Top end housing almost as bad as during the GFC

The premium housing sector continues to dramatically underperform creating further downward pressure on property values.

According to the RP Data-Rismark Home Value Index results for October 2011, capital city home values have fallen by -4.0% over the past 12 months.  Home values have fallen across each of the capital cities, with the magnitude of decline ranging from a -1.1% fall in Sydney and Canberra to an -8.0% fall in Brisbane.

Although property values are falling across the board, it is important to understand the performance of the different market segments.  Much like what was occurring in 2008, it is currently the most expensive suburbs that are experiencing the sharpest declines in home values.

Home values across the most expensive 20% of capital city suburbs have fallen by -7.3% over the past year.  In comparison, the broad 'middle market' represented by the middle 60% of suburbs, based on their median price, has recorded value falls of -3.6% over the year and the most affordable suburbs have recorded a value fall of -2.9%.

Looking back at conditions during the GFC, the current market dynamic is quite similar.  At their weakest point in 2008, property values across the most affordable suburbs recorded an annual fall of -0.1%, the middle priced markets saw values decline by -2.4% and the premium market's annual decline peaked at -8.4%.

While the value declines across the premium market are not yet as bad on an annual basis as what was recorded over the 2008 calendar year, the magnitude in declines across the middle 60% of suburbs and the most affordable 20% of suburbs is much greater currently than they were back in 2008 highlighting a weaker overall housing market on a national basis.

Across most major capital cities, the weakest performing housing market has been the premium sector.  The exception as been in Brisbane, where despite the fact that premium home values have fallen by -11.3% over the year, the most affordable suburbs have recorded larger declines (-11.7%).

The most affordable suburbs of Sydney are the only segment of the market that is still in the black over the year with values increasing by 0.3%.

At a combined capital city level, the declines in unit values over the year (-1.7%) have been less severe than the falls in house values (-4.7%).  In each of the major capital cities, houses have also underperformed units in terms of annual change in values.  These results have been reflected across the performances by broad price segment as well.

On a national basis, the most expensive suburbs have recorded an -8.8% decline in house values over the year compared to just a -2.6% fall in unit values.  The most affordable unit markets have actually registered value growth over the year of 0.7% compared to a -4.1% fall in the corresponding detached housing market.

Across each market segment in each of the major capital cities the declines in house values have been greater than the declines in unit values with the most affordable properties in Brisbane the one exception where the unit market performance has been worse than that of the detached housing market.

These trends once again indicate that affordability is a barrier to the market and that buyers are targeting more affordable housing options.  In particular, units are increasingly popular as they offer shelter at a much more affordable price point relative to detached houses.

In the coming months we anticipate that these trends will continue.  A weak housing market along with volatile global equity markets and economic uncertainty stemming from Europe are likely to further weigh down the premium housing sector.  On the other hand, interest rate cuts may support some slight improvement across the more affordable housing markets.