Rental markets held reasonably firm in December with the national rental index up 0.1% over the month and 0.2% higher over the December quarter.
On an annual basis, rents were only 1.2% higher nationally.
Although rental growth remained sluggish over the year, conditions have picked up from 2018 when the annual growth in national rents was only half a percent.
The subtle improvement in rental growth comes after material reduction in investment activity as well as a slump in new residential construction, implying less new rental supply.
Hobart remains as the tightest rental market, with rents up 6.0% over the year, followed by Perth with a 2.1% rise in rents, while rents trended lower over the year in Sydney (-1.0%) and Darwin (-2.1%).
Most cities have seen rental yields compress over the year as growth in housing values outpaced rental rates.
Nationally, the gross rental yield slipped from 4.0% in 2018 to 3.8% in 2019.
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The rapid recovery in Sydney and Melbourne housing values (+5.3% in both cities over the year), at the same time rents slipped lower in Sydney and only rose by 1.4% in Melbourne, quickly compressed rental yields.
Sydney’s gross rental yield, at 3.0%, is now the lowest on record, while Melbourne yields (3.3%) are approaching the 2017 low of 3.1%.”
Although gross rental yields are trending lower, so too are mortgage rates.
At the end of November, the average three-year fixed rate for an investor mortgage was 3.48%.
This is now lower than capital city gross rental yields for the first time since at least 2007 (the commencement of the CoreLogic rental yield series), implying that more properties will be showing a positive cash flow for investors, and paying off a mortgage may be more affordable than paying rent in many areas.