House values surge 2.8% in July – but Melbourne growth outstrips Sydney

The surge in housing values in Sydney and Melbourne accelerated in July, whilst values elsewhere continued to lag.

In Sydney, a 3.3 per cent rise in dwelling value for the month, delivered an 18.4 per cent rise for the year which is the highest rate of growth in the city since 2002, according to CoreLogic. The Sydney dwelling value is now 40 per cent higher than its previous peak.

Melbourne had an even stronger month, with the city dwelling value up 4.9 per cent, and 6.1 per cent for the three months, which is the fastest quarterly rise since June-August last year. The Melbourne dwelling value index is 18 per cent above its previous peak.

Overall, Australian housing values across capital cities climbed 2.8 per cent for July and 11.1 per cent over the last year, Corelogic RP Data Home Value Index results for July have shown.

The two-tiered growth in Sydney and Melbourne continued to drive the property market to a record $6 trillion despite the Australian Prudential Regulation Authority imposing limits on bank lending to property investors.

In the six months to July, the market grew by half a trillion dollars.

“I am quite surprised there has not been any tightening just yet … but it is probably just around the corner,” Corelogic RP Data’s head of research Tim Lawless said.

“The combined effect of tighter lending parameters with more focus on serviceability and low LVR’s, potentially higher mortgage rates for investment loans as well as limitations on the pace of investment lending imposed by APRA on Australia’s banks should conspire to slow investor demand in the market.”

The debt against the total value of the market was about 22 per cent, which is low compared to other countries such as the US.

But whilst Sydney and Melbourne dwelling values have soared, the values elsewhere have stalled. In Adelaide, Perth and Dariwin, dwelling values actually fell over the quarter.

“Over the past twelve months, we’ve seen several cities enter a correction phase with Darwin values falling the most, down by 5.3 per cent,” Mr Lawless said. “Perth values also drifted lower over the year, down 0.3 per cent.”

As home values climbed, rental yields continued to be squeezed.

Capital city rents increased by 0.9 per cent over the past twelve months, the slowest pace on record.

Record low gross rental yields were evident for Sydney houses at 3.2 per cent and Melbourne at 3 per cent while units in the same cities were a short distance to new record lows.

“A lack of any meaningful rental growth at a time when dwelling values are rising by more than 11 per cent over the year has pushed gross rental yields to new record lows across the combined capital city measure,” Mr Lawless said.

“Sydney and Melbourne are the cities where investors are most active, indicating the low yield profile hasn’t been enough disincentive to keep investment at bay in these markets.

“The only capital city where yields haven’t deteriorated over the year is Hobart where rental growth has kept pace with value growth.”

Financial Review / Aug, 3 2015

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