Rismark Home Value Index Release

31 March 10 RP Data City home values continue to climb despite rate rises... while growth in non-capital city
markets much slower
Based on the RP Data - Rismark February Hedonic Home Value Index results released
today, dwelling values in Australias capital cities continued to rise by 1.4 per cent over
the month following on from 2.0 per cent growth in January. In the 12 months to end
February, Australian capital city home values have increased by 12.7 per cent after values
fell by circa 3 per cent in 2008.
Following a request from the RBA, RP Data - Rismark have developed a new Rest of
State Hedonic Home Value Index that covers all non-capital city regions across
mainland Australia. This has been reported in the RBAs Statement of Monetary Policy.
Interestingly, capital gains have been much more subdued in the Rest of State markets
with just 7 per cent growth in house values over the 12 months to end February 2010.
This recent growth in capital city home values needs to be placed in context. Based on
the latest ABS National Accounts data, the per capita disposable household incomes
grew by 6.0 per cent per annum over the five years to December 2009. At the same time,
Australian capital city dwelling values increased by almost exactly the same amount (6.2
per cent per annum) despite the strong growth registered in 2009. That is, dwelling
values have tracked per capita incomes with a ratio of almost 1:1.
Rismark CEO, Christopher Joye, said, A more remarkable statistic is that in the six
years to end December 2009, dwelling values in Australias largest city, Sydney, only
rose by a stunningly low 1.3 per cent per annum. At the same time, per capita disposable
household incomes grew by 5.7 per cent per annum. That is, household incomes have
risen much more rapidly than Sydney dwelling values over this period, which have
actually declined in inflation-adjusted terms.
The strong market conditions were mainly driven by large quarterly increases in
Melbourne (+5.4 per cent), Darwin (+4.2 per cent ) and Sydney (+3.8 per cent). In
contrast, Perth (-0.2 per cent) and Hobart (-4.2 per cent) have been much weaker.
House values increased by 3.1 per cent over the quarter while unit values gained 3.7 per
cent. To provide some pricing context, the median house price is $485,000 in capital
cities, while the median unit price is around $400,000.
According to Tim Lawless, Rpdata.coms Research Director, the continued high rate of
capital gains in the new year comes as a bit of a surprise. He said, Since October weve
seen a further 1 per cent added to the cash rate and the boost to the First Home Owners
Grant has been completely wound back. It was reasonable to expect that these factors
would have dampened market conditions, however this does not yet appear to be the
case.
Mr Lawless suggests that these robust market conditions can be largely tied back to the
high level of consumer and business confidence across the Australian economy,
Consumer confidence remains well above the long term average thanks to better than
expected domestic economic conditions, particularly an unemployment rate that has
peaked much earlier and lower than anyone predicted. Such high levels of confidence
appear to have reduced the dampening effect of rising rates and the removal of fiscal
stimulus, he said.
Rismarks Christopher Joye added, The housing market has been undeniably buoyed by
population growth of 2.1 per cent per annum, which is among the strongest in the
developed world. While the government believes the population will be 35m persons by
2050, we think it is more likely to be closer to 40m persons even assuming lower net
overseas migration.
Despite the higher than expected growth rates seen in January and February,
Rpdata.com and Rismark International still expect to see a moderation in capital gains
over the course of this year. According to Mr Lawless, With interest rates anticipated to
rise by another 50 to 100 basis points the impact is likely to be felt most in the mortgage
belts of Australia with affluent areas outperforming. Rismarks Christopher Joye
concurred, noting, While we will see year-by-year fluctuations, it is reasonable to expect
house prices to track disposable incomes, all things being equal.
Ends.
Additional information please contact Mitch Koper at RP Data on 0417 771 778 or
Christopher Joye on 0414 980 264.