The residential property market is expected to bounce back into form in 2012.
According to the latest RP Data-Rismark Home Value Index, capital city home values had their best result in seven months – down just 0.2 per cent.
Regional house values actually managed to increase, growing 0.1 per cent.
The Index, which captured nearly 251,000 sales in the first nine months of 2011 alone, showed the September monthly decline was actually the smallest decline since February 2011 and was crucial in reversing a trend of accelerating capital losses since end March 2011.
Over the first nine months of 2011, capital city home values have now declined by 3.6 per cent. In the 12 months to 30 September, capital city home values were off by 3.4 per cent.
On an even more positive note, continued strong growth in rents, which according to the Australian Bureau of Statistics expanded by 1.2 per cent in the September quarter and by 4.6 per cent over the year, has meant gross total returns for home owners have actually been positive.
In the first nine months of 2011, total returns were 0.7 per cent in the capital cities. Over the year to September 2011, gross total capital city returns were 0.9 per cent.
Using their patented hedonic index technology, RP Data and Rismark estimate rental yields adjusted for the different characteristics of homes. In the month of September, RP Data-Rismark reported that gross rental yields for apartments and houses were 5.0 per cent and 4.3 per cent, respectively.
“In the month of September there were wide divergences in the performance of the individual cities. In contrast to recent index results, seasonally-adjusted dwelling values actually rose in Brisbane (0.4 per cent) and Adelaide (0.5 per cent). They were flat in Darwin (0.0 per cent) and down just slightly in Perth (0.1 per cent),” RP Data’s research director Tim Lawless says.
“After a big surge in home values in Melbourne over 2009 and 2010, the 2011 softening continued with the all dwellings index down 0.3 per cent for the month.”
Rismark’s executive director Christopher Joye says interest rate fears has kept potential home buyers on the sidelines for the large part of 2011.
However, that may be all set to change, with the Reserve Bank changing its stance on monetary policy from aggressive to neutral.
In fact, economists are now expecting the RBA to pencil in one or more rate cuts in 2012.
If the RBA does move rates downwards in 2012, Mr Joye says that would kick-off a recovery in housing activity.
“Based on our assumption that there were more hikes to come in this cycle, we had been projecting the recovery would commence in around mid 2012. This timing would be brought forward a quarter or two by any decision by the RBA to normalise its cash rate,” he says.
Unsurprisingly, the two worst performing capital cities in the month of September were Canberra and Sydney, suffering falls of 0.5 per cent and 0.6 per cent respectively.
This represents a reversal of sorts given Sydney and Canberra have had the shallowest peak-to-trough falls of all the cities.
“Over the first nine months of the year capital city home values are down 3.6 per cent with the largest falls registered in Brisbane (5.6 per cent s.a.) and Melbourne (5.2 per cent s.a.). The most resilient markets continue to be Canberra, Darwin and Sydney where values have fallen by a very modest 0.5 per cent, 1.5 per cent and -1.7 per cent, respectively, this year.”
“After a significant run in capital gains, the Melbourne housing market has undergone a controlled correction. Between January 2007 and January 2011 Melbourne house values were up 49 per cent. In 2011 they were down by about 5 per cent. This is possibly because they overshot fundamentals in the prior period.”
“Housing market conditions are starting to show some green shoots now, at least at a macro level. While the September index declined further, the 0.2 per cent result was the best outcome we’ve seen in seven months.
The 8.1 per cent lift in consumer confidence, as well as rising speculation that interest rates are heading south soon, are likely to be the drivers of this improvement.”
“Additionally, auction clearance rates have remained relatively stable around the 50 per cent mark across the two largest auctions markets, Melbourne and Sydney. The average selling time for private treaty sales remains below two months across the combined capital city markets, and vendors are providing a slightly lower level of discounting. Specifically, 7.8 per cent compared with 8.1 per cent in July and August,” Mr Lawless said.