Property market cools

Nationally, the June quarter recorded a fall in capital city dwelling values of -0.2% which was the first quarterly fall in home values in 17 months. The slowdown in market gains has occurred on the back of a higher interest rate environment, housing finance numbers which have been trending lower since September 2009 and a softening of auction clearance rates since late April.

Putting the fall in values over the quarter into perspective, on a month-by-month basis capital city property values increased by a total of 15.1% between December 2008 and May 2010.

During the June quarter a number of capital cities recorded a fall in property values: Perth (-2.5%), Brisbane (-1.3%), Hobart (-0.5%), Canberra (-0.8%) and Darwin (-0.1%). Meanwhile the cities recording positive growth in property values during the quarter were: Adelaide (1.1%), Sydney (0.5%) and Melbourne (0.2%).

If we look back to the March 2010 quarter, the 20% of most expensive suburbs was the strongest performing sector of the property market. On a national basis during the March quarter Australia’s most expensive suburbs recorded value growth of 7.0%, the middle 60% of suburbs registered growth of 4.9% and the most affordable 20% recorded value growth of 3.4%.

Over the last quarter there has been a significant shift in market performance. Obviously the overall market performance has been much softer however, the top end of the market is no longer the strongest performer. During the June quarter premium suburbs recorded a fall in value of -1.8%, the middle 60% recorded growth of just 0.2% and the most affordable suburbs recorded value falls of -0.2%. The results show that over the last quarter the strongest performing market has shifted from being the premium residential market to the broader ‘middle’ market.

If you look at the annual results within the major capital cities, the most expensive suburbs have generally recorded the greatest increase in property values since the start of the growth phase, the only exception being Melbourne. In Melbourne, the performance of the middle 60% of suburbs well and truly eclipsed the performance of the top and bottom end markets.

On an annual basis the performance of the most affordable suburbs has in all instances except for Perth, been the poorest performer. Within Perth the middle 60% of suburbs has recorded the weakest annual property value growth performance.

During the June 2010 quarter there has been a fundamental shift in the performance of residential property within most markets. During this time, Brisbane, Adelaide and Perth have all recorded the most expensive 20% of suburbs as being the best performing. It is important to note that although the top 20% of suburbs was the best performed in Brisbane, this market still recorded a -1.0% fall in values over the quarter. In Sydney and Melbourne the middle 60% of suburbs have been the best performing markets over the last quarter posting value gains of 1.4% and 1.2% respectively.

In contrast to the annual performance, Adelaide was the only city where the most affordable suburbs were the weakest performer during the June 2010 quarter keeping in mind that on an annual basis the majority of cities recorded the most affordable market as the weakest performer.

Looking holistically at the results, it’s clear to see that activity amongst the luxury markets is slowing. Potential purchasers of high value real estate (representative of the top 20% of suburbs) are likely to have been impacted by the recent share market volatility and the economic uncertainty filtering out of the USA and Europe.

On the other hand, it is likely that the most affordable end of the market is also not performing as strongly as the middle market, due to the fact that this market is mostly characterised by first home buyers and low income families.

The lower priced end of the market is more adversely affected by higher interest rates and tighter lending criteria from the banks. Given these factors, the ‘middle market’, representative of the ‘average’ Australian property buyer is currently the strongest performer.

Tim Lawless is the Director of Property Research at RP Data.