Dwelling values continue to rise while rental yields compress further
CoreLogic RP Data February Home Value Index results released today showed that Australia’s combined capital cities have seen dwelling values rise by a further 0.3 per cent in February taking home values 8.3 per cent higher over the past twelve months.
According to CoreLogic RP Data head of research Tim Lawless, dwelling values continued their upwards trajectory over the month of February by recording a 0.3 per cent gain over the month. This now takes combined capital city dwelling values 2.5 per cent higher over the rolling quarter and 8.3 per cent higher over the twelve months to the end of February. Over the past twelve months the CoreLogic RP Data Index shows dwelling values across the eight capital city aggregate index are up 8.3 per cent. Sydney is once again the clear standout with dwelling values 13.7 per cent higher while Melbourne values are 7.4 per cent higher. Australia’s third largest city, Brisbane, recorded the third highest rate of annual capital gain with dwelling values up 5.9 per cent. In contrast, dwelling values have increased by less than four per cent in every other capital city over the year.
Since the beginning of the growth cycle in June 2012, dwelling values have moved 22.6 per cent higher across the combined capital cities. According to Mr Lawless, this again demonstrates the heat emanating from the Sydney market; values are up 34.8 per cent cumulatively over the cycle to date across Australia’s largest capital city.
Mr Lawless noted the latest month-on-month results show a moderation in the rate of dwelling value growth compared with the December and January movements. The monthly rate of growth slowed from 1.3 per cent in January and 0.9 per cent in December, however the growth trend remains strong, particularly in Sydney and Melbourne.
He said, “The slower rate of capital gain in February may come as a surprise to some who were expecting lower mortgage rates to instantly propel the pace of home value growth higher. We are already seeing the effect of lower mortgage rates, with auction clearance rates surging to the highest levels we have seen since 2009 and valuation activity across CoreLogic RP Data valuation platforms reaching new record highs based on daily averages over the second half of February. Despite the flurry of activity, it will likely take some time to see this flow through to a higher rate of capital gain.”
“We might not see the lower interest rate environment stimulate the housing market as much as it has in the past. Weaker jobs growth, higher unemployment, declining affordability, low rental yields and political uncertainty are all factors that could dent consumer confidence and provide some counter balance to the rate cuts and quell any additional market exuberance.”
“At the same time we are seeing federal regulators acting to ensure responsible lending standards are being adhered to. APRA has been recently vocal about Australian lenders remaining within the regulatory benchmarks for the pace of investment lending and serviceability measures. With lenders on alert to keep within the APRA benchmarks, obtaining housing finance may become more challenging for some higher risk sectors of the market which could act as another counter balance to lower mortgage rates,” Mr Lawless said.
Evidence of compressed rental yields is continuing across each of the capital city markets. A year ago the gross rental yield for a capital city dwelling was averaging 4.3 per cent; by the end of February the typical gross yield has been eroded down to just 3.7 per cent – due largely to the consistent high rate of dwelling value growth relative to rental growth.
According to Mr Lawless, over the current growth cycle to date, we have seen capital city dwelling values rising at more than three times the pace of weekly rents. The bi-product of such strong capital gains and relatively weak rental growth is that rental yields are being forced lower and lower.”
“At the same time we are seeing federal regulators acting to ensure responsible lending standards are being adhered to. APRA has been recently vocal about Australian lenders remaining within the regulatory benchmarks for the pace of investment lending and serviceability measures. With lenders on alert to keep within the APRA benchmarks, obtaining housing finance may become more challenging for some higher risk sectors of the market which could act as another counter balance to lower mortgage rates,” Mr Lawless said.
Evidence of compressed rental yields is continuing across each of the capital city markets. A year ago the gross rental yield for a capital city dwelling was averaging 4.3 per cent; by the end of February the typical gross yield has been eroded down to just 3.7 per cent – due largely to the consistent high rate of dwelling value growth relative to rental growth.
According to Mr Lawless, over the current growth cycle to date, we have seen capital city dwelling values rising at more than three times the pace of weekly rents. The bi-product of such strong capital gains and relatively weak rental growth is that rental yields are being forced lower and lower.”
By CoreLogic RP Data Home Value Index Release
