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Friday, April 29, 2011

House prices going nowhere, as we forecast

Here is today's media release...

The latest RP Data-Rismark Home Value Index results show capital city dwelling values were flat in the month of March (-0.2 per cent s.a. and 0.0 per cent raw). However, over the March quarter capital city home values softened noticeably (-2.1 per cent s.a. and -0.4 per cent raw).

Over the twelve months ending March 2011, Australian capital city dwelling values were broadly unchanged (-0.6 per cent).

According to RP Data research director Tim Lawless, while residential property owners may not have seen any capital growth over the past 12 months, many are realising robust increases in rental yields.

“In contrast to the fall in home values, gross rental yields have been improving with apartments and houses now delivering a gross return of 4.9 per cent and 4.2 per cent, respectively, in March 2011 according to RP Data-Rismark’s estimates,” Mr Lawless said.

Ben Skilbeck, joint managing director with Rismark International, said this is consistent with the sprightly rental appreciation documented by the ABS in its inflation measure, with the dollar value (as opposed to the price yield) of the rental component of the ABS’s inflation benchmark rising by a striking 1.3 per cent over the March quarter alone.

According to Tim Lawless, Brisbane has recorded the weakest results over the quarter and the year.

“Unsurprisingly, the flooding that has occurred within South East Queensland has likely compounded Brisbane’s weak market conditions. Brisbane homes were the worst performers during the March quarter, with values tapering sharply by -4.6 per cent s.a. (-3.3 per cent raw). Brisbane values are down 6.8 per cent over the year to March 2011,” he said.

In the non-capital city regions the story has been similar. In the year to end March 2011, ‘Rest of State’ house values were relatively unchanged (-0.5 per cent s.a.). However, the March quarter was a weaker one, with house values declining by -1.8 per cent s.a. (-0.7 per cent raw).

At the end of the March quarter, in the capital cities the national median dwelling price was $455,000. For all regions across Australia, the national median dwelling price substantially lower at $410,000.

The moderation in Australian housing valuations are likely to be warmly welcomed by prospective home buyers, particularly first timers who have been confronted with affordability barriers.

RP Data’s research director, Tim Lawless said, “With household incomes growing at 6 per cent per annum, interest rates potentially approaching the peak of the tightening cycle, rents increasing, and house values going nowhere, buyers are seeing an improvement in their position.”

“With first time buyers now representing a bit less than 15 per cent of all owner occupier housing finance commitments, it is likely that market activity in the first-time buyer market will increase in the median term,” Mr Lawless said.

Rismark’s Ben Skilbeck, added, “Rismark forecast a soft-landing in the Aussie housing market in the second half of 2010, and projected that this would persist through 2011. These forecasts are coming to fruition. If the RBA does raise interest rates one or two more times this year, we expect to see further valuation improvements.”

RP Data’s Mr Lawless said the tightness in the rental market combined with flat price growth is providing a boost to rental yields.

“Based on the RP Data-Rismark Total Return Index, we estimate that weekly asking rents are up 4.6 per cent over the last six months. While the highest yields are found in the Darwin apartment market (5.7 per cent), apartments in Hobart (5.4 per cent), Canberra (5.4 per cent), Brisbane (5.2 per cent) and Sydney (5.1 per cent) also offer attractive yields,” Mr Lawless said.

He added that key leading indicators point towards a sedate capital growth environment for the remainder of the year.

“Clearance rates are bouncing around the low fifty percent mark each week, the number of homes being advertised for sale is almost 30 per cent higher than at the same time last year, and sellers are being forced to adjust down their price expectations. Before there is any real upwards pressure on home values there will need to be some absorption of effective supply and a return of sustained buyer confidence to the market,” he said.

Rismark’s Joint Managing Director, Mr Ben Skilbeck, pointed out that it is sometimes useful to distinguish between the actual ‘raw’ and ‘seasonally-adjusted’ index results.

“In actual raw terms, Sydney dwelling values rose by 1.1 per cent over the March quarter. Yet once this data is ‘seasonally-adjusted’ to reflect the strong conditions that normally prevail in the first three months of a year, the index result was down 1.1 per cent. Similarly, Melbourne dwelling values did not actually move in raw terms during the March quarter. However, on a seasonally-adjusted basis the Melbourne index is off 1.5 per cent,” he said