Property prices have taken off since the latest RBA rate cut. Data suggests average home prices in most state capitals have increased over the last month. Auction clearance rates have also risen to their highest levels in some time. However, does this mean that the RBA rate cut is responsible?
Combined capital cities recorded a growth of 1.1% over the month. Six out of eight capitals noted a rise. Of these cities, Sydney and Melbourne have recorded the highest year on year change, followed by Canberra and Hobart. Adelaide and Perth also witnessed marginal growth. While Perth and Darwin’s markets are still recovering from mining sector changes, these capitals recorded positive monthly growth.
|Capital City Home Values August 2016|
|City||% Change Year On Year||% Change Month On Month||% Change Year On Year||% Change Month On Month||% Change Year On Year||% Change Month On Month|
Source: CoreLogic RPData
Sydney and Melbourne property values are increasing by more than 1% month on month. Cumulative growth – June 2012 to August 2016 – is recorded at 64% for Sydney and 44% in Melbourne. These figures highlight the difference in growth trends for these cities. The third highest rate capital was Brisbane, recording an 18% rate of growth over the same duration.
2015 peak conditions recorded an annual growth rate of 11% for capital cities. In comparison, over the last 12-months growth rates have slowed to just 7%. Annual growth in Sydney has almost halved from an 18.4% peak to 9.4%. Similarly, Melbourne’s annual growth rate peaked at 14.2% and is now at 9.2%.
Perth and Darwin are the only two cities to record a decline in dwelling values over the year. Both cities recorded a 4.2% loss. Softer economic conditions and changes to mining in these regions has put a sizeable dent in demand. Therefore, supply in these areas is outweighing demand.
|Capital City Home Values August 31, 2016|
|Change in Property Values|
|City||Month||Quarter||Year||Total Gross Returns||Median Value|
|All of Australia||+1.1%||+2.4%||+7.0%||+10.7%||$567,000|
Source: CoreLogic RPData
Both the RBA and CoreLogic suggest factors other than the RBA rate have influenced dwelling price rises. One suggestion is that the markets experiencing pricing growth have limited housing supply. For instance, Sydney and Melbourne only have two to three months’ worth of housing stock. In contrast, Perth has an eight to nine-month supply.
However, the release of a considerable volume of new dwellings in markets with lower stock will occur shortly. These new residences are expected to flood these markets with many viable choices. So, it is highly unlikely that higher property prices will be sustained long enough to warrant another RBA rate cut.
CoreLogic also notes that the market is traditionally more lively in spring than in other months. As CoreLogic states ‘sellers come out of winter hibernation’. Consequently, seasonally changes, especially from colder to warmer months always increases dwelling sales. So, a comparison between seasonal data should indicate how the market is truly reacting.