Home prices hit fresh record highs

Monthly house prices

• New data shows that Sydney and Melbourne dwelling prices hit record highs in May. Overall, total Australian unit prices were also at record highs in May but house prices were down slightly on the February 2008 highs.



• The RP Data-Rismark Hedonic Australian Home Value Index – the largest property database in Australia – rose by 0.9 per cent in May and by 1.6 per cent over the year. In the first five months of 2009, Australian dwelling prices were up 3.9 per cent, translating to a 9.4 per cent annual rate.



• Dwelling prices rose in Sydney, Melbourne and Brisbane in the latest month but were down slightly in other capital cities. Over the past year Darwin prices recorded the strongest annual gain, up 14.3 per cent.

What does it all mean?

• A combination of super-low interest rates, tight rental markets and generous grants to first home buyers are working their magic to push home prices higher. In Sydney and Melbourne dwelling prices are back at record highs while other capital city home prices are not far off peak levels.



• It is a simple case of supply and demand. Demand for homes is being spurred by improved affordability, the fastest population growth in 40 years and weak returns on other assets. At the same time, Australia continues to experience an under-supply of homes through lack of building over recent years. Demand for homes exceeds supply, pushing prices higher



• Melbourne and Darwin are the stand-out cities in terms of home prices. While Darwin prices are well up on a year ago, Melbourne house and unit prices are at record highs, underpinned by soaring population growth in the southern capital city.



• All Australians are benefiting from the modest lift in home prices. The two-thirds of Australians that own or are buying homes are seeing the value of their assets rising. But prices aren’t rising so fast as to choke off the demand for properties by first home buyers.



• The lift in home prices should encourage greater activity from repeat home buyers and investors, ensuring that there won’t be a slump in activity when the expanded first home buyers grant is wound down over the second half of the year.



• Australia can rightly claim the title of the ‘wonder from down under’. In most developed economies home prices are going backwards, whereas prices are rising in Australia. The solid growth of Australia’s population is a key reason why Australian home prices are rising, not falling.



• The RP Data-Rismark index utilises Australia’s largest property database and measures prices of houses and units so it is clearly the most accurate measure of dwelling prices.

What do the figures show?

• The RP Data-Rismark Hedonic Australian Home Value Index rose by 0.9 per cent in May, the fifth consecutive monthly gain.



• Over the first five months of 2009 capital city home prices rose by 3.9 per cent, or at an annualised rate of 9.4 per cent. Over the year to May home prices were up 1.6 per cent - the strongest annual increase in nine months.



• House prices grew at a faster pace than units for the second straight month in May after under-performing for the previous seven months. House prices rose 1.0 per cent in May with units up 0.3 per cent. Over the past year house prices grew by 1.0 per cent with units up 3.3 per cent.



• In May, Melbourne dwelling prices rose by 1.7 per cent with Brisbane up 1.2 per cent and Sydney dwellings up 1.1 per cent. Dwelling prices fell 0.9 per cent in Perth followed by Adelaide (-0.3 per cent) and Darwin and Canberra (both down 0.1 per cent).



• Over the past year, Darwin dwelling prices recorded the strongest gain, up 14.3 per cent, followed by Melbourne and Sydney (both up 3.5 per cent). Prices remain down on a year earlier in Perth (-4.6 per cent), Adelaide (-0.7 per cent), Brisbane (-0.5 per cent) and Canberra (-0.2 per cent).



• Over the first five months of 2009, prices have only fallen for Adelaide houses, Brisbane units and Perth houses and units.



• RP Data-Rismark calculates the median capital city house price across Australia at $495,287 with the median unit value at record highs of $403,186.



• The average Sydney house price is $582,543 with the median unit price being a record $442,994. The median Melbourne house price is a record $469,357 with unit prices at a record $377,077.



• According to RP Data-Rismark, returns on Australian dwellings (accumulation index), grew by 6.5 per cent over the past year, the fastest pace in 10 months. The gross annualised rental yield for units of stands at 5.3 per cent while house rental yields stand at 4.5 per cent.

What is the importance of the economic data?

• The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia's biggest property database covering 60,000 properties. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.



• The monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Quarterly results are measured comparing end months rather than averaging each month in the quarter. For example, the first quarter of 2009 index results compare the end of March index with the end of December index.



• Rising house prices serve to lift consumer confidence and wealth levels. However rapid increases in home prices lead to weaker housing affordability.

What are the implications for interest rates and investors?

• The latest data on home prices confirms our view that interest rates have all but bottomed. There is still the risk that the Reserve Bank will cut rates one more time to counter-act increased unemployment. However, for now it remains in wait and see mode.



• The Reserve Bank has to be forward looking. If it believes that the peak of job losses will occur shortly, it will be reluctant to cut rates again.



• The lift in home prices should spur increased interest from investors and developers. The cut in stamp duty for new dwellings in NSW is another factor serving to lift investor activity and dwelling prices.