One way to measure the relative affordability of housing across Australian cities is to look at the difference in median sales prices over time.
Although we at RP Data don’t believe that using median prices are a good way to measure the movement in values, they are valuable to assess other aspects of the housing market such as affordability and measuring at what price point homes are currently selling.
This week we look at the relativity of median home prices across the major capital cities. These median house prices are calculated based over a rolling three month period of sales.
As you will note from the charts included, Sydney is currently, and has pretty much always had the highest median selling prices of homes.
As at July 2013, the median price of a home (ie houses and units combined) in Sydney was $570,000 which was 16% higher than the median selling price in Melbourne ($492,000), 33% higher than Brisbane ($429,000), 49% higher than Adelaide ($382,000), 15% higher than Perth ($494,600), 87% higher than Hobart ($305,000), 16% higher than Darwin ($490,000) and 14% higher than Canberra ($500,000).
When looking at Sydney in relation to other capital cities, you can see that the price difference compared with Melbourne’s housing market has recently started to narrow.
There has been little change over the past year compared to Perth while the gap in pricing compared to Brisbane and Adelaide is becoming more significant.
In fact, the gap in pricing between Sydney and Brisbane is currently at its greatest level since June 2006 and for Adelaide it is at its widest since the middle of 2007.
You will note from the chart that over time the differential in pricing between Sydney and the other major capital cities has compressed, we believe that the gap is unlikely to revert to these previous highs.
The gap in pricing between Melbourne and Sydney is at its narrowest level since February 2012 and for Perth, the gap is at its lowest level since January 2012.
In comparison to Brisbane, home prices are higher in Sydney (32.9%), Melbourne (14.9%) and Perth (15.3%). As already mentioned, the pricing gap compared with Sydney is the largest since June 2006 and for Melbourne it is the largest since August 2003.
The gap in pricing relative to Perth is 15.3% and has been relatively stable over the past year. Adelaide’s median price is -11.0% lower than those in Brisbane and the gap has been quite stable since early 2012.
The last time Adelaide home prices were higher than those in any of the other major capital cities was in November 2004 when Perth’s median price was -0.4% lower.
As we already know there is a significant price gap between Adelaide and Sydney, Melbourne and Brisbane prices. Perth’s median price is 29.5% higher than that in Adelaide and the gap has decreased over recent months.
Based on these results, you can see that there is a significant gap in pricing between Sydney and other capital cities. Melbourne and Perth prices are relatively similar with a large step down in median price to Brisbane and then a further large gap to Adelaide prices.
With home values rising at a faster pace in Sydney, Melbourne and Perth than in Brisbane and Adelaide, it is anticipated that the gap in selling prices may increase further over the coming months.
If this occurs, we may see the housing markets in Brisbane and Adelaide start to show accelerating rates of improvement as the market performance in the other three capital cities slows.
The logic is that as competition for stock intensifies in Sydney, Melbourne and Perth and values rise, buyers may start to feel as if they are priced out of these market and look to more affordable markets such as Brisbane and Adelaide as an alternative. It will be interesting to see if this starts to happen over the coming months.
If you’re serious about property investment please join me and a group of property and tax experts at my upcoming Property Market and Economic Updates that I’ll be conducting in 4 states in August and September 2013
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