The latest blog from CoreLogic makes an interesting point about home price growth. It is concentrated in Sydney and Melbourne – and will it continue? Take the two largest centres away, and overall growth is much less impressive.
From May 2012 to June 2016, combined capital city home values have increased by 37.3% while official interest rates fell by 200 basis points to 1.75%. Although home values have increased over the period, Sydney and Melbourne have recorded a substantially higher rate of value growth than all other capital cities.
Total change in capital city dwelling values
May 2012 to June 2016
The data indicates that since the financial crisis the capital city housing market could be described as being extremely interest rate sensitive. Digging deeper into the data shows that in reality it is only Sydney and Melbourne that have really responded to the stimulus of low interest rates. The relative strength of the Sydney and Melbourne economies and the much greater employment growth has clearly assisted drive housing values higher in these cities.
Until the economic performance improves outside of Sydney and Melbourne it seems unlikely that sustainable growth will return in these areas despite the extremely low interest rates which are set to potentially move even lower over the coming months. For Sydney and Melbourne although affordability is increasingly becoming stretched home owners have experienced a substantial increase in equity. With historically weak rental markets and record low yields it will be interesting to see if investors and upgraders in the two largest capital cities continue to show a thirst for housing in these cities given the growth phase has now been running for more than four years.
