Core Logic: Rental yields plumb another record low

By Leith van Onselen

Following on from yesterday’s post on CoreLogic’s daily dwelling values index results for August, CoreLogic has released its full results, which also cover the smaller capitals and regional areas (see next table).

ScreenHunter_14731 Sep. 01 13.14

As shown above, the smaller capitals and the regions had a mixed month in August, with Canberra (+2.8%) and Darwin (+4.1%) recording value rises, but Hobart (-0.9%) and Rest of State (-0.1%) recording falls.

Below are the key charts summarising the situation across the markets, with Sydney and Melbourne dominating:

ScreenHunter_14732 Sep. 01 13.17

The combination of falling rents and strong capital appreciation has compressed rental yields even further, with yields hitting another record low:

ScreenHunter_14733 Sep. 01 13.18

According to Tim Lawless:

Rental markets continued to run soft, with capital city rents falling a further -1.1% over the past three months to be -0.5% lower over the year. The weakest rental conditions are being experienced in Darwin and Perth, where dwelling rents fell by -9.4% and -14.1% respectively over the past twelve months.

Most of the capitals recorded rental falls over the year, however rents have shown some subtle growth in Melbourne, Canberra and Hobart. The gross rental yield profile in Sydney and Melbourne has once again pushed to a new record low in August. Sydney and Melbourne have each recorded the lowest gross rental yields across the capitals for houses at 2.8%, both of which are record lows for the cities. Gross rental yields on units tend to be higher compared with houses, however the gross yield for attached housing product is also at a record low, averaging 4.1% across the capital cities and ranging from 3.9% in Sydney to 5.4% in Hobart.

Meanwhile, price growth is strongest among entry-level homes, making it even more difficult for would-be first home buyers to enter the market:

“Looking at housing market performance across the broader value segments over the past 12 months, the most affordable suburbs have recorded the greatest value rises, while the most expensive suburbs have seen a more moderate rate of growth,” he said.

Based on the CoreLogic Stratified Hedonic Index, the most affordable quartile of capital city suburbs has recorded a value rise of 10% over the past year, compared to 7.4% growth across the broad middle of the market and a 6.2% gain across the most expensive quartile.

The full report can be downloaded here.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith is an economist and has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. Lol 2.8%… and that’s before maintenance/fees, etc.

    In the inner-east of Melbourne, you can rent a place for under 2%… Yes, 2% gross. After fees that’s likely around 1.5%.
    If there were no interest payments and no taxes on rent received, it would take the owner just over 66 years to get back what they paid.

    Just lol.

  2. Really, who cares

    Like omg prices shot up but yields haven’t, what a surprise

    And Hoborg, do you think people dropping $2million for an old house in Glen Waverley are doing it for the yields? wake up

  3. So…where is your greater affordability, your projected drop in property values, now that Canberra has its Universal Land Tax, Leith.

    As well as higher taxes (as the Universal Land Tax) we now also have higher property prices.

    Land Tax, universal or not, is a pernicious tax used by governments to slowly and increasingly milk citizens over time… That is what the ACT government is doing.

  4. As you pointed out Core Logics value figures are questionable; surely their yield figure should be questionable too. (Yield = Return / Cost)?

    • Maybe the heading should be “CoreLogic understates rental yields”.

      Or would that be inconsistent with the narrative?

      • You are of course correct Matthew, those who have bought IP’s long ago are rolling in it, but the market prices won’t be set / reset by that group. I don’t know how the numbers are crunched so I won’t judge, but yes there is numberwang across the board.

  5. WHo gives a F about rental yeilds when Gerry Harvey reckons ‘why would house prices fall?’ its all about capital gains.

    Rents, seriously, who gives a f.

  6. reusachtigeMEMBER

    Ahahahahahahahaha! Smart good looking investors don’t give a sh1t about rental yields we only care about the non stop boom times in capital gains we get to enjoy with our masses of richness!

  7. Don’t need some paltry rental yield when the cost to service the mortgage is at record low. The fact we could offset the cost against our wage just makes it even better.

  8. “Looking at housing market performance across the broader value segments over the past 12 months, the most affordable suburbs have recorded the greatest value rises, while the most expensive suburbs have seen a more moderate rate of growth,” he said.

    Spot on! I’ve been looking in more affordable areas in Melbourne (or were more affordable) and it seems in the last 6 months prices have gone crazy again. A lot of stuff is at least 200-300k over priced… But what can you do? Keep waiting for this so called bubble pop?

    • Strange Economics

      All good bubbles have one last skyrocket from very overpriced to astronomical…look at the history of sharemarket bubbles…Still another 20 % to go in property, sadly. Wait till yields reach 1 %.

  9. Property’s ‘bubble-type’ yields and explosive appreciation over last 18 months is going to end very badly, soon.
    Investment markets’ history tells you that. Can’t defend the indefensible much longer. Dance very close to the exit.