Home values surge to highest growth in 10 years
Home values surged by 4 per cent over the past three months – the fastest quarterly growth in a decade – bolstered by lower interest rates and easing lending policies, the CoreLogic Home Value Index showed.
However, the month-on-month data showed a notably slower growth pace in December, with the national dwelling values rising by 1.1 per cent compared to 1.7 per cent in the previous month, as stock levels start to rise and affordability worsens.
Home values rose 4 per cent in the December quarter- the highest
three-month growth since November 2009.
CoreLogic’s Asia Pacific head of research, Tim Lawless, said although the monthly capital gain trend remains fast-paced, the December growth was softer relative to gains in the previous two months.
“This would suggest that the pace of capital gains may have been dampened by higher advertised stock levels or worsening affordability pressures through early summer,” he said. The rate of growth in Sydney and Melbourne also slowed to 1.7 per cent and 1.4 per cent respectively after the two cities staged a surprisingly large jump in values during November. Home values in Canberra grew by just 0.1 per cent after rising by 1.6 per cent in the previous month. Perth dwelling values flattened in December, while Brisbane slowed to 0.7 per cent from a 0.8 per cent gain in the previous month. Over the year, the combined capitals rose by 3 per cent, reversing the 6.1 per cent slide recorded in 2018. Sydney and Melbourne posted 5.3 per cent annual growth each for 2019 – also a sharp turnaround from a year ago when Sydney dropped by 8.9 per cent and Melbourne by 7 per cent. Brisbane ended the year up by 0.3 per cent annual growth, Hobart by 3.9 per cent and Canberra by 3.1 per cent.
Perth and Darwin bucked the upward trend with values falling by 6.8 per cent and 9.7 per cent over the year, respectively.
Premium markets continue to surge
Mr Lawless said the strong turnaround in the Sydney and Melbourne were fuelled by the outperformance in the top end of the market. “We’re still seeing the premium sector of the marketplace driving the highest capital gains,” he said. In Sydney, the top 25 per cent of the market based on value jumped by 7.3 per cent over the December quarter, compared to a 3.7 per cent gain in the bottom quartile. In Melbourne, the top end surged by 7.5 per cent while the lower quartile rose by 4.5 per cent.
Affordability, listings to dampen growth
Mr Lawless noted that as housing values rise faster than household incomes, worsening housing affordability is likely to take some heat out of the market. “I think worsening affordability will continue to slow down the rate of price growth as first homebuyers pull back,” he said. CoreLogic estimates that Sydney dwelling values were 8.2 times higher than income as at June 2019 and are now likely to be around 9 times higher. While Mr Lawless expects Sydney and Melbourne to outperform in the next few months, he said higher listings and affordability worries will drag them down. “I think over the next few months, we probably will continue to see Sydney and Melbourne leading the market,” he said. “However, I think progressively through the first half of the year, that lead will start to diminish, partly due to Sydney and Melbourne growth rates just starting to taper, but also potentially markets like Brisbane and Perth, and some of the regional centres as well and lifestyle markets gathering some momentum.”
Early onset of a bubble?
Shane Oliver, chief economist at AMP Capital, said that based on the high house prices relative to rents and household debts, the markets may be entering bubble territory. “If you define a bubble on the basis that house prices are high relative to rents and relative to people’s incomes and the high level of debt in the system, then you say it’s a bit bubbly,” he said. “But the definition I tend to prefer is more around house prices surging to record highs and price growth feeding on itself. And it usually requires more than a few months’ worth of strong growth. “But from a traditional definition of a bubble and working just on valuations, I’d say we’re not in a bubble but it’s starting to get more bubbly.”
Reporter: Nila Sweeney, AFR