Property prices fall in January due to floods, but recovery tipped if rates remain on hold

Capital gains in the property market remained soft in January due to the natural disasters in Queensland, with prices for capital city homes falling by a seasonally adjusted 1.6% to $465,000, according to the latest figures from the RP Data-Rismark Hedonic Home Value Index.

RP Data research director Tim Lawless says while January is usually the slowest month of the year for property, this year’s disappointing figures were exacerbated by the floods.

“The volume of sale transactions in January is normally much lower than other months due to the seasonality of the market,” Lawless says.

“This year the downturn in activity has been compounded by the spate of natural disasters experienced around the country. It is quite possible that the… index results for January will show a larger than normal revision when updated next month.”

The figures show that prices for city properties are down by 2.3% for the three months to January, and are up by only 1.2% over the year.

For the rest of the country, prices fell by 0.1% in January, by 0.8% in the January quarter and by 0.3% over the year to January, to a median price of $412,000.

RP Data says the spate of natural disasters in Queensland, New South Wales and Victoria “conspired to undermine consumer confidence”.

The lack of confidence in property has been evident in Brisbane, where clearance rates and the number of properties on sale each weekend has dropped substantially from this time last year.

Lawless says the result of this is that “we have had no value growth at all since May 2010 across the combined capitals and since January 2010 in the regions outside the capital cities.”

RP Data said prices rose by 0.4% in December, but that has now been revised to a gain of just 0.3%.

He points out with the variable mortgage rate above average at 7.8%, clearance rates below average and a larger than usual number of properties still up for sale, “the level of vendor discounting and average selling times has risen”.

For the individual cities, results were poor for the January quarter. The biggest declines were in Canberra, where prices fell by 3.8% to $510,000, Perth by 2.6% to $463,000 and in Brisbane by 3.2% to $438,000.

Price falls were also recorded in Darwin, which fell 1.4% to $495,000, in Adelaide by 1.3% to $392,000 and in Melbourne by 1.9% to $483,000. Sydney values also fell by 1.4% to $515,000.

Hobart was the only city to record a price increase over the quarter, but only managed a minimal gain of 0.6% to $330,500.

The highest rental yields were recorded in Darwin, with 5.3% for houses and 5.7% for units, while Melbourne recorded the lowest yields of 3.7% for houses and 4.2% for units.

Over the year, results have been minimal. Darwin recorded the highest gains at 4.7%, followed by Melbourne at 3.6%, Sydney at 2.5%, Hobart at 2.2%, Adelaide at 2%, while Canberra fell by 0.6%.

Perth and Brisbane both recorded large declines over the year, falling by 3.7% and 3.8% respectively.

But according to RP Data and Rismark, the current results are only an anomaly and the rest of the year should be able to produce some solid, if not subdued, capital gains.

Rismark joint managing director Ben Skilbeck said the results show there are growing signs of a soft recovery, given the growth in housing credit and the early auction clearance rates from the first weeks of February.

“Our forecasting model implies low single digit capital gains in 2011 based on the assumption that the RBA tightens monetary policy further,” he says.

“However, it is noteworthy that the futures market is not pricing in the first full interest rate increase until February 2012. If the RBA stays on the sidelines in 2011 there will be material upside risks to our forecasts.”

Lawless says there is good reason to be hopeful, saying that overall disposable household incomes have been growing at 6-7% annualised, and “the interest rate outlook appears to be stable over the short-term”.

Skilbeck added that the RBA is looking to temper activity in the household sector to make room for a resources boom. If commodity prices drop, the RBA will drop interest rates and use housing to stimulate demand.

“The housing market is therefore a powerful hedge against Australia’s resources boom running off the rails. A reduction in interest rates will unleash a strong affordability dividend given that house prices have gone nowhere for six months now while household incomes have been rising quickly.”