Tuesday, November 30, 2010

Values Steady, but Headwinds Loom: RP Data

"Dwelling values were up a modest 0.3% in seasonally-adjusted terms during October. Yet the November rate rise, bank top-ups, declining clearance rates, and a rising stock of unsold homes hint at tougher times ahead.

According to RP Data-Rismark’s market-leading Hedonic Home Value Index, Australian capital city dwelling values continued to consolidate in the month of October with a small seasonally-adjusted rise of 0.3% (+0.6% raw). In the first 10 months of the year, Australian capital city dwelling values have risen by a modest 4.3% (s.a.) (or +5.7% raw), which is broadly in line with disposable income growth. Capital gains in the twelve months to end October have been a solid 6.5% due to the double-digit annualised growth recorded in late 2009 and early 2010. Based on the RP Data-Rismark Index, the market peaked in May 2010 with capital city home values tapering since that time (-0.7% s.a., -0.6% raw). ... RP Data’s research director, Tim Lawless, commented, “Since the market started to cool in June the cumulative decline in dwelling values to the end of October has been less than one per cent across the capitals, suggesting a market that is slowing at a controlled pace. Of course, the October data doesn’t include any effect from the November interest rate rise, which we expect will have caused conditions to cool further.” ... Market conditions remain diverse across the key cities. Perth and Brisbane have been the weakest performers. These are the only capital city markets where home values have declined over the twelve months to October (-1.8% and -0.7%, respectively). Both cities have continued to lilt over the three months to end of October with home values down -3.8% s.a. in Perth and -1.6% s.a. in Brisbane. ...
While capital gains slow, RP Data-Rismark’s Indices show that rental markets have realised some gains across most capital cities. Over the 12 months to October gross weekly rents are up 3.7% or $15/week to $433/week for the combined house and unit market. According to Mr Lawless, “The increase in rental rates hasn’t been enough to impact greatly on yields just yet. Across the combined capitals gross rental yields are at 4.0% for houses and 4.8% for units, however there is typically a spike in rents around January and February as a large number of leases are renewed which is likely to see a more noticeable shift in yields.” ... Leading indicators in the market continue to foreshadow weak market conditions going forward. According to RP Data’s Tim Lawless, “capital city auction clearance rates are generally bobbing between 50% and 55% week to week suggesting that vendors still need to adjust their price expectations in order to make a sale. The average selling time for private treaty sales has increased to 48 days for houses from a low of 39 days late last year and sellers are now discounting their listed prices by about 5.7% on average to make a sale compared with 4.1% earlier this year.” Potentially the most concerning leading indicator is the build-up of properties available for sale. Compared with last year there are currently 23% more homes available for sale than there were 12 months ago. RP Data is tracking 126,860 unique properties available for sale within the capital cities, which is 23% higher than at the same time last year. Total listings are now just 1% lower than the previous peak which was recorded in the last week of October, 2008. According to Mr Lawless, “the escalation in stock levels is due to the combination of a higher than normal number of homes being added to the market at a time when market activity is slowing. The result has been a fairly rapid increase in the number of homes for sale. That’s great news for buyers who can take their pick and negotiate hard, but for sellers this is far from an ideal time to be listing your home.” Rismark’s Ben Skilbeck added, “Rismark’s national Dwelling Price-to-Disposable Household Income Ratio Index, which will be released later this week, was sitting at around 4.6 times in the second quarter of 2010. This was in line with where the ratio of homes price-to-incomes had been for the preceding seven years. The good news is that the current flat-lining in home values should result in a moderation in the national price-to-income ratio and present patient buyers with interesting opportunities in the year ahead.” Mr Lawless believes the outlook for residential property is likely to be fairly sedate over the coming 12 months. “If we use market conditions after the 2000 to 2003 property boom as a guide, month to month value changes saw a mixture of small upwards and downward movements over the following two years with total value growth just 4.7% between December 2003 and December 2005. Unemployment at that time was 5.9% and trending downwards and the resources sector was heating up. In the years ahead the RBA is forecasting very strong household income and employment growth. These two factors should help mitigate the impact of higher rate rises and prevent any material decline in prices.”

Source: RP Data

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