Ben Anderson provides a snapshot of the current state of the domestic housing market.
At the end of November 2013, the Australian housing market had grown by 8 per cent over the previous year, after posting quarterly growth of 3 per cent. This was below the quarterly growth figures recorded by RP Data recently, and indicated a trend towards more sustainable growth in the longer term.
The monthly growth figure at just 0.1 per cent further supported this analysis, given the property market posted growth of 1.3 per cent in October. The market also experienced a regular cyclical downturn in activity towards the end of the year before Christmas.
Over the past year, the housing market total returns, as calculated by RP Data, combining capital growth and rental returns, have been at an average of 12.7 per cent throughout Australia. The figure was as high as 17.4 per cent and 13.9 per cent in Sydney and Perth, respectively, with the latter even pushing through a reduction of investment in the mining sector as of late.
Property values across the capital cities are now at an aggregate 2.1 per cent above their previous individual median value peaks, but just 8.7 per cent above their respective property median value troughs. This comes at the point where the national median values approach $559,995 for houses and $467,000 for units.
The cash rate was recently left on hold at 2.5 per cent by the Reserve Bank of Australia, which has been balancing the foreign exchange rate with the local national consumer price index (CPI). The CPI figures edged up in the past quarter by 1.2 per cent, leading to an inflation rate of 2.2 per cent at the close of the previous quarter.
Clearance rates are still increasing for Sydney, with APM having reported another 80.4 per cent clearance rate in the last weekend of November despite the city’s median house value approaching $750,000. Nevertheless, even with these figures, the HIA-Commonwealth Bank of Australia housing affordability index notched up 3.2 per cent over the quarter ending September.
Looking ahead, the Westpac Melbourne Institute’s measure for consumer sentiment ended 1.9 per cent higher for November. With the Australian dollar not falling, there is growing speculation of a further rate cut in the first two quarters of the year. This is especially the case given the falling new home sales, unemployment at 5.8 per cent and some of the sectors of the economy experiencing receding investor activity.
Auction clearance rates
Australian auction clearance rates came off their peaks over the recent months, as the market headed towards a cyclical decline in the last months of the year. While APM reported an unusually high figure for Sydney, there were reports of a possible inaccuracy, due to the large number of missing auctions in the calculation done by the data provider. RP Data and the Real Estate Institute in New South Wales and Victoria showed auction results in the low 70 per cent range for Sydney and high 60 per cent range for Melbourne.
Looking at the clearance rates throughout the year, Sydney had a rising trend, while Melbourne experienced a peak in about September. With a 75 per cent clearance rate previously indicating a resilient growth phase of the market, it can be concluded 2013 saw a turnaround in the housing market in terms of auctions for these two major Australian capital cities. The cities had seen sluggish growth in 2011/12, and the recent results show the impact of the improved affordability and the improved consumer sentiment in this asset class.
Capital cities
The majority of the state capital cities closed 2013 with substantial growth over the previous year. Sydney, with a median dwelling value now of $640,000, posted a 12.5 per cent year-on-year growth rate at the end of November, which combined with rental returns, gives a 17.4 per cent median return from property over the year. This was split up between an 18.1 per cent return from house investments and 14.7 per cent return from apartments.
The next best growth was in Perth with 8.9 per cent annual growth and a 13.9 per cent return figure. Other notable returns were in Melbourne and Darwin. Melbourne grew by 6.6 per cent in the past year and, along with the strong rental market, posted a total return of 10.6 per cent. The rental market also propped up returns in Darwin, which grew by a net 1.6 per cent, yet returned 8 per cent to investors. Darwin houses were yielding 6.1 per cent while the units were seeing yields of 5.9 per cent. The affordability constraints in this property market, with a median dwelling value of $525,000, have flowed on to the performance of the rental market.