House prices jumped again in Sydney and Melbourne during August

Up, the movie. Source: Disney.

Australian capital city house prices rose strongly in August, according to new data released by CoreLogic today.

The group’s Hedonic Home Value Index, released monthly, rose by a solid 1.1%, led once again by strong gains in Sydney and Melbourne, the largest and most expensive housing markets in the country.

Over the past year, prices nationally rose by 7%, largely due the heavy weighting in the index of Sydney and Melbourne markets.

In Sydney, prices jumped by 1.4%, leaving the median dwelling price at $780,000. Over the past three months, prices in Australia’s largest city soared by 3.9%, leaving the year-on-year increase.

Not to be outdone, property prices in Melbourne added 1.5%, taking the annual increase in prices to 9.1%. The median dwelling price in the city now stands at $576,000.

According to CoreLogic, prices in Sydney have now grown 64% since June 2012, and by 44% in Melbourne.

Using household income data for the June quarter from the Australian National University, the group calculates that the household income to dwelling price ratio is now 8.4 in Sydney, and and 7.2 in Melbourne.

“Prior to the current growth phase, affordability ratios were much lower, with Sydney and Melbourne both showing a dwelling price to income ratio of 6.7.”

This chart from CoreLogic shows the cumulative change in the median dwelling value across Australia’s capital cities since the start of 2009. It’s a case of Sydney, Melbourne, and then the rest.

Across the other capitals, prices rose in all cities bar Adelaide and Hobart which fell 1.0% and 0.9% respectively.

Darwin and Canberra actually recorded the fastest growth of all capitals at 4.1% and 2.8%. Though eye-watering in scale, the gains may have been influenced by limited turnover in both markets over the month.

Brisbane and Perth recorded modest monthly price gains of 0.4% and 0.2%, although prices in fell in both markets during the quarter.

This table from CoreLogic has all the details.

Despite the strong increase seen in August, and reflective of the enormous gains seen in 2015, price growth on a year-on-year basis is now actually trending lower, thanks to slower price gains in Sydney and Melbourne.

At 7%, the annual increase is now well below the cyclical peak of 11.1% seen last year. Over the past 12 months, house values rose by 7.2%, outpacing a 5.5% rise in unit prices.

“The rate of annual growth in Sydney has virtually halved from a recent 18.4% peak to the current annual rate of 9.4%,” said Tim Lawless, head of research at CoreLogic.

“Similarly, in Melbourne the annual growth trend peaked at 14.2% per annum last year and has since tracked back to 9.2% per annum over the most recent 12 month period.”

While the rates of growth are slowing, one must remember the base it’s coming off.

“While the annual growth trend is now lower than it was one year ago, the rate of capital gains remain well above other benchmark measures such as inflation, income growth and rents, which is pushing already stretched affordability ratios to new record highs,” Lawless said.

As for the cause behind the continued uplift in prices — coinciding in the month that the RBA cut interest rates to a record-low level of 1.5% — Lawless believes that lower housing turnover is a major factor “causing some urgency amongst buyers which is contributing to the upwards pressure on dwelling values”.

Mirroring the strength in prices, auction clearance rates — particularly in Sydney and Melbourne — have also pushed higher recently.

With the spring selling season now upon us, a period that typically coincides with an increase in property listings, Lawless suggests recent market strength will be tested.

“New listing numbers have started to trend higher, which is normal for this time of year as vendors look to take advantage of the warmer weather during Spring. Higher listing numbers will provide a timely test of the housing markets strength and whether more stock will be matched with a higher rate of absorption,” he said.

According to CoreLogic, there are 1,972 auctions scheduled nationally for the first week of Spring, down fractionally on the number seen in final week of August.

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