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Wednesday, January 6, 2010

RP Data – Rismark Home Value Index Release

31 December 2009

Australian home prices rise by +1.1% in November with 11.3% cumulative growth in first 11 months of 2009; results driven by robust gains in Sydney (+11.6% for year) and Melbourne (+17.0% for year).

Based on the rpdata.com residential property database, which is the nation’s largest with over 250,000 sales in the first eleven months of 2009 alone, Australia’s housing market continued to grind out strong gains in the month of November with cumulative double-digit growth recorded in the year-to-date.

According to the RP Data (rpdata.com)-Rismark National Home Value Index, which is published by the RBA in the Statement on Monetary Policy, Australian home values rose by an indicative 1.1 per cent in the month of November after 1.3 per cent growth in October (October’s initial indicative estimate was 1.4 per cent).*

Over the first 11 months of 2009, Australian home values rose by 11.3 per cent following on from their modest 3.8 per cent peak-to-trough falls in 2008.

The most important story of 2009 has been the extraordinary recovery in the Melbourne and Sydney housing markets. In the three months to end November, home values in Melbourne and Sydney have outperformed most other capitals rising by 4.5 per cent and 3.2 per cent, respectively (see summary tables for more).

Over the year-to-date, Melbourne has been Australia’s best performing capital city outside of Darwin, generating exceptional capital gains of +17.0 per cent. Sydney home values have increased by more than 1 per cent per month with cumulative growth of 11.6 per cent.

In the first 11 months of 2009, most of the other capital cities have performed strongly with Darwin (+17.9 per cent) leading the way, followed by Canberra (+10.9 per cent), Brisbane (+6.9 per cent), Perth (+6.5 per cent) and Adelaide (+5.7 per cent).

According to Christopher Joye, managing director of Rismark International, “At the end of 2008 most forecasters were predicting substantial house price falls in the following 12 months. Almost all of them were proven wrong. Australia’s housing market has surprised on the upside with impressive double-digit capital gains in the year-to-date.

The inability of most analysts to get close to divining Australia’s housing market trajectory during the GFC and in the recovery since, combined with the many misconceptions one typically hears about housing, illustrates just how poorly understood the sector is.”

Rpdata.com Research Director Tim Lawless suggests that the November results highlight that the Australian market may be less sensitive to interest rate rises and the removal of Government stimulus than many would have thought.

“The strong November results were achieved despite the 25 basis point lifts in the official cash rate in October and November as well as the wind back of the boost to the First Home Owners Grant which was halved on the first of October. First home buyers have been trending down since peaking in May ’09 and the gap is being filled by upgraders and investors who are much less sensitive to rate rises and the level of stimulus.”

Christopher Joye said, “first time buyers have been fading from the market and the withdrawal of the boost has yet to have any discernible impact on price growth. The key driver of Australian housing demand in the latter half of the year appears to have been upgraders and investors. We expect this trend to continue in 2010.”

He said that as mortgage rates normalise to around 7-8 per cent, house price growth will taper back to more modest single-digit levels in 2010. Since many borrowers did not reduce their mortgage repayments in 2008-09 when the RBA cut rates by circa 40 per cent, household balance-sheets should be well positioned to absorb higher costs.”

Rpdata.com’s Tim Lawless agreed stating that value growth in Australia’s residential sector is likely to be more subdued than what was recorded in 2009.

“2009 has been both an exceptional and surprising year for Australia’s property market.”

“Looking forward we would expect market conditions to moderate into 2010 as interest rates continue move back to a neutral setting and the remainder of the Government stimulus is rolled back. The primary driver of growth will continue to be an under supply of housing coupled with extraordinary housing demand fuelled by population growth,” he said.


Market dynamics

The median Australian home price in all capital cities over the three months to end November was $439,800 (including houses and units). If we include all regions across Australia (i.e. not just the circa 40 per cent of homes located in capital cities), the national median dwelling price is $395,000. (Note: that these are the ‘middle value’ or 50th percentile median prices based on the pooled sales over the last three months.)

The median Australian house price in capital cities is $470,000 while the median unit price is $390,000.

The most expensive houses, based on median price, are in Sydney ($550,000), followed by Canberra ($535,000), Darwin ($501,000), Melbourne ($486,400), Perth ($485,000), Brisbane ($449,850), Adelaide ($372,000) and Hobart ($330,000).

Sydney has the most expensive unit market with a median price of ($417,000). This is followed by Melbourne ($402,500), Canberra ($390,000), Perth ($385,000), Brisbane ($375,000), Darwin ($357,000), Adelaide ($310,000) and Hobart ($270,750).

In the month of November, detached houses (+1.0 per cent) have underperformed units (+1.3 per cent).

Over the three months to end November, unit values (+3.1 per cent) have also shaded houses (+2.9 per cent).

And in the year-to-date, units (+12.5 per cent) have materially outperformed houses (+10.9 per cent) presumably due to the influence of the first time buyers’ boost.

National rental yields tapered slightly in November with the gross annualised rental yield for units being 4.9 per cent while house yields are lower at 4.1 per cent.

Notes
* This data is indicative and subject to revision. It is typically based on approximately 30-40 per cent of the total population of expected home sales. RP Data ultimately collects roughly 100 per cent of all property sales via its license agreements with every State and Territory Government Valuer General and Land Titles Office. This is reflected in subsequently reported index results (ie, in the months preceding the current indicative period).

**The median price is the 50th percentile observation based on all pooled home sales over the three months to end November 2009. This is different to the medians reported by other parties for several reasons. First, where appropriate it includes all property types (ie, not just detached houses, like the ABS). Second, the median value reported by the likes of APM is calculated using a ‘stratification technique’, which is different to the simple 50th percentile observation used here. RP Data-Rismark’s previously reported ‘median values’ must also be interpreted differently. These are the index values attributable to the RP Data-Rismark ‘hedonic index’, which was originally based at inception on median automated property valuation estimates (ie, the median of a statistical valuation of all capital city homes). The change in the index value over time reflects the underlying capital growth rates generated by residential property in the relevant region. These growth rates are not influenced by capital expenditure on homes, compositional changes in the types of properties being transacted, or variations in the type and quality of new homes manufactured over time. The RP Data-Rismark ‘median values’ are not, therefore, the same as the ‘simple median price’ associated with all homes sold during a given period. In future, we will report simple median prices to avoid any further confusion.

Source- Rp Data