the broad value segments of the market.
First home buyers have diminished to just 14% of all owner occupier mortgages being committed to while upgraders and investors are stepping up their activity in the housing market.
Premium housing markets, particularly in Sydney, have started to gather some pace after lagging behind the more affordable price segments since the previous market peak back in late 2010.
Sydney is the only city where the most expensive 25% of the market has recorded the strongest performance over the first half of 2013, with values across the premium Sydney housing market up 4.8% compared with a 4.6% rise in values across the broad middle of the market and a 3.2% increase in values at the most affordable end of the market.
Every other major capital city apart from Sydney is showing the highest capital gains to be occurring at the most affordable end of the housing market followed by the broad middle of the market.
Potentially one explanation for this trend would be that investors are targeting higher yielding properties which tend to be in the mid to low price ranges. Additionally, Sydney’s premium housing market is often the first market to show a shift in premium buyer trends.
Share markets (based on the S&P ASX/200 index) remain almost 30% below their 2007 peak but have recovered about 53% since bottoming out in early 2009.
The wealth created from improved share portfolio positions is likely to be one of the key drivers of the prestige housing market as equity profits flow into the housing market.
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