Home Value

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GUEST OBSERVER
Latest dwelling price figures from the Australian Bureau of Statistics indicate that the gap between the growth rates in the eight capital cities has widened.
Over the year to June 2015, the ABS Residential Property Price Index rose by 9.8%, with a 4.7% increase occurring during the June 2015 quarter itself. Annual house price growth was 10.5%, with prices in the attached dwelling segment increasing by 7.5% over the same period. 
The variation in dwelling price growth across Australia’s capital cities is remarkable.
On the one hand, price growth is very robust in both Sydney and Melbourne, while prices have actually eased back a little in cities like Perth and Darwin.
The wide divergence of dwelling price growth across the capitals is indicative of the mixed economic conditions across Australia. It highlights the challenges in prescribing ‘one size fits all’ policy responses to the housing market.
The strength of dwelling price growth in Sydney is receiving much attention. However, the upturn in Sydney prices follows a decade which saw the city lag far behind the other seven capitals in terms of price growth. 
Price pressures ultimately represent the inadequate response of supply to much stronger demand conditions. We need to see more flexibility in the planning process and in the release of new residential land in order to take the heat out of prices. 
In the year to June 2015, dwelling price growth was strongest in Sydney (+18.9%), followed by Melbourne (+7.8%) and Brisbane (+2.9%). The pace of dwelling price growth was more modest in Canberra, (+2.8%), Adelaide (+2.7%) and Hobart (+1.5%). Over the same 12 month period, dwelling prices actually declined in both Perth (-1.2%) and Darwin (-1.8%). 
Shane Garrett is senior economist for HIA and can be contacted <a href="https://hia.com.au/en/BusinessInfo/economicInfo/EcoGroup.aspx" target="_blank">here</a>.
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Dwelling price growth across capital cities remarkable: HIA's Shane Garrett

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Housing investment in Australia has generally been a successful, largely one-way bet over many years. 
Although this has been the case, home values have fallen in the past, are currently falling in some capital cities and will almost certainly fall again in the future.
As can be evidenced in the accompanying charts, in most instances across combined capital cities, the Index has been rising, in fact from December 1995 to November 2015. Combined capital city home values have increased by a cumulative 330.5% and values fell in 2008 and again between 2011 and 2012. 
During 2008, combined capital city home values fell by -6.1% between March and December. Home values fell by -6.5% between March 2011 and May 2012. 
While the Index shows a certain set of trends, it’s important to remember that it is largely influenced by Sydney and Melbourne. In fact, combined capital city home values have increased by 8.7% over the 12 months to November 2015 however, only Sydney and Melbourne have recorded value growth stronger than that level. Values have also been declining over the past year in both Perth and Darwin.
<a href="/images/2015/12/11/Screen%20Shot%202015-12-11%20at%2010.31.04%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/12/11/Screen%20Shot%202015-12-11%20at%2010.31.04%20AM.png" alt="">
Over the period from December 1995 to November 1995, all capital cities have seen values increase while each city has seen periods where values fall. Across the cities, the cumulative value increases have been recorded at: 
• 330.1% in Sydney 
• 421.4% in Melbourne 
• 259.4% in Brisbane 
• 261.2% in Adelaide 
• 293.0% in Perth 
• 208.0% in Hobart (from Sep-97) 
• 180.1% in Darwin (from Apr-99) 
• 258.7% in Canberra.
Of all the cities, Melbourne has led by recording the strongest rate of growth over the period followed by Sydney. Growth in Perth has been stronger than in Brisbane, Adelaide and Canberra where cumulative growth has been remarkably similar. While home values have risen significantly in each city, value falls have occurred.
There have been periods where values have fallen in a particular city but not others. As an example, from mid-2004 Sydney values started falling while in other cities, the rate of growth just slowed. Sydney home values fell by - 8.2% between March 2004 and December 2005. They then took until March 2009 to eclipse and remain above March 2004 levels.
Over the past few months we have seen early signs of value falls in the Sydney and Melbourne housing markets. Based on our data, we can see that falls have previously occurred, and will no doubt happen again, however, the question is how large; of course no one knows.
Given that investor activity has been at a record high, building approvals have also hit record highs and record high levels of household leverage there is a possibility that falls could be larger than what we have seen in the past. Note: Adjacent, the table looks at the two most recent periods of decline across the combined capital cities: the financial crisis in 2008 and as the RBA started to lift interest rates in 2011. The data shows the financial crisis saw a short, sharp fall in values and a fairly rapid recovery. The second period saw, in most instances, a much larger decline and a much longer period for recovery. 
<a href="/images/2015/12/11/Screen%20Shot%202015-12-11%20at%2010.26.15%20AM.png" target="_blank">Click to enlarge</a>
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Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/author/cameron-kusher/" target="_blank">here</a>. 
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Home values will certainly fall again: Cameron Kusher

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EXPERT OBSERVER
The decade ending in June 2019 has seen the national median dwelling value rise from $382,650 to $516,710, an annual increase of 3.0%. At the same time, household incomes (according to estimates from the ANU Centre for Social Research and Methods) have risen at the annual pace of 3.1%, up from $59,020 per annum in 2009 to $79,872 in 2019. Over the same period, average mortgage rates (according to RBA statistics) fell from 5.1% in 2009 to 4.1% in June this year.
The wash up from these movements is that housing affordability, based on the ratio of dwelling values to household incomes, is broadly unchanged across Australia and households are generally dedicating less of their income towards servicing a new mortgage.
Nationally, the ratio of dwelling values to household incomes has varied over the past decade, moving through a low of 6.1 in late 2012 to a recent high of 7.0 in early 2018. In June 2019 the ratio was recorded at 6.5 which is equivalent to where it was in 2009.
A ratio of 6.5 simply means the typical Australian household is spending 6.5 times their gross annual household income in order to purchase the typical dwelling. While the national reading is the same as it was ten years ago, five of the eight capital cities and four of the seven non-capital city regions have recorded an improvement in the ratio of dwelling values to household incomes. The lowest ratio can be found in Darwin where the typical household is spending only 3.4 times their gross annual household income to purchase a dwelling (down from 5.6 ten years ago).
While most areas have seen housing values become more affordable relative to incomes, some areas have seen affordability worsen. Sydney, Melbourne and Hobart have seen housing values rise at a faster rate than household incomes which has eroded affordability.
The typical Sydney household is now spending 8.2 times their gross annual household income in order to purchase the median value dwelling, up from 6.6 ten years ago. Melbourne households are spending 7.2 times their annual income (up from 6.4 in 2009) and Hobart households are spending 6.5 times (up from 5.9).
Across the regional areas of Australia, the only areas where the ratio of dwelling values to household incomes has worsened is Regional NSW (6.6 in 2009 / 7.0 in 2019) and Regional Victoria (4.9 in 2009 / 5.6 in 2019). It’s a similar story with mortgage serviceability.
\Despite mortgage rates falling to the lowest level since at least the 1950’s, households in Sydney, Melbourne and Hobart are generally dedicating a larger proportion of their incomes towards servicing a new mortgage than they were in 2009.
Based on the proportion of household income required to service a new 80% LVR mortgage, Sydney households are dedicating 43.7% of their gross annual household income on mortgage repayments compared with 37.7% ten years ago. When mortgage rates were around 9% in early 2008, Sydney households were dedicating a much larger 54.2% to service a mortgage.
Melbourne households are dedicating 38.4% on average to service a new 80% LVR mortgage (up from 36.2% in 2009) and Hobart households spend an average of 34.3% of their income on a new mortgage (33.8% ten years ago). The smallest portion of income dedicated to new loan repayments is in Darwin at just 17.9% of income.
Although housing affordability has worsened relative to ten years ago in Sydney and Melbourne, the decline in home values together with a subtle rise in household incomes and lower mortgage rates has seen affordability and serviceability record a temporary improvement in these areas.
Since June, dwelling values have surged higher while income growth has remained sluggish, implying that the improvement in housing affordability that has been delivered via a fall in home values is now being eroded.
Longer term strategies for improving housing affordability should include both supply and demand side considerations, as well as taxation reform. On the supply side, ensuring infrastructure programs, land release and town planning policies are keeping pace with population growth is important.
On the demand side, population growth drives housing demand, as do stimulus measures such as first home buyer grants and tax concessions.
Incentivising jobs growth and infrastructure improvements in more affordable areas would support a redirection of population growth into areas where housing prices are more achievable.
Removing stamp duty would also help to improve housing affordability and housing mobility by lowering the transactional costs associated with purchasing a home.
TIM LAWLESS is the CoreLogic Head of Research
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Housing affordability has improved over the past decade across most of Australia: Tim Lawless

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Home values are still falling in Darwin, with the latest figures from CoreLogic RP Data showing the largest annual decline since early 2012. 
The median house price is $570,000 and the median price for units $441,500.
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Darwin home values continue to fall: CoreLogic RP Data

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Dwelling values in Sydney are up 17.6% over the past year according to the CoreLogic RP Data Hedonic Home Value Index for August.
According to the report since the beginning of 2009 the Sydney housing market has had a cumulative capital gain of 76%. 
"Using the median house price from January 2009 as a base, the typical Sydney home owner has seen the value of their home increase by approximately $309,000 since the beginning of 2009," the report stated.
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Sydney dwelling values up 17.6%: CoreLogic RP Data

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Property investors in Sydney and Melbourne are the most optimistic nationwide about short term growth in dwelling values with 63% and 73% respectively believing values will rise in the next six months.
Just under half (48%) of respondents to the CoreLogic RP Data Nine Rewards Consumer sentiment survey expect home values to rise in the next six months, compared with 49% over the previous quarter. 
Of those who think values will rise, 78% consider it will be by less than 5%. 12% of respondents think home values will fall over the next six months.
Less than 20% of respondents in Perth, regional Western Australia and regional South Australia expect a rise in values. 
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Do you believe home values will rise, fall or remain stable over the next 12 months.
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Source: CoreLogic RP Data Nine Rewards Consumer sentiment survey
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Property investors in Sydney, Melbourne most optimistic: CoreLogic RP Data

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CoreLogic's Home Value Index shows Sydney ranked as the weakest capital city - the only with negative growth in the three months to February.
Sydney dropped 0.2 percent over the quarter.
The next weakest city was Perth which improved by 0.2 percent over the quarter, but with a weak February.
Sydney did pick up a tad in the month of February, according to the latest CoreLogic RP Data release.
It still holds the highest median dwelling price with $730,000, ahead of Melbourne's $550,000.
Hobart was the best performing capital city with a dwelling value increase of 8.5 percent.
 
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Sydney price growth stalls to be the weakest capital city: CoreLogic RP Data

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Home value for capital cities such as Sydney and Melbourne are increasing, but other capitals not so over the past month, according to CoreLogic's property market update report.
In the last 12 months there has been an overall increase of 8 percent for the five capital cities listed in the chart below.
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