House prices down 0.3% in April as luxury market struggles

House values have fallen 0.3% in April and are now down 1.5% in the last 12 months, according to the latest RP Data-Rismark Home Value Index.

But the RP Data research director Tim Lawless argues that the total market has been dragged down by big price falls in the luxury home sector.

In the 12 months to April, properties in the most expensive 20% of the market have fallen 5.4%, while mid-priced properties are down 0.9% and properties at the cheap end of the market are down just 0.5%.

“The luxury end of the housing market is also showing its volatility. During the growth phase of the cycle the most expensive homes realised the highest capital gains. Yet as the market cools premium home values seem to be losing steam the fastest,” Lawless said in a statement.

Chris Joye, managing director of Rismark, says luxury properties have been hit by the double whammy of a strong Australian dollar and poor sharemarket returns.

“The uber-luxury segment is risky and highly illiquid and has had the rug whipped from under it via a combination of the soaring Aussie dollar and the volatile sharemarket. A final fly in the ointment is the much lower growth – and pay packets – expected in the financial services industry going forward.”

Luxury homes in areas like Sydney’s Eastern Suburbs will continue to face valuation headwinds as banks deal with the new normal of subdued credit growth.

Dwelling prices in Darwin performed best over April, increasing 2.4%, while prices in Canberra increased 1.4% and Sydney rose 0.3%.

However, Perth (down 1.8%), Adelaide (down 1.2%) and Melbourne (down 0.3%) suffered small losses.

Flood-hit Brisbane saw dwelling prices slipping 0.9% in April, with prices down 6.8% year-on-year.

As prices continue to fall, rental yields continue to rise, moving from 4.1% to 4.2% in the last quarter for houses and from 4.8% to 4.9% for units.

Lawless expects further improvement.

“Yields are still a fair distance from the peaks seen in early 2009 when houses were returning 4.9% on average and units were showing a gross yield of 5.4% across the combined capital cities. Vacancy rates appear to be tight across each of the capital cities and with investor activity remaining low we aren’t seeing a great deal of new rental stock being added to the market.”

But both Lawless and Joye say prices will remain stagnant, with a glut of properties on the market putting downward pressure on prices.

“If the RBA raises rates another one to two times this year, we project that house prices will remain soft and likely register some modest losses,” Joye says.

However, looking longer term he is more positive.

“While home values in Australia have not risen for a year, wages and disposable household incomes are growing rapidly. This is improving the valuation dynamics every day. When the RBA eventually cuts interest rates, the housing market will benefit from a tremendous affordability dividend.”