House prices bounce in October
November 30, 2009
This year’s surge in house prices was seen extending in October, with prices up 1.4% across the nation’s capitals. The latest figures from RPData-Rismark Index showed growth eclipsing the month prior in the capital cities, with the September price rise having come in at a subdued 0.4%.
Over the first ten months of 2009, Australian home values have now risen by 10 per cent following on from their 3.8 per cent peak-to-trough falls in 2008.
“The strong growth figures throughout October after a slowdown during September show that the market is very resilient and that the 25 basis point interest rate increase during the month has not immediately impacted market,” rpdata.com’s Senior Research Analyst, Cameron Kusher, advised.
Rismark International Managing Director Christopher Joye added that this year’s strength had caught forecasters by surprise, with price growth now likely to moderate.
“Although we forecast a resilient recovery in 2009, we have been surprised on the upside by the strength of conditions, which reflects Australia’s better-than-expected employment and growth outcomes. We project that as mortgage rates normalise capital growth rates will fall back to more subdued levels,” he said.
Mr Kusher agreed that the probability of further interest rate rises over the next 12 to 18 months is likely to result in more normal growth conditions over 2010.
Contrasting statistics
“According to our analysis of all home sales in Australia, which we have privately shared with the RBA, the median Australian home value is only four times average disposable household incomes,” Mr Joye said, providing further insight as to why the RBA contends that current prices are sustainable. “This is inconsistent with claims that Australian dwelling prices are 6-8 times household incomes. People forget that 40 per cent of the housing stock is not located in the capital cities.”
“This data implies that Australian housing is not expensive by overseas standards, and also helps explain our internationally high rates of home ownership combined with very low mortgage default rates.”
“One question exercising people’s minds is the impact of higher interest rates. The RBA has pointed out that when they cut mortgage rates by 40 per cent in the second half of 2008 most borrowers did not actually reduce their repayments. The RBA suggested that this means that borrowers should be able to absorb future rate hikes as mortgage costs normalise,” he added.
Dividing the RP Data-Rismark Index up into the cheapest 20 per cent of suburbs ranked by price, the middle 60 per cent of suburbs, and the most expensive 20 per cent of suburbs, the analysts found that the least expensive areas (+8.5 per cent) have significantly underperformed the luxury markets (+11.9 per cent) in the year-to-date. This reverses out the trend in 2008, when the cheapest areas fared the best while the luxury markets performed worst.
In the month of October homes values rose in every single mainland capital city except Darwin (-0.5 per cent), which was expected given Darwin has already experienced 12.7 per cent growth in the year-to-date.
The biggest story of 2009 has been the strong recovery in the Melbourne and Sydney housing markets, the firms suggested. In the three months to end October, home values in Melbourne and Sydney have outperformed most other capitals - rising by 4.5 per cent and 3.2 per cent, respectively.
Over the year-to-date, Melbourne has been Australia’s best performing capital city, delivering capital gains of +14.9 per cent. Sydney is up by nearly 1 per cent per month with cumulative growth of 9.9 per cent. In the first 10 months of 2009, most of the other capital cities have performed strongly with Darwin (+12.7 per cent) leading the way, followed by Canberra (+11.0 per cent), Brisbane (+6.9 per cent), Perth (+6.1 per cent) and Adelaide (+4.6 per cent).
The data also showed that in the month of October, detached houses (+1.5 per cent) once again shaded units (+1.1 per cent).
Over the three months to end October, house values (+3.3 per cent) have also outperformed units (+3.0 per cent). But in the year-to-date, units (+10.4 per cent) have generated slightly higher capital gains than houses (+9.8 per cent).