CoreLogic: Price growth booms as rental yields bust

By Leith van Onselen

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

As shown above, the smaller capitals and the regions had a positive month in March, with Hobart (+3.1%), Canberra (+1.4%), Darwin (+3.1%) and Rest of State (+0.8%) all reporting value gains.

Below are the key charts summarising the situation across the markets, with Sydney and Melbourne continuing to dominate:

Moreover, Australian house price growth has hit a new cyclical high, with annual growth of 12.9% the highest since the 12 months ending May 2010.

The combination of weak rents and capital appreciation continues to compress rental yields, which have hit a new record low level:

According to CoreLogic:

While some rental markets have recently seen a rise in the pace of rental growth, generally, the trend in rental appreciation remained soft in comparison with the rate of capital gains; growth in dwelling values is substantially outpacing rental growth in Sydney and Melbourne and gross rental yields have again slipped to record lows in these cities. As a consequence, Mr Lawless said, “This result has dragged the combined capitals yield profile to a new record-low. The gross yield on a Melbourne dwelling is now 2.8% while the gross yield on a Sydney dwelling is similarly low at 2.9%.”

“In the remaining capital cities, there is also downwards pressure on gross yields as dwelling values outpace rents.”

And this poses increased risks for investors:

Low rental yields, higher mortgage rates and stricter lending policies around serviceability could create budgetary challenges for investors.

With lenders tightening their serviceability models for all borrowers, having a negative cash flow on an investment property may become increasingly difficult to service. Mr Lawless said, “This is a particular concern where investor budgets are becoming thinly stretched by rising mortgage rates and low income growth”…

“Based on housing finance commitments data for January from the Australian Bureau of Statistics (ABS), investors currently comprise slightly more than 50% of mortgage demand (excluding refinanced loans).

“Considering the unprecedented level of high-rise unit construction currently underway, a large portion of which is reliant on investors absorbing the supply, a material decline in investment activity could result in a growing level of settlement risk for newly developed unit projects.”

It’s one hell of a speculative bubble!

Full report here.

Unconventional Economist

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