An increase of 8.7% in property values since the market trough in May 2012 indicates that the housing market is once again back in a growth phase, however, data out today indicates more subdued conditions than some may be expecting.
The current rate of value appreciation is nowhere near as strong as the growth in values over previous value growth phases.
Although there is some clear strengthening of values, the magnitude of the increase is less than what was recorded during previous growth cycles despite positive data released in the September RP Data-Rismark Home Value Index results earlier this week.
While the results showed that capital city home values increased by 5.5% over the past 12 months, and by 8.7% since their recent low point in May 2012, other recent growth periods in the housing market, specifically at the beginning of 2001, 2007 and 2009 show that the rise in values during the current cycle is significantly more modest when compared with these cycles.
Home values across the combined capital cities have been rising since May last year and are now 8.7% higher over the 17 months (including May). Over the 17 months from December 2003 to April 2002, combined capital city home values had increased by 27.6%. The 2007 housing market recovery ran for exactly 17 months with home values rising by 15.1% over that period. Over the 17 months from December 2008 to April 2010 combined capital city home values increased by a total of 19.3%.
Value growth over the first 17 months from December 2001 was three times greater than value growth over the most recent growth phase. In 2007 growth was almost double that of the current period and over the same period post December 2008 values had grown at more than double the current rate of value growth.
A further investigation into value growth data across each capital city over these three recent market growth phases shows some interesting findings.
Over the three previous growth phases Melbourne’s housing market recorded the strongest level of capital growth followed by Sydney in 2001 and 2009, and by Brisbane in 2007. In the current recovery phase, the market has taken its lead from Sydney followed by Perth and Darwin (although capital gains in these latter two markets is now decelerating).
In 2001, Darwin showed an extremely muted response to the beginning of the market growth phase and Perth’s initial growth was lower compared with most other capital cities. In 2007, value growth through the recovery was comparatively weak in Perth, Hobart and Sydney. In the 2009 growth phase it was Hobart, Adelaide and Brisbane which experienced the weakest rebound in home values. Looking at the current growth phase, it has once again been Hobart, Adelaide and Brisbane that have experienced the most moderate response.
Based on this data it seems as if the national housing market tends to be led by the Melbourne and Sydney housing markets with the recovery across other capital cities generally lagging behind. Today’s results which are evidenced in the accompanying charts show that the remaining capital cities tend to lag the two largest cities.
Another point worth noting is that the periods of strong capital growth in Sydney and Melbourne have tended to not be as long as those in the other major capital cities. This was particularly noticeable in the 2001 growth phase where value growth had slowed in Sydney and Melbourne but continued for a much longer period in Brisbane, Adelaide and Perth.
With value growth typically commencing in Sydney and Melbourne where home values tend to be much higher than those in the other major capital cities, it is no surprise that growth phases tend to be shorter as affordability constraints arise.
Given that historically growth periods have tended to be shorter in Sydney and Melbourne than those in Brisbane, Adelaide and Perth it would be reasonable to anticipate that the current rate of value growth will not continue for an extended period of time.
It is also reasonable to expect that over the coming month’s value growth in Brisbane and Adelaide, where the recovery to-date has been quite dormant, we may start to see stronger value growth conditions as the affordability of these cities improves relative to the other major capital cities.
Quite a well balanced interesting article, seems to sum up the situation with logic ... it's just what Im thinking in that stupid egotistical brain of mine.
It's raining in Perth the zoo trip is postponed with the kids, it's a shame really, I was gonna see some animals that remind me of some APF posters..next time then.
Oooohhhhhhh
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$ It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do. Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
It's raining in Perth the zoo trip is postponed with the kids, it's a shame really, I was gonna see some animals that remind me of some APF posters..next time then.
Oh well, maybe I can be a Stallion in my next reincarnation ...
Herbs
You know very well it's not only whats in the head ..but it's what's in the heart is important.
Even seen those elephants when they get excited.....it's quite an awesome size....
Must go & get these kids out.
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$ It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do. Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
There’s every sign that the property market is on the way up. The interest rate cycle is at its low point, auction clearance rates are up, and median house prices are reaching new highs.
But I’d like to put something into perspective. Recently, media headlines have been proclaiming the start of this growth phase as a ‘boom’, and this bothers me.
I’ve never been a big fan of the term ‘boom’. A ‘boom’ implies the existence of its opposite, which is a bust – and ‘boom and bust’ does not accurately describe the nature of the property market.
Residential property is a real asset, not a paper asset, and it’s the only one that serves a dual purpose by providing a lifestyle and financial investment. Everyone needs somewhere to live, but not everyone needs or wants to invest in shares – so residential property has a widespread and ongoing level of demand that stabilises the market.
This makes it a relatively stable asset compared with paper-based assets like shares. In Melbourne, as in the vast majority of capital cities and large regional centres, the notion of booms and busts simply doesn’t ring true.
The only places it might apply are smaller towns based on single industries like mining or tourism, which have a more volatile economy. Bust can also arise in contained over supplied developments such as the Docklands that are dominated by investors.
The current growth spurt in the residential property market is not a ‘boom’, but rather a natural and logical phase in the overall cycle.
For the last two years the market has been stagnant or in decline and it was only a matter of time before it moved again. The demand for property is always evolving, as family units get bigger or smaller and there is a need to change living requirements. While many people put these moves on hold the pent up demand has been growing and is now flexing its muscle. While there is no doubt low interest rates are helping, the market is going through a normal part of its cycle.
I’d like to inject a note of caution here. Another reason I dislike the boom and bust concept is that it’s often used in a blanket fashion, implying that all property grows (or falls) in value at the same rate, at the same time. This is not the case.
After the current growth phase reaches its peak around the second half of 2014, there will be a noticeable split in growth rates. Some properties will continue to grow strongly in value, albeit at a slightly more moderate rate; whilst others will tail off substantially.
Properties that will continue to grow strongly will be those in demand from homebuyers and investors alike. These properties will be in areas with high employment rates and reasonably low debt levels. They will be in short supply relative to demand, and will have a high land-to-asset ratio – that is, the bulk of the asset will appreciate, not depreciate.
As an investor, it’s vital to take a long-term view. So look beyond the exhilarating headlines and choose property that will continue to perform strongly after the current growth spurt.
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