Property values in Australia’s capital cities have seen their first month on month fall for a year, down 1.9% compared with May 2013, the latest published figures show.

The May RP Data Rismark home value index shows that across most capital cities values were down led by Melbourne with a 3.6% fall.

On a quarterly basis values are up 0.7%, the lowest rolling quarterly rate since the three months ending June 2013. 
The monthly fall, according to RP Data research director Tim Lawless, can likely be attributed to both seasonality and more moderate housing market conditions.

‘There is a very strong correlation between levels of consumer confidence and housing market activity. If we see sentiment levels remaining low it is likely that housing market activity will be more sedate,’ he said.

Over the growth cycle to date, which commenced in June 2012, capital city dwelling values are up 13.9% and Lawless explained that the surge in values has largely been driven by strong market conditions in Sydney where prices have grown 21.1%.

‘Historically, housing market conditions have softened in April and May as the market rebalances from what is typically a seasonally strong first quarter and also as a results of cooler climatic conditions during the autumn and winter months. Outside of the seasonality, we have been seeing signs that the housing market is at or approaching the peak of the growth cycle,’ said Lawless.

‘The rolling quarterly rate of growth peaked in August last year and we have been seeing weaker auction clearance rates since late February when the capital city clearance rate hit 76%,’ he added.

He pointed out that with affordability becoming more challenging and rental yields substantially compressed across Australia’s two largest cities, he wouldn’t be surprised if the growth trend moderated further over the year.

Across the broader price segments of the capital city housing markets, the premium markets have attracted the highest capital gain over the past 12 months with values across the most expensive quarter up 10.9% compared with a 10.8% lift in values across the broad middle 50% of the market, and a 9.1% gain at the most affordable quarter of the market.

Lawless said it was interesting to see that over the past three months to the end of May, it has been the most expensive properties where values have shown a fall.

‘The most expensive quarter of capital city dwellings have seen their values fall by 0.5% while the most affordable end of the market has seen a 2.8% rise in dwelling values over the same period. This shift in the performance across price segments, where more affordable housing has shown a stronger capital gain, was apparent last month also,’ explained Lawless.

‘For affordability reasons, it’s common to see buyers move their focus to lower valued segments of the market following solid capital growth in the premium priced housing segment,’ he added.

Sydney’s housing market has led the way for capital gains with local values moving 21.1% higher since the market reached a recent low point in May 2012. Over the same period rental rates have only increased by 6.3%. A similar trend can be seen in the Melbourne market where values are 12.3% higher over the current growth cycle but rents have only shifted by 4.3%. The net result is a substantial compression in rental yields across both of these cities.

The gross yield on the typical Melbourne house is now just 3.4% while in Sydney it is slightly higher at 3.8%. According to Lawless, such a low gross yield environment would suggest that investors are focussed on prospects for capital growth rather than rental income.

‘Investors should be wary of such low yields, as the figures indicate dwelling values are too high relative to rents,’ he warned.

‘If value growth continues to moderate in these low yielding markets, recent investors will be left holding a low yielding asset without a great deal of capital growth upside over the coming years. Current investor risk is very much concentrated within the Sydney and Melbourne markets where investor activity has been the most concentrated,’ he added.

Source: www.propertywire.com