Two Speed Market Continues

February 9th, 2015
The gap between Australia's property markets continues to widen, with prices in Sydney and Melbourne outpacing the rest of the country. According to figures from CoreLogic RP Data, while Sydney and Melbourne started the year strongly, three other capital cities recorded negative growth over the month. While the average value of homes in Australian capital cities grew by 7.9 percent in 2014, recent data from January shows just how lopsided the market has become.

Melbourne had the strongest start to the year, with house prices up 2.7 percent over the month. ; Values in Sydney rose 1.4 percent, with Hobart showing massive improvement with a 1.6 percent lift. ; Brisbane recorded 0.6 percent growth for January, with Canberra up 0.9 percent. ; Negative growth was recorded in three capitals, with Darwin down 1.3 percent, Adelaide down 1.2 percent, and Perth down 0.6 percent. ; The resources sector downturn continues to affect property values in Darwin and Perth, with a rough year ahead expected for both cities.

Long term data shows a similar picture, with Sydney values growing at an annual rate of 13 percent. ; While the average growth value for all capital cities was 7.9 percent over 2014, the strength of this figure is skewed by such strong results in Sydney. ; Home values grew by 7 percent in Melbourne over the year, with Brisbane up 4.6 percent, Adelaide up 3 percent, Hobart up 3 percent, Perth up 2.6 percent, Darwin up 1.4 percent, and Canberra down 0.3 percent.

According to Tim Lawless from CoreLogic in its monthly housing index, “Sydney has also shown the best rate of capital gain of any capital city in the years after the GFC... ; From January 2009 through January 2015 Sydney home values have increased by 57 per cent." ; While not quite as impressive as the NSW capital, housing values in Melbourne have also experienced significant rises with prices up 50 percent over the same period.

While a two speed housing market has been a reality in Australia for a while now, sluggish conditions around the country have exaggerated the difference between cities. ; With 2013 average capital city home value growth at 9.8 percent and a peak in early 2014 of 11.5 percent, the decline to 7.9 percent growth over 2014 is significant. ;"In a sign that housing market conditions are gradually cooling, the rolling annual pace of capital gain has been trending lower. At the end of January the annual rate of dwelling value growth across the combined capitals index has slowed to 8 per cent, down from the early 2014 peak of 11.5 per cent,” said Mr Lawless.

The real estate sector is likely to experience an ongoing slowdown throughout 2015 according to Mr Lawless, despite the recent interest rate drop from 2.5 percent to 2.25 percent. ; With dropping investment in Sydney and Melbourne because of affordability issues, lower rental income yields, and stricter lending conditions, the rate adjustment is unlikely to have the same impact on property prices as previous drops. ; However, Reserve Bank governor Glenn Stevens admits a lower cash rate risks fuelling house price rises, saying “The Bank is working with other regulators to assess and contain economic risks that may arise from the housing market.”