City by city property guide

Australian home values recorded a -0.3% fall in the month of December as the seasonal effect of the summer slowdown, combined with rising interest rates and fading first time buyers, put a dampener on what has otherwise been a very strong year for Australian residential real estate.

All capital cities recorded strong capital gains during 2009 with the most spectacular results seen in the Darwin and Melbourne markets, where home values were up 16.6% and 15.6% respectively.

The weakest market during the year was Adelaide with values rising 6.2%. Residential property in Brisbane achieved a slightly better outcome with 7.3% growth. Arguably one of the most interesting stories of 2009 has been the recovery of the Perth property market with values increasing by 7.1% after cumulative losses of 7% since September 2007.

The market drivers changed considerably over the year.

The strongest gains were recorded early in the year with national home values up 3.1% over the first quarter of 2009. The market was being led by first home buyers and consequently the most affordable end of the market saw a 3.9% lift in values.

Over the second and third quarters it was upgraders in the middle and the top ends of the market that generated the strongest gains. The top 20% of Australia’s most expensive postcodes increased in value by 9.5% over the last three quarters of the year compared to 4.1% growth in cheapest 20% of postcodes.

Here is the city-by-city guide:

Sydney

It is often forgotten that between December 2003 and December 2006, Sydney home values fell by over 6%. 2009 finally saw home values recover with the December 2009 home value now 5.8% higher than the previous February 2004 peak.

Rental yields in Sydney are slightly higher than the national average with houses returning a gross yield of 4.2% and units returning 5.1%. The median price of a Sydney house over the December quarter was $600,000 and the median price of a Sydney unit was $430,000.

Melbourne

Similar to Sydney, between the end of 2003 and the end of 2005, Melbourne home values only rose by 2.8%. The Melbourne market recovered much sooner than Sydney’s and home values recorded a strong surge in 2007 (up 21% compared to a 7% gain in Sydney).

2009 was another big year for the Melbourne market with house values rising a further 14.9% and unit values up 18.0%. With such strong capital gains and a relatively flat rental market Melbourne rental yields suffered. Houses are now providing a gross rental return of 3.7% (the lowest in the nation) and units are returning 4.3% (the second lowest in the nation after Perth). The median price of a Melbourne house over the December quarter was $499,000 and the median price of a Melbourne unit was $410,750.

Brisbane

The Brisbane market remained comparatively subdued during 2009 with values increasing by 7.3% over the year. The comparatively weak performance can partly be attributed to the strong gains recorded in 2007 where Brisbane values gained 24.6% over the year.

Gross rental yields in Brisbane remain above the national average with houses returning 4.4% and units returning 5.0%. 2010 is likely to see Brisbane outperform the national average due to the fact it is in a later stage of the cycle, together with ongoing strong population growth and the benefit of several major infrastructure projects coming to fruition.

The median house price in Brisbane is now $463,000 and the median unit price $383,600

Adelaide

Adelaide returned the weakest result of 2009 with home values increasing by a comparatively mild 6.2%. Taking into account the strong growth of 2007 (home values were up 24.4%) and the relatively stable market conditions of 2008 (Adelaide values actually gained 3.3% in 2008) the South Australian capital has actually outperformed the national average over the three year period by about 10%.

The city still provides some of the Australia’s most affordable metro housing with median prices at $380,000 for houses and $310,125 for units.

Perth

After the exceptional gains recorded in the Perth market during 2006, when annual growth peaked at 46% half way through the year, the market underperformed the national average. Perth home values had been falling since September 2007 with a total decline of 7.9% at their nadir in December 2008.

In 2009 residential property in Perth has staged a solid comeback with capital gains of 7.1% over the year to nearly recover their 2007 peak. Gross rental yields remain below the national average, despite the weak rate of capital growth. Rental yields on houses are 3.9% and units are returning gross 4.2% (the lowest of any capital city).

The median house price in Perth is $490,000 and the median unit price is $400,000.

Darwin

The standout performer over the last year has been Darwin, with home values up 16.6% over the calendar year. In 2008 Darwin values gained 11.2%, in 2007 values were up 14.1% and in 2005 and 2006 values increased more than 20% in each year.

Such a consistently strong performance has seen Darwin move from being one of the cheapest cities to buy a home to one of the most expensive. Darwin’s median house price has broken the $500,000 mark and is now at $510,000. The median unit price, despite the large gains, remains relatively affordable compared to other capital cities at $376,000 (only Adelaide and Hobart have recorded a lower median unit price).

Canberra

The Canberra housing market has recorded the third strongest performance, with home values up 14.7% over 2009. Unit values made the most significant jump, increasing by 23 % over the year – a performance second only to Darwin.

Canberra median house prices are now the second highest in the nation after Sydney. The median house price is now $560,000, just $40,000 lower than Sydney.

Median unit prices are the third highest of any capital city at $404,000.

Hobart

Over the year to November 2009 Hobart values have gained 12.4%, a result that has bettered the national average by just under 2%. Rental yields are also above average with houses providing a gross return of 4.9 % (the second highest rental yield for houses after Darwin) and units returning 5.3 %.

The Tasmanian capital remains the most affordable capital city by a long stretch with a median house price of $351,000 and a median unit price of $269,000.

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