The Experts

Growth in city home prices

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Home prices

  • Home prices: The CoreLogic Home Value Index of capital city home prices rose by 0.7 per cent in January and was up 10.7 per cent over the year. Prices rose in seven of the eight capital cities with Hobart up the most (up 1.4 per cent). Regional house prices rose by 1.1 per cent in December.

What does it all mean?

If you focus on housing markets in Sydney and Melbourne then you would conclude that Australia has a problem with exceptionally strong growth in home prices. But if you were to focus on regional markets outside NSW or either the Perth or Darwin markets you may come to a markedly different view. Demand for homes still outstrips supply in Sydney and Melbourne. But other markets show a greater sense of balance.

The homes needed in Sydney and Melbourne are being built. It’s just taking a little longer to plug the hole given the sheer amount of homes being built and the focus on apartments (predominately high-rise).

While regional house prices in New South Wales are showing healthy gains, it is a far different story in other states. Western Australian regional house prices in December were down a record 10.7 per cent on a year ago. Clearly in mining areas, the supply of homes continues to outstrip demand and the adjustment process will take a little longer.

Policymakers will keep a close eye on the housing sector. But a balanced approach is required in assessing the situation, recognising the sharply different conditions across the country.

The continued lift in home prices more broadly across Australia is adding to wealth levels for those who bought properties 5, 10 or 15 years ago or even further back in time. The wealth accumulated in the family home will serve to buoy retirement incomes should home owners elect to downsize in their golden years.

Two-thirds of Australian families are either buying homes or own homes outright, so the generalised lift in home prices is boosting wealth.

Budding home buyers may not be able to currently buy their preferred homes in preferred suburbs, especially in Sydney and Melbourne. But that is always the case. It is matter of re-assessing preferences.

What do the figures show?

  • The CoreLogic Home Value Index of capital city home prices rose by 0.7 per cent in January and was up 10.7 per cent over the year.
  • In regional Australia, house prices rose by 1.1 per cent in December and were just 2.8 per cent higher than a year ago. (Regional prices cover just houses and data is up to the end of December).
  • Across regional Australia, house prices in NSW were up by 7.2 per cent over 2016 with South Australia up 2.8 per cent, Victoria and Queensland up 1.2 per cent. In Western Australia, regional home prices were down 10.7 per cent in 2016.
  • In capital cities, house prices rose by 0.5 per cent in January while apartment prices rose by 2.2 per cent. House prices were up 11.1 per cent on a year ago and apartments were up by 8.0 per cent.
  • The average Australian capital city house price (median price based on settled sales over quarter) was $636,000 and the average unit price was $530,000.
  • Dwelling prices rose in seven of the eight capital cities in January: Hobart (up 1.4 per cent), Sydney (up 1.0 per cent), Melbourne (up 0.8 per cent), Adelaide (up 0.5 per cent), Canberra (up 0.4 per cent), Perth (up 0.2 per cent), and Brisbane (up 0.1 per cent). Prices fell in Darwin (down 1.7 per cent).
  • Home prices were higher than a year ago in six of the eight capital cities. Prices rose most in Sydney (up 16.0 per cent); followed by Melbourne (up 11.8 per cent), Hobart (up 7.8 per cent); Canberra (up 6.7 per cent); Adelaide (up 4.8 per cent) and Brisbane (up 4.4 per cent). Prices fell in Perth (down by 3.2 per cent) and Darwin (down 0.7 per cent)
  • Total returns on capital city dwellings rose by 14.4 per cent in the year to January with houses up 14.7 per cent on a year earlier and units up 12.5 per cent.

What is the importance of the economic data?

The CoreLogic Hedonic Australian Home Value Index is based on Australia’s biggest property database. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.

What are the implications for interest rates and investors?

CoreLogic continues to note that investors are driving key housing markets such as Sydney and Melbourne. But CoreLogic also continues to highlight the risks, with investors relying on expected capital appreciation for returns on their investment rather than rising rents. More apartments are being built, supply will catch up to demand and growth of home prices will ease over the next few years. Investors need to be aware of the risks including further actions by regulators to slow housing demand.

The broad-based health of Australian housing markets reduces the potential for further rate cuts. While fixed-term lending rates have lifted, it is still too early to canvas possible rate hikes from the Reserve Bank.

Housing is far from homogeneous and investors need to carefully do their homework on the states, suburbs and streets that are on their radar screens.

Published: Wednesday, February 01, 2017

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