According to data released by CoreLogic, property prices across Australia rose by 10.9% during 2016. This rate is the highest annual rise since 2009. Thus, as an asset class, including rental yields and capital gains, combined capital housing earned 14.7% during the year. So, what has stimulated this increase?
CoreLogic data paints a strong picture of the Australian housing market, although many economists suggest that the growth cannot continue. Based on annual housing market results, regional areas where mining was prominent, have influenced city trends.
The CoreLogic Home Value Index suggests dwelling values rose 1.4% during December 2016, an annual gain of 10.9%. Across national capitals, changes in dwelling values have fluctuated between -4.3% in Perth to +15.5% in Sydney. Melbourne and Hobart both realised gains of over 10%.
Capital city rates of growth, according to CoreLogic, have diverged between housing types. For instance, capital city home values have increased by 11.6% over the last 12-months. However, unit values have increased at the slower rate of 5.9%.
Distinct divergence occurred in Melbourne and Brisbane, where unit oversupply concerns have depleted buyer confidence. As a result, Melbourne home values increased by 15.1% over 2016, whereas unit values rose by 1.7%. Brisbane home values, in contrast, increased by 4.0% over the 12-months, however unit values dropped by 0.2%.
Regional market growth was not as profound. Consequently, annual growth to November 2016 for this market was 2.8% with New South Wales recording the highest increase. Hence, market growth in this capital jumped by 7.3%. Other state regional areas rose by 1 to 1.1%. Regional Western Australia, however, recorded a decrease of 7%.
CoreLogic research suggests that housing markets Australia-wide have responded to changes in regional area demographics and economic developments. The mining downturn resulted in Western Australia and Northern Territory regional and city housing declining in value.
Since 2014, when home values peaked, Perth dwelling values have subsided by 7.9%, and Darwin by 5.9%. Although, these markets are now showing signs of recovery. Hitting a low point in early 2016, Perth home values rose by 2.8%, and Darwins by 5.9% in December 2016.
Furthermore, strong population growth in Sydney and Melbourne has forced prices up. Canberra and Hobart have witnessed a similar occurrence. Coastal and lifestyle markets are also seeing a quick price rise.
Following the Global Financial Crisis, in 2009, Sydneys housing has almost doubled, increasing by 97.5% in value. Melbourne property, on the other hand, has increased by 85.3% since the same time in January. While other Australian capitals have seen slower price rises, highlighting Sydney and Melbourne market strength over the last 8 years.
Based on data, CoreLogic report that Sydney dwellers realised a price increase of $10,000 per month during 2016. As a result, this has boosted their wealth considerably. However, potential home buyers have found these price increases challenging.
Therefore, Sydney home prices are 8.3 times the value of average Sydney incomes according to the CoreLogic Housing Affordability Report. In many cases, Sydney-siders were paying, on average, 44.5% of their income to service their home loan. These figures are based on an 80% loan to value ratio on the standard variable home loan rate.
So, why are Sydney and Melbourne experiencing such high levels of market growth? Well, according to the Australian Bureau of Statistics (ABS), Sydney and Melbourne are the two biggest markets for migration. The ABS report a 1.7% growth in migration over the last 10-years, double that of the U.S. Thus, housing prices in these capitals continues to rise due to demand.