The latest figures from RP Data – Rismark’s Home Value Index show that after 17 consecutive months of solid growth, dwelling values across our capital cities declined in the month of June.
This result isn’t really surprising, considering all the leading indicators pointed to a slowing market and it gives the Reserve Bank the ability to keep interest rates on hold.
But the news has had some investors asking, “Is that it? Is this little mini boom over?”
Before I answer, let look at the stats in a little more detail…
RP Data’s report shows that overall property prices dropped by 0.7 per cent in June. Rather than the bubble bursting as many predicted, these latest figures reveal nothing more than a soft landing in June, with the biggest impact felt in the luxury home sector where values dropped by an overall 1.9 per cent since March.
This is in contrast to Australian Property Monitors , which released figures only a few days earlier showing that its statistics indicated a 2.5 percent increase for the June quarter.
Why the difference?
Firstly RP Data was reporting on the month of June, while APM reported on the June quarter, which included the months of April and May when property prices rose.
Also RP Data claims its index is more reliable, as it accounts for different property sizes and locations and its data is compiled on a monthly basis and is seasonally adjusted.
The RP Data index, based on almost 170,000 sales nationally in the six months to June, revealed that Australia’s capital city dwelling values remained flat over the June quarter with a rise of only 0.1 per cent. This represents a marked slowdown from previous quarters; since the start of 2009, the average quarterly growth in Australia’s capital city housing markets has been three per cent.
Managing director of Rismark International, Christopher Joye, says “As mortgage rates have normalised, participants in the housing market have cut their house price growth expectations, which explains the current change in conditions.”
He adds, “We do not expect to see the market rise much more over the remaining year subject to labour market conditions and the course of monetary policy.”
RP Data’s national research director, Tim Lawless, agrees the Reserve Bank’s decision to increase interest rates is having the desired effect of cooling the property markets. According to RP Data, all capital cities recorded price declines in June.
The largest in June was in Perth (down 1.5 per cent; but up 5.1 per cent for the year), then (down 1.4 per cent / up 16 per cent for the year), Canberra (-1.4per cent / 10.6 per cent for the year), Darwin (minus one per cent / 16.8 per cent in the last 12 months), Brisbane (-0.8 per cent / 4.5 per cent for the year), Adelaide (-0.7 per cent / 9.1 per cent), while Sydney prices dipped 0.1 per cent, up 10.4 per cent for the year.
In May, Hobart prices fell 3.1 per cent, but managed to be up 3.9 per cent over the last 12 months.
Lawless believes this slowdown in the housing market combined with recent inflation figures “…vindicates the RBA’s decision to put interest rates on hold since May 2010”.
Commenting on the report, NAB’s senior economist of global markets research David DeGaris said, “We can add this report to yesterday’s tame CPI that are providing the RBA with more than sufficient headroom to leave rates on hold at next week’s RBA Board meeting and most likely for a few more months.”
So back to my original question…
Is this the beginning of the end? Will property prices remain stagnant for long, or worse, will they keep falling?
Lawless suggests talk of a housing bubble is “overstated”.
“Australia’s housing market has a structural shortage of roughly 200,000 homes, which has been substantiated by the National Housing Supply Council” he says.
“If we saw blow-outs in average time on market, re-listings, and vendor discounting, it would set off a few alarm bells. This, however, is not currently the case.”
My take on it is that our property markets are behaving normally – they’re taking a little breather. When the sharemarket rises for a few months and then has a lull or retreats for a while, nobody is surprised.
I’ve seen this pattern before – a sharp rise at the beginning of a property cycle followed by a lull as some of the fundamentals change and then a new upward wave to continue on the cycle.
All the property economists I’ve spoken to and whose reports I’ve read believe we’re 15 months or so into a property cycle that will continue on for a few years yet. We’re now at a stage of the cycle which doesn’t lift all property values equally, so investors are going to have to be much more careful with their property selection.
But those who take a counter-cyclical approach and buy the right type of property in this lull will be rewarded by rising rents and strong increases in property values over the next three years.
This blog was originally posted on API Magazine’s website here.
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