Australia's housing market is now worth a staggering $6 trillion

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On the back of continued gains in Sydney and Melbourne property prices, along with an acceleration in new housing stock, the value of Australian residential housing rose to $6 trillion in July, according to estimates provided by CoreLogic RP Data Rismark.

In July the groups home value index jumped by a further 2.8% — again led by huge price increases of 4.9% and 3.3% in Melbourne and Sydney respectively — leaving the national increase in capital city house prices at 11.1%.

In dollar terms the median capital city dwelling price increased to $575,000, with Sydney at $790,000, standing head-and-shoulders above the median price in other capital cities.

The table below reveals the huge divergence in prices across Australia’s capitals.

The difference in price movement was identified by Tim Lawless, CoreLogic RP Data’s head of research:

“To date, the capital cities have seen remarkable differences over the growth cycle which broadly commenced at the end of May 2012 and since that time dwelling values across our combined capitals index have increased by 30.4 per cent. Sydney values are 47.9 per cent higher over the current cycle and Melbourne values are 32.1 per cent higher while every other capital city has seen growth of less than 13 per cent over the same period. This highlights the extent to which the Sydney and Melbourne markets have outperformed other markets over the past three years”.

Along with the disparate performance in capital city house prices, the group also notes a distinct trend in price growth between houses and units nationally.

“Across every capital city except Hobart and Darwin, we are seeing detached housing outperform units for capital gain, with house values up 11.6 per cent compared with a 7.2 per cent increase in unit values over the past year.

The higher growth rates for houses compared with units is likely to be supply-related, with the underlying land component driving detached housing values higher at a time when new apartment supply has seen a substantial boost from new construction.”

While dwellings continued to surge, the trend is not being replicated in rental yields with capital city rents increasing just 0.9% in the year to July, the slowest pace on record, according to Lawless’ analysis.

He notes that unit rental yields in Sydney and Melbourne, at 3.2% and 3.0% respectively, now sit at the lowest level on record.

“These are also the cities where investors are most active, indicating the low yield profile hasn’t been enough disincentive to keep investment at bay in these markets”, he said.

While not enough to deter housing investors in Lawless’ mind, stretched valuations, along with many Australian ADI’s exceeding APRA’s 10% annual growth rate for lending to this segment, likely initiated the action taken by several Australian lenders recently to stifle lending to housing investors.

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