House price growth tipped to slow following spectacular 2009 surge

Australian housing prices continued to rise by 1.1% during November, equating to 11.3% cumulative growth for the first 11 months of 2009, according to the latest figures from RP Data.

But such high growth figures are not likely to be recorded in 2010, with the market set to stabilise due to variable mortgage rates returning to more “normal” levels, experts have suggested.

The new RP Data-Rismark Index reveals prices rose by 1.1% during November, following a rise of 1.3% in October. The median house price over all capital cities in the three months to November was $439,800, including houses and units.

Including all regions, the median house price was $395,000. The median house price in capital cities was $470,000, with the median unit price at $390,000.

The continued growth was due to stronger markets in both Melbourne and Sydney, RP Data said. In the three months to November, Melbourne and Sydney outperformed most of the other cities with rises of 4.5% and 3.2% respectively.

“Over the year-to-date, Melbourne has been Australia’s best performing capital city outside of Darwin, generating exceptional capital gains of +17.0%. Sydney home values have increased by more than 1% per month with cumulative growth of 11.6%.”

Over the first 11 months of 2009, values rose:

• 11.6% in Sydney to an average of $475,000
• 17% in Melbourne to $450,000
• 6.9% in Brisbane to $426,750
• 5.7% in Adelaide to $355,500
• 6.5% in Perth to $460,000
• 17.9% in Darwin to $445,000
• 10.9% in Canberra to $461,500
• 14.2% in Hobart to $310,050

Sydney has the most expensive units, with a median price of $417,000, followed by Melbourne at $402,500 and Canberra at $390,000. Perth unit prices remain at $385,000, Brisbane at $375,000, Darwin at $357,000, Adelaide at $310,000 and Hobart at $270,000.

During November, detached houses rose 1% and have unperformed units at 1.3%. In the year to date, units have outperformed houses at 12.5% growth to just 10.9%. The gross annualised rental yield for units was 4.9% in November, with house yields at 4.1%.

RP Data research director Tim Lawless says the results show the market could even be insulated against interest rate rises more than previously thought.

“The strong November results were achieved despite the 25 basis point lift in the official cash rate in October and November as well as the wind back of the boost to the First Home Owners Grant which was halved on October 1.”

“First home buyers have been trending down since peaking in May 2009 and the gap is being filled by upgraders and investors who are much less sensitive to rate rises and the level of stimulus.”

But despite the resilient market, both Lawless Rismark chief Christopher Joye expect growth in 2010 will be subdued due to variable mortgage rates normalising at about 7-8%.

“First time buyers have been fading from the market and the withdrawal of the boost has yet to have any discernible impact on price growth,” Joye says. “The key driver of Australian housing demand in the latter half of the year appears to have been upgraders and investors. We expect this trend to continue in 2010.”

Lawless said the year was exceptional and surprising, but expects conditions to moderate “as interest rates continue to move back to a neutral setting and the remainder of the Government stimulus is rolled back”.

“The primary driver of growth will continue to be an under supply of housing coupled with extraordinary housing demand fuelled by population growth.”

David Airey, president of the Real Estate Institute of Australia, also said rising interest rates will have an impact on the market, along with the disappearance of the boosted first home owners grant.

“The effect of higher interest rates is designed to slow the market, and slow the growth in housing finance. Our view is the market will be steady through 2010, and from here it looks like single digit growth across Australia.”

“However, some of the hot spots will be Perth, which perhaps has a stronger economy than other cities. Additionally, Melbourne has had strong double digit growth this year, everyone’s had a different sort of market. I don’t think we’re going to see a consistent trend in all states across this year.”