Preliminary estimates show that the price index for residential properties for the weighted average of the eight capital cities rose 1.8% in the June quarter 2014. The index rose 10.1% through the year to the June quarter 2014. The capital city residential property price indexes rose in Sydney (+3.1%), Melbourne (+1.3%), Brisbane (+1.8%), Adelaide (+1.0%), Canberra (+0.8%), Darwin (+0.7%) and Hobart (+0.3%) and fell in Perth (-0.2%). Annually, residential property prices rose in Sydney (+15.6%), Melbourne (+9.3%), Brisbane (+6.8%), Adelaide (+5.6%), Hobart (+4.3%), Perth (+3.6), Darwin (+3.4%), and Canberra (+2.2%).
TOTAL VALUE OF THE DWELLING STOCK
The total value of residential dwellings in Australia was $5,196,355.9 m at the end of June quarter 2014, rising $112,598.5 m over the quarter. The mean price of residential dwellings rose $9,900 and the number of residential dwellings rose by 37,600 in the June quarter 2014.
Sydney's property market rallied in the second quarter of 2014 with house prices increasing by 3.1 per cent, figures released by the Australian Bureau of Statistics on Tuesday show.
Apartment prices are also on the up, increasing by 3.2 per cent over the same period.
Sydney's house price growth halved in the first quarter of this year, growing by just 2.4 per cent after a stunning December quarter when prices surged by 5.4 per cent, according to the ABS.
The senior economist at the Fairfax-owned Domain Group, Andrew Wilson, said Sydney was "leading the pack" because of ongoing speculative buying activity from investors.
"NSW investors make up nearly 50 per cent of the investor market in Australia," he said.
The chief economist at HSBC, Paul Bloxham, agreed that investors were driving the Sydney market and he raised concerns that the city's prices were starting to look "frothy".
"The investor share of new housing loans is around record highs," he said.
"I don’t think Australia has a housing bubble but I do think that if the current trends were to continue, particularly in the Sydney market, that would start to become a bit worrisome."
Dr Wilson said the June quarter would likely be "the end of the ball game though in terms of prices growth".
"I think we'll start to see prices growth tracking backwards now as affordability constraints work their way into the market," he said.
"Clearly the December quarter last year was the peak in terms of prices growth."
According the the ABS, Sydney house prices have increased by 16.5 per cent over the past year.
Its Residential Property Price Index for the weighted average of the eight capital cities increased 1.8 per cent in the June quarter 2014 but this was largely on the back of increases in Sydney, Brisbane and Melbourne.
Brisbane was the nation's second-best performer with house prices increasing 1.7 per cent.
AMP Capital chief economist, Shane Oliver, said that if interest rates stay low, price growth in Brisbane could overtake Sydney.
"It wouldn’t surprise me at all if in a year’s time Queensland is seeing property price growth north of 10 per cent," he said.
Today’s latest official dwelling price data from the Australian Bureau of Statistics has confirmed the strong growth seen across the cities in the year to date.
Looking at the June quarter 2013 compared to the June quarter 2014, dwelling prices increased by a weighted average of 10.1% across the eight capital cities.
This spanned from a 15.6% increase recorded in Sydney, to 2.2% in Canberra.
In the June quarter, Sydney managed 3.1% growth while at the other end of the scale dwelling prices in Perth slid backwards by 0.2%.
Melbourne, was the second strongest city for growth over the year at 9.3%, including 1.3% growth in the June quarter. Brisbane recorded 6.8% annual growth, but had the second strongest quarterly increase of 1.8%.
The mean price of residential dwellings rose $9,900, while the total number of dwellings across the nation up by 37,600.
The ABS notes that in Sydney, for established houses, the rise was broad-based with almost all segments of the market increasing.
Strata priced between $600,000 and $1.3 million contributed most to the rise. Attached dwellings under $1 million, in particular strata priced between $550,000 and $800,000, also recorded strong price growth.
In Melbourne, for established houses, strata in the listed segments of above $1.4 million and below $700,000 recorded increases. Attached dwelling results saw mixed results, with some segments rising and others falling.
Managing director of SQM Research, Louis Christopher, said that the figures reveal a strong housing market overall, with Sydney driving the average results.
“Going forward for the remainder of 2014, We expect some moderation in capital growth, but believe the recovery which began in late 2012, will remain intact,” he said.
Christopher noted that their predictions (over page) were largely correct based on the ABS’ results.
“I must say however, that forecasting 2015 is proving to be very challenging. There are many ‘x factors’ at play, including some geopolitical events that could play out rather badly for the global community,” he said.
Property prices continue to be driven by speculation in Sydney and to a lesser extent Melbourne. Housing multiples are near their peak and, with the unemployment rate rising and wage growth subdued, investors and home buyers should be asking themselves the tough question: does the property upswing have much longer to run?
According to the ABS, nominal house prices rose by 1.8 per cent in the June quarter, easing somewhat since late last year, to be 10.1 per cent higher over the year. Low interest rates continue to support activity in the housing market -- encouraging owner-occupiers and investors to bring forward their purchases -- but lending activity is set to peak over the next few months.
Housing multiples -- which are a reasonable proxy measure for affordability -- show that housing is expensive by historical standards. The house price-to-income ratio is approaching its highest level in history -- a level that in previous episodes has resulted in prices falling.
With the unemployment rate rising to its highest level in 12 years and wage growth subdued, it seems unlikely that the housing market can maintain its momentum for much longer. Furthermore, it remains somewhat surprising -- even with historically low rates -- that households are willing to tolerate housing multiples that were occurring during the midst of a once-in-a-lifetime terms-of-trade boom.
Residential construction is starting to pick-up, which should moderate prices a little, and the economy will continue to ease before it turns the corner. The terms of trade is set to soften further, which will weigh on household budgets and income growth. Based on the outlook for the broader economy, a softening of house prices shouldn’t catch too many people by surprise.
The past decade shows that housing downturns are now a fairly frequent event. We have had three downturns in the past decade, which compares unfavourably with the property-owning experience during the 1990s and early 2000s.
A high level of existing indebtedness makes it more difficult for the market to consistently post growth year after year. A structural shift towards softer income growth -- as a result of a lower terms of trade and ageing population -- will also have a similar effect, resulting in a less appealing property sector for investors.
At the capital city level, the most recent property upswing remains a Sydney-centric affair, with Melbourne playing a key supporting role. Nominal property prices in Sydney are up by 15.6 per cent over the year and in Melbourne prices have surged by 9.3 per cent. Nevertheless, quarterly growth in Melbourne has eased significantly over the past six months.
Prices in Brisbane and Adelaide rose more moderately, while the Perth market has been quite weak, with annual growth of just 3.6 per cent. Of those three markets, Brisbane seems the most likely to break out given its proximity on the east coast and its popularity among tourists.
The graph below, which adjusts capital city house prices for inflation, highlights the differing fortunes for each capital city. Perth prices have been sluggish since the beginning of the global financial crisis -- though that largely reflects the rapid growth over the first half of the last decade.
Sydney prices have surged but have only recently passed their 2003 peak -- which like this episode was driven by rampant investor speculation. The Melbourne market has increased strongly but remains below its peak in 2010.
Unlike the 2010 episode, the housing market is no longer supported by the first home owner boost and the grant itself is now used for new rather than existing properties. First home buyers remain priced out of the market and with youth unemployment at around 14 per cent -- its highest level since 1998 -- they are poorly placed to take on excessive leverage.
Australian house prices posted solid gains in the June quarter on the back of strong speculation in Sydney and to a lesser extent Melbourne. The composition of the market -- more specifically elevated investor demand -- increases the risk to house prices when lending eases. Speculators are particularly sensitive to falling prices, since rental yields on Australian properties are so low.
Based on the outlook for the broader economy, property investors must ask themselves the following question: does it make sense to invest in Australian property if the market is rapidly approaching its peak?
Furthermore, with the economy shifting towards softer income growth -- resulting from a lower terms of trade and an ageing population -- will longer-term capital gains be sufficient to offset such meagre rental yields?
Yesterday’s house price release from the ABS, along with the latest housing finance data, has provided an early indication that the housing bull market that has been in effect for the past two years might be nearing its end.
Arguably the single best short-term indicator for house price growth – real housing finance commitments – has begun to turn down which, given past strong correlations, suggests that real price growth nationally will continue to slow throughout the remainder of this year and into next year, with the possibility of price falls thereafter.
Obviously circumstances can change between now and then, rendering the above observation redundant. Still, the above data sets warrant close observation and regular updates over coming quarters.
At the major capitals level, the picture is diverse, with some markets appearing to be topping-out, one already in decline, and some still gaining strength. Note that unlike the national data, which dates back to the late-1970s, the state data only goes back to mid-1993. Nevertheless, the correlations between real housing finance commitments and real house prices remains strong.
First up is Sydney, which has been the primary driver of house prices nationally courtesy of unprecedented investor activity. There, price growth appears to have topped-out; although it should still remain strong for quite some time.
Price growth in Melbourne also appears to have peaked, although finance commitments also appear to be rising, which clouds the picture somewhat.
Brisbane, on the other hand, appears to still be in an upswing, with both the growth in house prices and finance commitments still rising.
Perth housing appears to already be in slowdown mode, with both the growth in house prices and finance commitments falling over the past year.
Finally, Adelaide’s housing market appears to be nearing peak growth, with finance commitments falling over the June quarter and price growth flattening.
The question now is are various capital city property markets in for soft or hard landings?
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