Home prices soar to record highs in August
Monthly home prices
- Australian home prices soared to record highs in August, underpinned by low interest rates, grants to first home owners and growing confidence about the job market.
- The RP Data-Rismark Hedonic Australian Home Value Index – the largest property database in Australia – lifted by 1.9 per cent in August, the eighth consecutive monthly gain. Over the past year, Australian dwelling prices have risen by 6.6 per cent – the strongest gain in 15 months.
- Across all capital cities, dwelling prices are higher than a year ago. The RP Data-Rismark Hedonic Australian Home Value Index is now 3.8 per cent higher than the previous peak set in February 2008.
- Higher-priced suburbs are now showing stronger price gains than cheaper suburbs. Both top-end and medium-price home prices have risen 8.2 per cent since the start of the year with prices in cheaper suburbs up 7.5 per cent.
What does it all mean?
- It is a simple case of supply and demand. Demand for homes is being spurred by super-low interest rates, the fastest population growth in 40 years and grants to first home buyers. At the same time, Australia continues to experience an under-supply of homes through lack of building over recent years. Demand is out-stripping supply of homes, and as a result prices are rising.
- If home prices were just rising in the cheaper suburbs then you could put the gains down to the grants to first home buyers. But prices in upper-end suburbs are now rising at a faster pace than cheaper locales.
- For the two-thirds of Australians that either own or are buying homes, the solid growth in home prices is clearly good news. Rising home and share prices are lifting wealth levels and consumer confidence - both factors that should underpin spending levels in coming months.
- No doubt the coming rate hikes and lift in home building will serve to restrain growth in home prices. But it is still a case that population growth is outstripping housing supply by a big margin. And a raft of barriers on the supply-side such as zoning requirements and access to finance are preventing developers and investors from entering the market.
- Governments, industry bodies and financiers need to come together to address the barriers that exist. If action doesn't occur to lift the supply of dwellings then Reserve Bank fears of a housing bubble could end up being realised.
- CommSec expects home prices to rise by around 8 per cent over the coming year, a rate of growth in line with longer-term averages. Strong fundamental demand for homes will continue over the year but affordability will soften as the Reserve Bank lifts interest rates to more 'normal' levels.
- 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 and one that the Reserve Bank closely monitors.
What do the figures show?
- The RP Data-Rismark Hedonic Australian Home Value Index rose by 1.9 per cent in August, the eighth consecutive monthly gain. House prices lifted by 1.8 per cent with unit (apartment) prices up by 2.1 per cent.
- Over the first eight months of 2009 capital city home prices rose by 7.9 per cent. Over the year to August dwelling (home) prices were up 6.6 per cent - the strongest annual increase in 15 months.
- House prices in August were up 6.0 per cent on a year ago with unit prices up 8.3 per cent.
- In August, Melbourne dwelling prices rose by 2.7 per cent followed by Sydney (up 2.1 per cent), Canberra (up 1.9 per cent), Brisbane (up 1.4 per cent), Adelaide (up 1.3 per cent) and Perth (up 0.6 per cent). Dwelling prices fell by 0.8 per cent in Darwin after soaring by 3.1 per cent in July.
- Over the past year, Darwin dwelling prices recorded the strongest gain, up 17.9 per cent, followed by Melbourne (up 9.5 per cent), Canberra (up 8.6 per cent), Sydney (up 7.4 per cent), Brisbane & Adelaide (both up 3.8 per cent) and Perth (up 1.8 per cent).
- RP Data-Rismark calculates the median capital city house price across Australia at a record high of $514,416 with the median unit value at a record high of $418,806.
- According to RP Data-Rismark, returns on Australian dwellings (accumulation index), grew by 11.7 per cent over the past year, the fastest pace in 15 months. The gross annualised rental yield for units of stands at 14.1 per cent while house rental yields stand at 10.9 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 including over 170,000 sales during the first eight months of 2009 (and over 129 million data records in total). 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 strong lift in home prices increases the risk that the Reserve Bank will lift rates later this year rather than early next year. CommSec still expects the Reserve Bank to deliver the first rate hike in February 2010, but the chance of a move in November or December has risen to around 40-45 per cent.
- The lift in home prices in response to strong fundamental demand will lead to greater home building and renovation activity. The strong lift in home prices improves prospects for consumer and housing-dependent companies.
Source Savanth Sebastian, Economist, CommSec