Friday, July 29, 2011

RP Data Rismark June 2011 Index

The modest overall decline in national dwelling values conceals considerable variation across the capital cities. For example, whereas Brisbane and Perth home values are down 6.3 per cent and 4.7 per cent, respectively, over the last twelve months, property values in Sydney are up 0.5 per cent.

Rismark’s economist, Christopher Joye, added, “We think the RBA is likely to raise rates at least once or twice more to address Australia’s burgeoning inflation problem, which means dwelling values will probably soften a bit further. This should open up attractive investment opportunities.”

“Higher rates means the rental market will tighten beyond its already firm levels, with vacancy rates near all-time lows. In turn, this will drive rents and yields even higher. Over the next year we expect to see wages and disposable incomes continue to rise solidly while house prices flat-line or taper modestly,” Mr Joye said.

Unit markets have continued to outperform detached houses, with unit values recording no change in value over the June quarter compared with a 1.2 per cent fall in (more expensive) house values. A similar result applied over the twelve months to June: unit values were unchanged whereas house values were down by 2.6 per cent.

Mr Lawless said the variation in performance between the two housing types comes back to affordability.

“Across the combined capital cities, median unit prices are $67,000, or 14 per cent, lower than the median house price. In Canberra and Sydney the gap between median house and unit prices is more than 20 per cent. With more Australians seeking to live closer to the city and transport nodes, as well as seeking out more affordable housing options, the superior performance of the unit market makes sense.”

Rismark’s Mr Joye added, “As a conservative guide, dwelling prices tend to track disposable incomes through-the-cycle, or the typical owner’s average 7-8 year holding period. Historically, disposable incomes have expanded at a six per cent per annum pace. Going forward, a more realistic guide is probably around 4-5 per cent per annum. Over the next 10 years, it would not be unreasonable to expect to generate this kind of capital growth in concert with rental yields net of costs of 3-4 per cent annum. Patient folks opportunistically investing in housing are probably going to find the best prices, and valuation fundamentals, that they will have had access to in a long time. Otherwise, we favour variable-rate cash as an asset-class given our long-held forecast that the RBA will raise rates to deal with Australia’s growing inflation problem.”

“The Australian housing market’s demand- and supply-side fundamentals remain healthy. And they will improve further in the year ahead. The one fly in the ointment is interest rates. When the RBA comes to cut them, affordability in this country is likely to be the best we’ve seen in over a decade, which will help fuel a robust recovery and encourage investors to allocate scarce capital to boosting housing supply” Mr Joye said.

See RP Data Press Release

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