Melbourne’s property market remained weak in May, with dwelling values falling 2.7% to a median of $490,000, the biggest monthly fall of all eight capital cities.
Melbourne dwelling values are now down 8.4% for the year to May, with houses down 8.8% to $534,000 and units down 5.4% to $440,000 – making it the worst-performing mainland capital city market.
Only Hobart is worse, with a 8.9% fall over the past 12 months.
The Victorian capital led a 1.4% fall in capital city values.
Perth dwelling prices fell 1.7% over April to a median of $460,000 while Sydney dwelling prices were down 1.2% to a median of $555,000.
Brisbane dwelling prices were more resilient down just 0.3% over May to a median of $415,000.
The latest drop brings the cumulative national decline to 2.2% over the first five months of 2012, with overall dwelling values down 5.3% over the past 12 months.
Much of the weakness is confined to the detached housing market rather than apartments with RP Data research director Tim Lawless pointing out that unit values have been much more resilient to value falls compared to houses.
Over the past 12 months capital city house prices have fallen 5.8% to $470,000, with units down a more modest 1.5% to $430,000.
“It is clear that the market is becoming increasingly price point driven. Unit values across the combined capitals increased in May and they are up by 1.3% over the first five months of the year.
“Based on median prices, unit prices are generally around 15% to 20% lower than house prices. Investment yields also tend to be higher and units are often located more strategically compared with their detached counterparts,” says Lawless.
The slide in May indicates that the housing market has not responded to the interest rate cuts in November and December, notes RP Data-Rismark.
According to Rismark managing director Ben Skilbeck, the housing market is being buffeted by a drop in consumer confidence, with the Westpac Melbourne Institute Index of Consumer Sentiment 6.3% below its long-term average despite an overall “positive economic picture”.
“Concurrently, new mortgage finance commitments aren’t moving a great deal suggesting we are yet to see heightened buyer activity return to the market,” he says.
Another hurdle for the property market is the large number of properties currently being advertised for sale, with RP Data estimating there were around 308,500 homes advertised for sale across Australia during May, almost 9% more than at this time last year.
Regional dwelling values were more resilient, falling 0.2% over April to be down 1.4% year-on-year with a median price of $320,000.
Adelaide was the best-performing capital city over the quarter, with dwelling prices up 1% over the three months to May 31, 2012 to $370,000.
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Brisbane values are down 6% year-on-year, Perth values are down 3.9% and Sydney values are down 3.6% since April last year.
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Rismark managing director Ben Skilbeck says one positive to take away from the soft housing market is that housing affordability is showing a marked improvement.
“The combination of interest rate reductions, declining home values and disposable income growth has significantly improved affordability.
“Since dwelling values peaked in November 2010, they are down by 7.6%, the RBA cash rate has fallen from 4.75% to 3.75% and disposable income per household has increased by over 5%,” he says.
Darwin is offering investors the highest gross rental yields of all capital cities – 6% for houses and 5.9% for units with Melbourne offering the lowest rental yields on houses (3.7%) and sharing the lowest rental yield on units with Adelaide of 4.5%
“Rental yields are higher now compared to a year ago across every capital city. In some cities where rents have increased meaningfully such as Darwin and Perth, gross rental yields have improved by 50 basis points or more,” Lawless says.
This article first appeared on Property Observer.