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Date: 01/06/2012
Contact: info@allfinance.com.au
Original Publication: RP Data
Housing market remains soft despite rate cuts

The RP Data-Rismark May Home Value Index results confirmed a further drop of -1.4 per cent for capital city home values indicating that the housing market has not responded to the latest round of interest rate cuts.

Residential property values have continued to slide across the capital cities, with the RP Data-Rismark Home Value Index recording a -1.4 per cent fall in dwelling values over the month of May. The latest drop brings the cumulative decline to -2.2 per cent over the first five months of 2012 and overall values are down -5.3 per cent over the past twelve months.

The May value falls were spread across every capital city apart from Adelaide where dwelling values bucked the trend, improving by 1.2 per cent. Melbourne recorded the weakest market conditions over the month with dwelling values down -2.7 per cent in May.

Much of the weakness is confined to the detached housing market rather than apartments. According to RP Data’s research director Tim Lawless, unit values have been much more resilient to value falls compared to houses.

"It is clear that the market is becoming increasingly price point driven. Unit values across the combined capitals increased in May and they are up by 1.3 per cent over the first five months of the year. Based on median prices, unit prices are generally around 15 to 20 per cent lower than house prices. Investment yields also tend to be higher and units are often located more strategically compared with their detached counterparts," Mr Lawless said.

The stronger performance across more affordable markets is also evident in the results from the RP Data-Rismark Stratified Hedonic Home Value Index. This index provides a summary of how dwelling values have changed across the most expensive 20 per cent of capital city suburbs, the middle 60 per cent of suburbs and the most affordable 20 per cent of suburbs.

According to Mr Lawless, "Premium dwelling values have fallen by -6.1 per cent over the twelve months ending April 2012 while dwelling values at the affordable end of the spectrum are down by just -1.5 per cent."

According to Rismark managing director Ben Skilbeck, one positive to take away from the soft housing market is that housing affordability is showing a marked improvement.

"The combination of interest rate reductions, declining home values and disposable income growth has significantly improved affordability. Since dwelling values peaked in November 2010, they are down by -7.6 per cent, the RBA cash rate has fallen from 4.75% to 3.75% and disposable income per household has increased by over 5 per cent," Mr Skilbeck said.

Rental yields are also showing some improvement, not just on the back of lower home values but also higher rents. Tim Lawless points out that rental yields are continuing to shift higher.

"Rental yields are higher now compared to a year ago across every capital city. In some cities where rents have increased meaningfully such as Darwin and Perth, gross rental yields have improved by 50 basis points or more."

According to Mr Lawless, other housing market indicators are showing some positive signs that conditions might move towards stability.

"Each of the key vendor metrics we analyse have improved over the month. Vendor discounting has reduced from a peak of -7.9 per cent to -7.1 per cent which suggests that vendors are becoming more realistic about price expectations on their home. The average number of days it takes to sell a property has also fallen from the seasonal highs recorded earlier this year. The typical capital city house is now taking 63 days to sell compared with 70 days last month. Auction clearance rates have also levelled around the 50 per cent market compared with an average of about 45 per cent throughout the second half of 2011," Mr Lawless said.

Mr Skilbeck said that weak consumer sentiment appears to remain a barrier to the recovery in dwelling values.

"Despite what appears to be a positive economic picture here in Australia, with unemployment below 5 per cent, solid population growth and below average mortgage rates, the Westpac Melbourne Institute Index of Consumer Sentiment remains 6.3% below its long term average. Concurrently, new mortgage finance commitments aren’t moving a great deal suggesting we are yet to see heightened buyer activity return to the market," Mr Skilbeck said.

Another hurdle for the property market is the large number of properties currently being advertised for sale. Based on RP Data estimates, there were approximately 308,500 homes advertised for sale across Australia during May which is almost 9 per cent more than at this time last year.

While stock levels have reduced since the latter part of 2011, Mr Lawless said that this result still represents a larger than normal pool of homes available for sale at a time when transaction volumes are running well below their five year average.