Property values across the combined capital cities fell by -3.6% over the 2011 calendar year, marking one of the weakest years for housing market conditions in recent memory. Over the 2010 calendar year property values across the capital cities had increased by 5.1% highlighting the marked slowdown in recent times.
Home values fell across each capital city with the declines ranging from -0.3% in Sydney to a -6.8% fall in values within Brisbane. As these results show, although values have fallen across all cities, the conditions across individual capital cities have varied greatly.
As the first graph shows, conditions have varied greatly over the last decade with the market moving in cycles characterised by periods of strong growth, value falls, and limited growth in values.
Over the 10 years to December 2011, home values across the combined capital cities have recorded average annual growth of 6.4%. Darwin has been the strongest performer of the last decade with values increasing at an average annual rate of 12.9%. Sydney, which is also the country’s most expensive capital city, has recorded the lowest average annual rate of growth in home values of just 4.1% over the ten year period.
Obviously with home values falling over the last 12 months, the recent market conditions have been somewhat different to those experienced over much of the last 10 years.
Although home values have recorded solid growth over the last decade, they recorded much stronger increases in values over the first five years of the decade than they did over the most recent five years.
Between December 2001 and December 2006 home values across the combined capital cities achieved average annual value growth of 8.1%. Home values recorded average annual growth in excess of 10%pa in every capital city except for Sydney (4.0% pa) and Melbourne (6.6% pa). The standout performers were Hobart with average annual value growth of 21.1% and Perth where values increased by 20.9% pa.
Obviously, 10 years ago property values were much lower enabling many to residents to get on the property ladder. The large adjustment in home values between 2001 and 2004 has exacerbated value growth figures over this period.
The performance of the housing market over the most recent five years shows a significant change in fortunes. Hobart and Perth which were the two best performing capital cities over the first part of the decade have been the weakest over the last five years with average annual growth in values of 3.0% pa and 0.2% pa respectively. Over the most recent five years, Melbourne is the only capital city that has recorded average annual value growth which is superior to that recorded over the first five years of the decade. To put the results in perspective, the best performing capital city over the first five years of the decade recorded average annual growth in values of 21.1% pa while over the most recent five years, the best performing city recorded value growth averaging 8.8% pa.
Another recent trend has been the superior performance of the unit market relative to houses. Over the first five years average annual growth was recorded at 8.7% for houses and 6.2% for units, over the last five years the figures have been 4.4% pa and 5.5% pa respectively. The results reflect the fact that affordability has become an issue and people are focusing on cheaper housing options. The results also reflect changing lifestyle patterns and a greater acceptance of unit living, particularly within inner city areas of our major capital cities.
If recent market conditions are anything to go by, the residential housing market is likely to show lower levels of capital gains in the coming years compared to the longer-term historical trend. It is important to note that historically housing has been a long-term asset class which has appreciated at a slow pace over a long period of time. In recent years big spikes in growth rates have seen people more prepared to speculate on short-term value growth. Given the recent data it looks as if the housing market fundamentals are reverting to “normal” market conditions after a period of higher than normal growth rates.
Tim Lawless is the Director of Property Research at RP Data.