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Property Sales by Price Point with Cameron Kusher – rpdata.com Snr. Research analyst

A good way to determine the shift in the residential property market is looking at the prices at which properties are transacting.  Looking at real estate sales volumes across broad price ranges highlights the change in market performance over time and clearly shows how the residential market has performed over recent times.

The last time Australian capital city property values reached their recent low was during December 2008.  Between December 2008 and July 2010, capital city property values have increased by a total of 17.4 per cent with house values up 16.7 per cent and units increasing by 19.5 per cent.  The superior performance of the unit market over this period is due to two factors:

1. affordability pressures which make it difficult for buyer to purchase the houses they desire

2. the active first time buyer market through much of 2009, many of whom rented in inner city areas and were not prepared to give up the benefits of such a location that would be necessary to buy a house, as a result they targeted inner city units.

Despite this strong level of growth, it has not been consistent with vales up by as much as 26.1 per cent over the period in Melbourne however, Brisbane has been the laggard with values up just 7.3 per cent.
Importantly, regional areas of the country have fared nowhere near as strongly as the capital city markets.Capital city house values have increased by 16.7 per cent since the beginning of 2009, regional house values have increased by 8.7 per cent (almost half the level of growth recorded across the combined capital cities).  
It is also interesting to take a look at the shift in the market with respect to the prices at which properties are selling.  The analysis I am about to detail looks at property sales during the last quarter of 2008, when property values were at their recent low point and during the second quarter of this year.
All capital cities have recorded a clear market shift since the time the market was at its lowest point (the last quarter of 2008) to the most recent quarter.

For this analysis we have broken the market into five segments:
•    Below $300,000
•    $300,000 to $500,000
•    $500,000 to $700,000
•    $700,000 to $1 million
•    $1 million plus

During the final quarter of 2008 the greatest proportion of sales across the capital cities was occurring for properties priced between $300,000 and $500,000 and this is still the case during the most recent quarter.  However, the proportion of sales in this range has fallen from 47.7 per cent of all sales to 42.6 per cent. 
The proportion of sales occurring at prices below $300,000 has seen the greatest decline during the period.  At the end of 2008, 24.5 per cent of all capital city dwelling sales during the quarter were at prices below $300,000, over the last quarter just 13.0 per cent of sales were below $300,000.

At the end of 2008, 72.2 per cent of all capital city dwelling sales were at prices below $500,000, over the last quarter only 55.7 per cent of sales were below $500,000.With the proportion of sales below the $500,000 mark declining, the three price points above $500,000 have all recorded a large boost in the proportion of real estate sales.
The $500,000 to $700,000 price point has recorded an increase in sales from 15.6 per cent to 22.9 per cent.  The volume of property sales priced from $700,000 to $1 million has increased from 7.2 per cent of all sales to 12.8 per cent and sales over $1 million accounted for 8.6 per cent of all capital cities over the last quarter compared to 5.0 per cent at the end of 2008.

Within Sydney, less than half of all sales during the last quarter were for properties priced below $500,000.  Over the quarter, 47.5 per cent of all dwellings sold were priced below $500,000, compared to 65.0 per cent in the last quarter of 2008.  This result highlights just how difficult it is to enter the Sydney housing market and again signals why the more affordable unit product has recorded stronger levels of property value growth.
In each other city, property sales under $500,000 have accounted for the majority of sales, ranging from 53.8 per cent in Perth and Canberra to 85.2 per cent of sales in Hobart.

Another interesting result to note is that despite so much of the media’s attention being focused on the premium market, outside of Sydney, Melbourne and Perth it accounts for such a small portion of sales.  In these three cities the volume of sales of properties priced in excess of $700,000 was greater than 20 per cent of all sales during the last quarter.The next best performer during the quarter was Canberra where real estate sales in excess of $700,000 accounted for 13.9 per cent of the market.

The shift in the market is clearly reflective of the increase in the cost of housing since the end of 2008 rather than a lack of demand for the more affordable properties.  One could argue with the population continuing to grow, particularly within capital cities that demand for affordable properties is growing at a time when the supply of these properties is well and truly easing due to growth in property values.  The problem being that the Federal Government is responsible for population growth yet a combination of state and local governments are responsible for zoning and approvals.

If we (and the Government’s we elect to represent us) are really serious about housing affordability and importantly supplying these properties with the facilities and jobs to make them attractive to buyers, there needs to be a coming together and consensus surrounding a strategy from all three levels of Government.  Until such a time, we can talk until we’re blue in the face but it looks very unlikely the situation will change.  As a result, affordable property will continue to be harder to find and will only be found further away from the centre of the capital city in areas lacking in necessary infrastructure, amenities and employment drivers.

For more information about current real estate values and property prices, please visit the myrp.com.au website.

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Real estate data shows fewer houses selling at affordable price points

After home values fell by 3.8% during the GFC, the market has seen a 17.2% gain across the combined capital cities. The surge in real estate values coupled with the higher interest rate environment is making it harder to find a house priced under $500,000 within the larger capital cities. This week’s we take a look at capital city markets and how the price points have shifted since the end of the GFC.

The final quarter of 2008 was the most recent low point in the property market in terms of property value growth. Values had fallen by almost 4% due to the Global Financial Crisis. The falls were short lived, and since the start of 2009 Australian residential property values have mostly recovered strongly. Across the combined capital cities value growth has been quite strong; however it has not been homogenous throughout each capital city.

Over the period from Dec-08 to Aug-10, Melbourne and Darwin have been the strongest performing markets and have recorded total value growth in excess of 20%. Conversely, Brisbane and Perth were the only two capital city markets in which property value growth has been below 10% over the timeframe.

The result of the strong growth in property values has been higher home prices which in turn make it more difficult for prospective home owners to buy into the market. Add in the prospect of higher interest rates and the environment for first home buyers becomes more challenging.

With the cost of new dwellings well in excess of $300,000 across each city, it is imperative that Government and developers find a way to make the provision of new dwellings affordable and in locations that hold appeal due to the level of local amenity. Because the lack of sales in the more affordable price points during the last quarter is most likely the result of a lack of appropriate supply more so than it is the result in a fall in demand for affordable property.

For more real estate data and to view recent sales history, property values or property reports, please visit the myrp.com.au web site

Some may suggest that reporting on auction clearance rates is a waste of time however; Property Point Dexter is here to dispel this myth once and for all.

Why?

During 2009 estimates from rpdata.com show that approximately 57,500 capital city properties were taken to auction during the year.  Over the same period there were about 317,000 house and unit sales across the combined capital cities.  Given this, only 18 per cent of property sales were sold via the auction process last year.  

During 2009, the average auction clearance rate across Australia’s capital cities was 69.2 per cent.  This result indicates that across the country’s capital cities only 12.5 per cent of all properties transacted are actually sold at auction.So why does everyone worry about the weekly auction clearance rates?

In Melbourne and Sydney in particular auctions are a big deal.  During 2009 more than 26,000 Melbourne properties were taken to auction and approximately 20,500 Sydney properties were taken to auction.  These two cities account for about 80 per cent of Australia’s entire auction market.

In Sydney auctions account for about 20 per cent of all sales and in Melbourne the proportion climbs to 30 per cent of all sales.In other capital cities the proportion of properties taken to auction are much lower. This is why most media outlets don’t focus on auction clearance rates outside of Sydney and Melbourne.  Historically, Sydney and Melbourne have been the leaders of the national property market so by measuring their auction market we gain a good insight into the overall health of the Australian property market.

The auction market accounts for a small portion of total real estate sales, however, it still provides a significant sample of the overall market.  Let’s be honest, there are plenty of survey and research results published based on a sample size far less than 18 per cent of businesses, households, consumers etcetera.  Statistically speaking, the auction clearance rate provides a good indicative measure of the market conditions and the balance between vendor and buyer sentiment.

One of the greatest benefits of measuring the auction clearance rate is that they provide a timely measure of current market conditions.  Unfortunately property data has an inherent time lag associated with it and although RP Data expedites the process through proactively contacting agents to obtain this data before we receive it from the Valuer General, the collection of auction clearance rates is one of the timeliest lead indicators. 

Property Point Dexter says auction results certainly provide quality insight into what is happening in the market before we can confirm our suspicions with a complete data set.

A good example of this has occurred recently.  Clearance rates have been easing in Sydney since late March and have been softening in Melbourne since mid April.  As at the middle of March 2010 the most up-to date finalized property data available to us was to January 2010 which was indicating that the market was still going strong and values were increasing at a rapid rate.Despite the strong results from the RP Data/Rismark home value index, housing finance volumes had been falling, interest rates had been rising and current clearance rates are easing. 

This indicated clearly to us that the market was beginning to cool and these indications now appear to have been confirmed as property value growth for April 2010 recorded 0.2 per cent for the month compared to 1.3 per cent value growth in March.

There are certainly some short comings with auction clearance rate data but there are weaknesses in any analysis which only looks at a portion of the population of data.  For example, in most regions it is only going to be higher priced properties, waterfront properties or other unique property types which are taken to auction.  As a result, the auction clearance rates may not be a totally accurate measure of the entire range of housing stock but they do not provide the timeliest data available.

So what are the auction clearance rates currently telling us? 

Auction clearance rates have been trending lower over the last nine weeks.  To me, this indicates that the market is continuing to slow.   A real estate market slowdown seemed inevitable given that capital city property values have increased by almost 12.0 per cent.

RP Data has been anticipating that property value growth would be much lower over the 2010 calendar year than it was during 2009.   For the rest of the year we anticipate a lower level of property value growth.  As for auction clearance rates, I wouldn’t expect too much further softening in clearance rates however, they will likely remain around current levels until the spring selling season rolls around.  With weaker clearance rates I’d also expect that the number of properties being taken to auction to also ease.

To view more property data including property reports, property values and recent home prices please visit the myrp.com.au web site.

Renovation activity likely to increase

With the rate of property value growth slowing, sales volumes falling and construction of new housing continuing to soften we wouldn’t be surprised to see an increase in the number of homes undergoing renovation over the coming months.

Renovations can includes; ‘major’ renovations where owners add additional rooms to a house, ‘moderate’ renovations such as a new kitchen or bathroom, or ‘minor’ renovations such as re-painting or re-tiling rooms.

When comparing the Australian Bureau of Statistics (ABS) data for June 2009 to June 2010, the total value of building approvals for alterations and additions (including refurbishment and conversion) has increased by 13.8% to more than $520 million during the month.

Despite the increase in the total value of building approvals for alterations and additions increasing, housing finance data shows that owner occupiers have actually committed to -12.2% less finance for alterations and additions than they did 12 months previous.

The two results seem to contradict one another.  The increase in building approvals data suggests that the major renovations where owners alter or extend their property are still occurring.  The fall away in housing finance data, on the other hand, suggests that many of these projects aren’t requiring finance.

Over the June quarter of 2010 property value growth has slowed and sales activity has begun to fall.  These conditions suggest that many home owners may be more likely to remain in their current residence rather than sell and move.When you consider moving costs and stamp duty you can see why some people would prefer to stay put.

Below is the median home price across each capital city and the approximate amount of stamp duty payable based on that price:

• Sydney – $495,000, $18,500
• Melbourne – $470,000, $23,300
• Brisbane – $445,000, $14,000
• Adelaide – $390,000, $15,800
• Perth – $475,000, $16,600
• Hobart – $320,000, $10,300
• Darwin – $489,750, $23,100
• Canberra – $495,000, $20,200

You must also consider that often when home owners move they purchase a more expensive property and there are other costs such as: legal fees, cleaning and removalists to consider.

Although building commencements data was still reasonably positive up to the March quarter of this year, building approvals have been trending lower since March and are now down -19.5% over the three to June.Owner occupier housing finance commitments for the construction of new homes and for the purchase of new dwellings is down -23.6% and -13.7% respectively over the year indicating that there are far fewer opportunities for those looking to buy a brand new home.  A brand new home will essentially have everything the purchaser needs and not require any improvement (at least in the short term).

With the prospects of strong property value growth seemingly diminishing over the second half of 2010 we expect home owners to look to add value through renovation.  For anyone that has owned since the beginning of the price surge at the beginning of 2009, they are likely to have more than enough equity to undertake some property improvements to their current home.

For more property sales and real estate data please visit the myrp.com.au web site.

Real Estate Data and The Melbourne Rental Market According to Property Point Dexter

My review of property rental growth rates around the nation in the latest RP Data September 2010 Quarterly Rental Review showed that across all capital cities including Melbourne, that rental growth continued to be sluggish.

Across the combined capital cities, median weekly rents were recorded at $370 for the quarter with a 2.8 per cent increase for the year and with no change at all for the September quarter just passed.
In my view, it appears that Melbourne is one of the first markets to be witnessing the seemingly imminent return of rental growth.  Why I say this is because during the quarter, house rents increased by 1.4 per cent and unit rents increased by 1.5 per cent.The median advertised rent for houses was recorded at $355/week and units at $345/week, at the end of the September quarter.  

What is interesting to note is the fact that there is such a small gap between rental rates for houses as opposed to units, just $10, yet the difference in median price over the three months to August 2010 was more than $71,000 ($500,250 for houses vs. $429,000 for units).

When looking at the rental data by number of bedrooms some greater clarity around the trends is obvious.  

During the September quarter, four bedroom houses were the best performers for detached houses with these rents increasing by 2.4 per cent.Two and three bedroom house rents were flat over the quarter while houses with five bedrooms or more recorded a substantial fall in rents of -7.4 per cent for the quarter.  

Within the unit market, the best performing product type was three bedroom units with rents increasing by 2.6 per cent over the quarter and the weakest performers were units with four bedrooms or more, their median rents fell by -2.1 per cent.  One bedroom units recorded increases of 1.7 per cent whilst two bedroom unit rents were flat.

These results suggest to me that people are choosing to downsize slightly to save on their rent.  

Four bedroom houses were the best performers however; there was a big fall in five bedroom rents.  Perhaps those previously living in a five bedroom house but only needing four bedrooms are choosing to forego the extra room to save $80/week, which is the saving with four bedroom house rents at $420/week.  Similarly, three bedroom units and one bedroom units both recorded increases in rents.One bedroom rents are $50 per week cheaper than two bedroom rents and three bedroom units are $80 per week cheaper than four bedroom units.

Overall we are expecting that rental growth is set to return with the growth in property values slowing. ABS housing finance data showed that investor activity increased during the first half of 2010, these investors were likely chasing the capital growth, with growth transitioning out of the market expect them to now be looking to improve their investments yield through increases in rental rates.  They are likely to have this scope due to the fading of first home buyers since September of last year due to higher interest rates, higher home prices and the removal of first home buyer stimulus; this clearly creates increasing demand for rental properties.

With higher rental rates I would not be surprised to see that it is the smaller stock (one or two bedroom units and two or three bedroom houses) which record superior growth as renters look to downsize in order to minimize the impact of increasing rents. Of course it will also be those properties in superior locations: close to the city centre, retail and social amenity and public transport which will obtain stronger demand and likely see rents increase by the greatest amount.

For more information about sales history, real estate sales and home prices please visit the myrp.com.au web site.

More about the Sydney property scene

According to Property Point Dexter, the residential property market has continued to record lower levels of property value growth during July according to the RP Data-Rismark Home Value Index.On an annual basis, capital city property values have recorded gain of 9.7 per cent.  Over the three months to July 2010 property values fell by -0.8 per cent and during the month of July property values were relatively flat recording value growth of 0.1 per cent.Over the three months to July the most affordable 20 per cent of suburbs was the best performing despite that values were down by -0.2 per cent.  The broader ‘middle’ market recorded value falls of -0.7 per cent and the most expensive 20 per cent of suburbs recorded a significant value fall of -2.0 per cent during the three month period.  Over the last three months, house values have recorded a fall of -1.0 per cent whilst units have outperformed with values falling by just -0.2 per cent.

The real estate market is not acting homogenously, over the last year individual capital cities have recorded value growth of as much as 13.6 per cent and as little as 2.1 per cent.  Over the last quarter growth has well and truly slowed with the best performing capital city registering growth in values of just 0.3 per cent and the poorest performer has seen values decline by -2.5 per cent.

Sydney
The Sydney median dwelling price is currently recorded at $520,000 and over the last year values have increased by 10.8 per cent which is well above the 10 year average level of average annual growth.  Since Sydney home prices recorded their recent low in December 2008, values have increased by 18.4 per cent.Despite the strong performance since the end of 2008 the last quarter has seen value growth in the market slowing down.  During the three months to July home values have increased by just 0.3 per cent and over the month of July values increased by 0.8 per cent.

For more property sale prices or property values in other Australian cities, please visit the myrp.com.au website.