Capital city index surges to new high

Sydney and Melbourne house prices are the driving force behind an increase in average capital city dwelling values, according to the latest RP Data research.

The RP Data-Rismark September Hedonic Home Value Index results shows Australia’s capital city dwelling values grew 1.6 per cent in September, taking the combined capitals index to a new record high.

RP Data’s senior research analyst Cameron Kusher told Real Estate Business' sister title, The Adviser, that the growth is primarily driven by investors.

“When you start looking at the total returns, so that’s capital growth and rental yield, some of the markets are looking particularly attractive right now,” he said.

RP Data’s research director and analyst Tim Lawless said the September gains were primarily fuelled by the Sydney and Melbourne markets, while growth in other capitals remained reasonably subdued.

“Sydney home values were 2.5 per cent higher over the month and are up 5.2 per cent over the September quarter, while Melbourne values have seen a similar 2.4 per cent month-on-month gain and a 5.0 per cent quarterly lift,” Mr Lawless said.

“Most other capital city housing markets are in fact showing only a modest growth trend. Perth’s housing market, which was previously the standout for capital gains, has seen dwelling values rise by just 1.3 per cent over the September quarter, while Brisbane’s housing market remains sluggish, with values up only 1.1 per cent over the past 12 months,” he said.

While in recent months, Sydney and Melbourne have both shown dramatic growth, Mr Lawless said longer-term trends remains relatively subdued.

“Sydney dwelling values have appreciated by just 2.5 per cent per annum over the past decade, which is less than annual rates of inflation and wages growth over this period,” he said.

Mr Lawless did say that if growth continued in Melbourne and Sydney at current levels, it could prove to be an issue in the future.

“The Australian housing market is broadly in the middle of a healthy growth phase. However, if the growth trend in Sydney and Melbourne continues at the same pace into 2014, then there may be some cause for concern,” added Mr Lawless.

Mr Kusher said diminishing rental yields, as house values increase, may act as a disincentive to some investors, which may help to slow growth to a more sustainable level.

“It will be interesting to watch over the coming months how low those yields do fall and if that does result in a slowing in the investment activity in the housing market,” he said.

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