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RP Data September 2013 Results: Australian home prices surge to record high; Capital city house prices up 1.6% in September, RP Data-Riskmark shows
Topic Started: 1 Oct 2013, 01:05 PM (2,104 Views)
Dave
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This is from Paul Bloxham at HSBC.....

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Australian housing prices are lifting strongly, supported by low interest rates, and despite only weak jobs growth in recent months. Today’s data showed that capital city housing prices rose by +1.6% in September and by +3.7% over Q3, to reach a new record level. Improvement in the housing market has been matched by a lift in consumer sentiment in the past two months. Retail sales data, also out today, showed a modest rise of +0.4% in August to be +2.3% higher y-o-y. The beginnings of a local housing price boom are expected to limit the RBA’s willingness to cut interest rates any further.

Facts
- Capital city housing prices rose by +1.6% in September and by +3.7% over Q3 to be +5.5% higher over the year.
- Across the capital cities, housing price growth has been strongest in Sydney (+8.0% y-o-y) and Perth (+7.6% y-o-y).
- Retail sales rose by +0.4% in August (market had +0.3%), but were only +0.3% higher over the three months to August and
up +2.3% y-o-y.

Implications

The RBA’s monetary policy setting is getting traction in the housing market. Housing prices rose at their fastest pace in over three years in Q3 and the timeliest of the housing price data suggested that housing prices have reached a new record high in Australia.

The housing market is being supported by low interest rates, with the RBA’s cash rate already at its lowest level in over 53 years and mortgage rates also around record lows. The lift in the housing market is occurring despite weak employment growth in recent months and the drift upwards in the unemployment rate. A rising housing market is likely to be one factor contributing to a recent lift in consumer confidence.

Today’s retail numbers were more subdued, though they were a little stronger than the market expected. Retail sales rose by +0.4% in August to be +2.3% y-o-y. We expect a continued modest pick-up in household consumption in the second half of 2013 and into 2014.

Bottom line

Housing prices rose by a strong +3.7% over Q3, the strongest rise in over three years.

Retail data were more subdued, though they were a little stronger than expected, rising by +0.4% in August and +2.3% y-o-y.

We continue to expect that the beginnings of a local housing price boom may limit the RBA’s willingness to cut interest rates any further.
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Melbourne price rebound of more concern than Sydney's catchup as ANZ dominates home loan growth

By Jonathan Chancellor
Tuesday, 01 October 2013

Melbourne is now seriously challenging Sydney's price surge which ought be of mild concern to the Reserve Bank of Australia board.

The latest price growth detail suggest there was a 2.45% spike in Melbourne's dwelling values during September and a 5% gain over the September quarter.

That rate of acceleration is just a tad below the Sydney figures of 2.5% September montly growth and 5.25% quarterly growth, according to RP Data.

Annualised its 5.4% growth in Melbourne against 8% in Sydney.

Sydney's so-called recent bubble gains come against the backdrop of a decade of ordinary price growth, infact the weakest capital city at just 2.5% annual growth.

But Melbourne's growth is not catchup, as it had 5.5% annual growth over the past decade.

The RBA governor's October statement noted the pace of borrowing had "remained relatively subdued," though "recently there have been signs of increased demand for finance by households."

Not all of the big four banks are making the most of the current opportunities after the RBA lowered interest rates to a fresh record low 2.5% in August, adding to the earlier seven cash rate cuts in the current cycle.

Interestingly it was the ANZ - with its Melbourne headquarters - which has expanded its mortgage book at the quickest pace of the big four banks, according to the latest data from the Australian Prudential Regulation Authority.

It showed ANZ's home loan book grew by 7.1% on an annualised basis during August.

ANZ sits as the smallest home lender amid the big four, but has its standard variable mortgage rate at 5.88% which equals NAB as the lowest advertised rate among the big banks.

ANZ's 7.1% home loan book growth compared with the 5% for the Commonwealth Bank and NAB. There was 2.7% annualised growth for Westpac which has been losing home loan market share given its highest standard variable rate among the big four.

Tim lawless says maintaining the price growth currently seen in the two major capital cities was "unlikely."

And he added the current rate was starting to erode yield for investors.

Prices in Brisbane are still 10% off the 2009 peak offering the second-highest yields in the country.

Read more: http://www.propertyobserver.com.au/rba-rate-decision/melbourne-price-rebound-of-more-concern-than-sydney-s-catchup-as-anz-dominates-home-loan-growth
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Capital city home values reach new record high in September 2013

1 October 2013

Over the month of September, Australia's capital city dwelling values grew by a further 1.6 per cent, taking the combined capitals index to a new record high driven by strong gains in Sydney and Melbourne.

RP Data and Rismark International today released housing market results for September where the combined capital cities index recorded a 1.6 per cent rise over the month. The latest data release marks what RP Data research director and analyst Tim Lawless has described as a ‘technical’ recovery in the housing market with the RP Data – Rismark Combined Capital City Index moving 0.7 per cent higher than the previous record high which was last recorded back in October 2010. Based on the combined capitals index, capital city dwelling values fell by 7.4 per cent from the October 2010 market peak to the May 2012 trough. Since the beginning of June 2012, capital city dwelling values have increased by 8.7 per cent through to the end of September 2013.

According to Mr Lawless, the September gains were primarily fuelled by Australia’s two largest housing markets, Sydney and Melbourne, where residential property values in each city were up by more than 2 per cent over the month.

"Sydney home values were 2.5 per cent higher over the month and are up 5.2 per cent over the September quarter while Melbourne values have seen a similar 2.4 per cent month-on-month gain and a 5.0 per cent quarterly lift. We haven't seen market conditions this strong since April 2009 for Sydney and May 2010 for Melbourne," Mr Lawless said.

While Sydney and Melbourne dwelling values powered higher in September, most other capital cities are recording much more subdued housing market conditions. Dwelling values moved lower in Brisbane (-0.3%), Perth (-0.1%), Hobart (-2.0%), Darwin (-2.5%) and Canberra (-0.7%), whilst Adelaide values posted a 1.1 per cent capital gain over the month.

According to Mr Lawless, the latest housing market data is likely to be closely scrutinised by policy makers.

"Any debate about unsustainable growth in housing markets should be very much focussed on Sydney and Melbourne. Most other capital city housing markets are in fact showing only a modest growth trend. Perth’s housing market, which was previously the stand out for capital gains, has seen dwelling values rise by just 1.3 per cent over the September quarter while Brisbane’s housing market remains sluggish, with values up only 1.1 per cent over the past twelve months."

Another important factor to note when considering the current rate of capital gains is to look at the longer history of capital gains. According to Mr Lawless, "Sydney dwelling values have appreciated by just 2.5 per cent per annum over the past decade which is less than annual rates of inflation and wages growth over this period. Sydney’s annual average rate of capital gain over the past ten years is actually the lowest of any capital city."

RP Data and Rismark International today released housing market results for September where the combined capital cities index recorded a 1.6 per cent rise over the month. The latest data release marks what RP Data research director and analyst Tim Lawless has described as a ‘technical’ recovery in the housing market with the RP Data – Rismark Combined Capital City Index moving 0.7 per cent higher than the previous record high which was last recorded back in October 2010. Based on the combined capitals index, capital city dwelling values fell by 7.4 per cent from the October 2010 market peak to the May 2012 trough. Since the beginning of June 2012, capital city dwelling values have increased by 8.7 per cent through to the end of September 2013.

According to Mr Lawless, the September gains were primarily fuelled by Australia’s two largest housing markets, Sydney and Melbourne, where residential property values in each city were up by more than 2 per cent over the month.

"Sydney home values were 2.5 per cent higher over the month and are up 5.2 per cent over the September quarter while Melbourne values have seen a similar 2.4 per cent month-on-month gain and a 5.0 per cent quarterly lift. We haven't seen market conditions this strong since April 2009 for Sydney and May 2010 for Melbourne,” Mr Lawless said.

While Sydney and Melbourne dwelling values powered higher in September, most other capital cities are recording much more subdued housing market conditions. Dwelling values moved lower in Brisbane (-0.3%), Perth (-0.1%), Hobart (-2.0%), Darwin (-2.5%) and Canberra (-0.7%), whilst Adelaide values posted a 1.1 per cent capital gain over the month.

According to Mr Lawless, the latest housing market data is likely to be closely scrutinised by policy makers.

"Any debate about unsustainable growth in housing markets should be very much focussed on Sydney and Melbourne. Most other capital city housing markets are in fact showing only a modest growth trend. Perth’s housing market, which was previously the stand out for capital gains, has seen dwelling values rise by just 1.3 per cent over the September quarter while Brisbane’s housing market remains sluggish, with values up only 1.1 per cent over the past twelve months."

Another important factor to note when considering the current rate of capital gains is to look at the longer history of capital gains. According to Mr Lawless, "Sydney dwelling values have appreciated by just 2.5 per cent per annum over the past decade which is less than annual rates of inflation and wages growth over this period. Sydney’s annual average rate of capital gain over the past ten years is actually the lowest of any capital city."

Key statistics, tables and graphs available in the PDF (600kb).
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Units may be the smart choice as house values rise faster

Article by RP Data senior research analyst, Cameron Kusher

Capital city home values have increased by 5.3% over the 12 months to August 2013 however, unit values have risen by just 3.2% compared to a 5.6% increase in house values.

Units offer a more affordable price point at which to enter the housing market. Not only are they more affordable, they are often most abundant within inner city areas where many people aspire to live and from an investment perspective they tend to offer better rental returns. The popularity of unit development is also rising as developers look to cater to growing housing demand. It is quite possible that with interest rates at such low levels buyers are focussing on more expensive detached houses and may be overlooking the unit market.

Over the 10 years to August 2013, combined capital city house values have increased at an average annual rate of 4.4% compared to 3.7% for units. Over the past five years, unit value growth has actually outperformed that of houses, with house values increasing at an average annual rate of 2.9% compared to 3.4% for units. Despite the superior growth in unit values, they still offer a much more affordable purchase price than detached houses.

From an investment perspective, the typical gross rental yield on a capital city unit is recorded at 4.8% currently, compared to 4.1% for capital city houses. Of course, inner city units typically offer gross rental yields which are much higher than this city-wide benchmark.

It isn’t just home values which are indicating a rising popularity for units, it is also being reflected in dwelling approvals data. Over the 12 months to July 2013, there were 66,185 units approved for construction across the country. Unit approvals accounted for a near record high 41.5% of all dwelling approvals over the year. To put this figure in perspective, 10 years ago 34.4% of all dwelling approvals were for units and 20 years ago it was 29.0%. Clearly over the coming years, we are likely to see more and more medium and high density residential product delivered to the market, most of which will be in central areas of our capital cities.

Most people probably still hold the aspiration to own their own detached house however, the rising cost of housing and an ongoing insufficient supply of infrastructure in many parts of suburbia suggests that we may have to become more accepting of higher density product. With units in most cases being much more affordable than houses it does mean that residents can live in those aspirational suburbs without the price tag associated with a detached house.

Focussing on the suburbs across the capital cities with the greatest gap between house and unit values highlights the large differential. For example, in Centennial Park in Sydney, median house values are 10 times greater than median house values.

While a house may cost millions in many inner city suburbs, a unit offers the purchaser an opportunity to live in the suburb and enjoy all of these benefits. These benefits can in most cases be enjoyed with a six-figure price tag rather than the seven-figure price tag across many of the highly desirable inner city detached housing markets.

Overall, we are seeing the capital growth performance of units and houses becoming more aligned and we are seeing a rising proportion of new dwelling approvals for units. The growing supply of new units is clearly being driven by demand. Demand for people to be able to live in desirable inner city suburbs at a price point, from either a rental or ownership perspective, which is more achievable than the cost of a detached house in these areas. Given this, we anticipate that over the coming years, demand for units in the inner city will continue to rise. From an investment perspective with home value growth likely to track lower than it has in the past, we believe investors will have to pay closer attention to the total returns. This means not just the capital growth potential but also the rental return. Although units have historically not appreciated in value as quickly as houses they typically enjoy a superior rental return and may as a result be a superior investment choice.

Read more: http://pages.e.rpdata.com/units-may-be-the-smart-choice-as-house-values-rise-faster/
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