Record August growth in home values despite first home buyer demand winding back…

National property values jumped by almost 2 per cent in August in the largest monthly movement since the RP Data-Rismark Home Value Indices began in January 2005

Using the (ASX: RPX) property database, which is Australia’s largest and includes over 170,000 sales during the first eight months of 2009, Australia’s housing recovery solidified during the month of August with strong capital gains registered across the country despite evidence of fading first home buyer numbers.

According to the RP Data-Rismark National Home Value Index home values in Australia rose by an exceptional 1.9 per cent during the month of August. This brings cumulative capital growth in the first eight months of 2009 to a better than expected 7.9 per cent. This is also the single highest monthly index result since the RP Data-Rismark National Home Value Index began in January 2005.

The August results surprised on the upside and are indicative of very high levels of buyer confidence combined with low levels of listings.

Also these buoyant conditions sit in striking contrast to the same time last year when values were falling, less than half of the auctions held cleared and sales volumes were at rock bottom.  We are now seeing home values rising at a solid rate, almost 80 per cent of auctions are clearing, and sales volumes have bounced back significantly.

Australian home values have now risen 3.8 per cent past their February 2008 peak. This rebound followed peak-to-trough falls in national home values of just 3.8 per cent in 2008, which compares exceptionally well with the 15 per cent and 30 per cent house price declines seen in the UK and US, respectively.

Breaking the market down into broad price segments, the cheapest 20 per cent of suburbs in Australia have actually underperformed both the mid-priced market and Australia’s 20 per cent most expensive suburbs since the housing market bottomed in December 2008.  Over the last three months the premium residential market increased in value by 4.5 per cent compared with a 3.4 per cent gain in the middle market and a 2.8 per cent improvement at the cheapest end.

Change in home values - most affordable, middle and most expensive

(Note: numbers in chart  to right show changes since December 2008 in the cheap, middle market, and expensive suburbs.)

Despite the strong gains, the bounce in the premium sector has not been enough to offset the peak to trough fall of 9.9 per cent between February 2008 and January 2009.  Prices in Australia’s most expensive markets are still 1.1 per cent lower than at their peak.

While the resounding recovery in Australia’s housing market confirms our forecasts, we expect medium term growth rates to be more measured as mortgage rates normalise back to between 7-8 per cent. This would bring the cost of housing finance back in line with its 2000-01 levels, which is notably well below the searing 9.6% highs endured by borrowers in August 2008 care of the RBA.

The upward momentum in Australian house prices is a critical economic signal from the market to builders and developers to encourage them to reinvest in producing new housing supply. This was a message reinforced by the RBA’s Dr Anthony Richards in a speech to CEDA yesterday: policymakers need to facilitate significant new investment in housing supply to alleviate Australia’s growing housing shortage, which ANZ and Westpac estimate has risen to around 200,000 homes.

This price growth will also go a long way to comforting risk-averse lenders to start providing credit again to developers, which has been one of the main bottlenecks on the supply-side. And it will stimulate the reallocation of resources away from other sectors of the economy into much-needed housing investment.

Median dwelling values and growth rates

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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3 Responses to Record August growth in home values despite first home buyer demand winding back…

  1. Prue Clarke September 30, 2009 at 11:54 am #

    Looks like Darwin has peaked with a negative growth rate over August?

  2. Graeme Freer October 2, 2009 at 10:07 am #

    The August figures do in fact suggest that the ‘unsustainable’ level of growth may be coming to an end. One reason that Darwin appears not to have been affected by the GFC is that a large proportion of the working population is in the public service/Defence.
    Although still below many economists’ expectations, unemployment has not yet peaked – again Darwin is better placed to withstand this risk to house price growth with workers enjoying comparitively greater job security than other capital cities (except Canberra).

    • RP Data Research October 2, 2009 at 10:41 am #

      All good points, and I agree – the diversified nature of Darwin’s economy should protect the market from a downturn in property values. Another point in Darwin’s favour is that rental yields remain the highest of any capital city. It is very uncommon for such a high rate of capital growth to be matched with an equally impressive growth rate in weekly rents. The LNG sector is also stepping up a gear and Darwin is well placed to benefit from the surge in LNG demand. I wouldn’t be surprised to see Darwin growth rates take a breather though… the market has been running consistently since 2001 and house prices are third highest of any capital city.

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