House price hot streak continues in October

William Jolly By on November 4, 2019
 
Mossman Sydney

Mossman, Sydney. Photo by Holger Link on Unsplash

National dwelling values continue to improve, rising 1.2% throughout October.

The CoreLogic Home Value Index results for October today confirm the fourth straight month of rising home values, and the largest month-to-month gain since May 2015.

Highlights over three months to October 2019:

  • Best performing capital: Melbourne (+5.5%)
  • Worst performing capital: Perth (-1.7%)
  • Highest rental yield: Darwin (5.8%)
  • Lowest rental yields: Sydney (3.2%)

According to the report, these recent gains are starting to offset a broad decline in housing values since 2017, where property prices fell 8.4% until June 2019.

Property prices as a whole are now 2.9% off their June 2019 floor but remain nearly 6% below their peak.

As with previous months, the strongest growth conditions are in Sydney and Melbourne: these two cities’ median house prices rose by 1.7% and 2.3% over October respectively.

The 2.3% gain in Melbourne’s property prices is the largest recovery since November 2009: the Victorian capital’s housing values have now risen 6% since May 2019, while Sydney values are up 5.3% in this time.

Source: CoreLogic

According to CoreLogic research director Tim Lawless, the stronger rebound in Melbourne and Sydney can be attributed to a blend of factors such as:

  • Tighter labour market conditions
  • Improved access to credit
  • The stimulation provided by the lowest mortgage rates seen since the 1950s
  • And stronger population growth relative to other capital cities.

“Stamp duty exemptions for first home buyers purchasing under specific price points have added additional stimulus to housing demand,” Mr Lawless said.

“It’s becoming increasingly clear that the housing market rebound is gathering pace, both geographically and across the broad valuation cohorts, off the back of lower mortgage rates and improved access to credit, as well as an improvement in affordability relative to the market peak several years ago and consistently high demand via population growth.

“Demand for housing is responding to stimulus measures, including mortgage rates that are now lower than anything we have seen since the 1950’s and improved mortgage serviceability tests following APRA’s decision to adjust the minimum interest rate serviceability rules in July this year.”

As can be seen in the data snapshot above, the other capital cities have recorded mixed performances.

The rolling three-month change in Brisbane housing values (+1.1%) was the highest since December 2015, while Hobart (+1.0%) and Canberra (+2.4%) recorded the largest three-month rise in values since March
2019 and May 2017 respectively.

Perth and Darwin are down 2.7% and 1.2% respectively over the last quarter, but both markets, according to CoreLogic, are generally seen to be improving.

“Focusing on housing market conditions across the broad value-based cohorts highlights that the market recovery is being led by the most expensive quarter of the market, although values are also rising across the more affordable strata as well, just not as rapidly,” Mr Lawless said.

Perth now has the lowest median house price of any capital city at $451,000, below Darwin’s $468,300.

Source: CoreLogic

Rental yields trending lower

CoreLogic’s report shows rental markets remain subdued, with rental rates falling across five of the eight capital cities.

The only capital cities where rents were up over the rolling quarter were Brisbane (+0.2%) and Adelaide (+0.3%).

These soft rental conditions can be attributed to:

  • The recent history of rising rental supply
  • A significant increase in dwelling construction for rental accommodation
  • A larger than normal number of renters have transitioned to first home buyers

Languishing rents and higher house prices are starting to compress rental yields, with gross yields across the capital cities falling from 3.88% in May to 3.65%, the lowest gross yield since November 2018.

Source: CoreLogic

Mortgage rates, however, are trending lower at a similar rate to rental yields, thanks mostly to the recent spate of Reserve Bank rate cuts.

At the end of September, the average three-year fixed rate for an investor mortgage was 3.8%, and although the data for October is yet to be released, it’s likely these interest rates will have fallen given there was a cash rate cut last month.

CoreLogic says it’s also likely three-year fixed rates for investors are now lower than gross rental yields in capital cities for the first time since 2007.

According to CoreLogic, this implies more properties will offer a positive cash flow for investors, and renters might be better off purchasing and paying off a mortgage instead of continuing to rent.

House price optimism at a three-year high

CoreLogic’s data shows a continued rise in past house prices, and a recent study from OpenAgent found the majority of Australian home sellers expect property prices to continue this trend.

According to OpenAgent’s Consumer Sentiment Report, 68% of Australian home sellers surveyed expect property prices to rise in the next six months.

Only 7% expect prices will slide over the next half-year, while 24% think they will stay roughly the same.

This marks a significant turnaround in seller sentiment from the beginning of the year, when only 34% expected prices to rise while 26% expected prices to fall.

The latest Domain House Price Report for the September quarter 2019 meanwhile shows the median house price for the September quarter 2019 is just under $775,000 – a 2.70% increase from the June quarter.

Median house prices

Capital citySep-19QoQYoY
Sydney$1,079,4914.80%-1.60%
Melbourne$855,4284.10%0.00%
Brisbane$562,847-1.00%-1.80%
Adelaide$538,550-0.60%0.70%
Canberra$738,864-0.70%0.60%
Perth$527,107-1.00%-2.40%
Hobart$482,9601.30%2.60%
Darwin$521,6511.00%-4.40%
National (excludes Darwin)$773,6352.70%-1.00%
Source: Domain House Price Report

Looking for a low variable rate home loan? The table below displays some of the lowest interest rates on the market.

Provider Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
Purchase or Refi, P&I 80% Smart Home Loan 2.88% 2.90% $1,660 More details
Low Rate Home Loan w/Offset 2.90% 2.92% $1,665 More details
Base Variable Rate Special P&I 3.20% 3.20% $1,730 More details
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
Purchase or Refi, P&I 80% Smart Home Loan
2.88% 2.90% $1,660
More details
Low Rate Home Loan w/Offset
2.90% 2.92% $1,665
More details
Base Variable Rate Special P&I
3.20% 3.20% $1,730
More details

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 18 November 2019. View disclaimer.

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Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in 2018. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers’ products may not be available in all states.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. The interest rate per annum is based on a loan credit of $150,000 and a loan term of 25 years.

William Jolly
William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.
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