Capital gains slow down while capital city dwellings go up

Meanwhile, Perth, Darwin and Brisbane recorded losses in dwelling values, with 1.3 per cent, 1.2 per cent and 0.6 per cent respectively.

Tim Lawless, CoreLogic’s head of research, said the results show the market’s diversity of conditions.

“The recent bounce in capital gains may be partially due to a recovery from the seasonal slump in values recorded in April and May,” Mr Lawless said.

However, other factors, such as stamp duty concessions for first home buyers in New South Wales and Victoria, may also be having a positive impact on market demand.”

“It’s still too early to measure the effect of first home buyer incentives, which went live on 1 July. However, historically, the first time buyer segment has been very responsive to stimulus measures.”

Even with high capital gains for dwelling values, the rate of gains has been slowing over the quarter, with gains of 3.6 recorded in February of this year, compared to 2.2 per cent at the end of July.

Sydney and Melbourne show how much capital gains are slowing, with Sydney going from 5 per cent earlier this year to 2.2 per cent at the end of the quarter, and Melbourne going from 5.5 per cent to 4.2 per cent.

“Melbourne appears to be benefitting from consistently high population growth which is creating strong demand for housing, as well as consistently high jobs growth and more affordable housing options relative to Sydney,” Mr Lawless said.

Mr Lawless predicted the pace of capital gains to continue to slow down throughout the rest of the year, especially in Sydney, and to a lesser extent in Melbourne, coming down from high levels of value growth over the last five years.

Weekly rental rates over the month have declined and are at record lows for the combined capital cities, mostly due to falls in Melbourne and Sydney, which recorded rental yields in Melbourne of 2.6 per cent for houses and 4 per cent for units, and in Sydney of 2.7 per cent for houses and 3.7 per cent for units.

Hobart came out on top with the highest rental yield results, with 5.1 per cent for houses and 5.6 per cent for units.

Following this was Brisbane at 4.1 per cent for houses and 5.3 per cent for units, Darwin at 5.1 per cent for houses and 4.1 per cent for units, Canberra at 4 per cent for houses and 4.9 per cent for units, Adelaide at 3.9 per cent for houses and 4.6 per cent for units, and Perth at 3 per cent for houses and 4 per cent for units.

Mr Lawless could not point out a singular factor contributing the market to “lose steam”, but there are a number of issues.

“I don’t think there is any one factor causing the market to lose steam, rather it is the culmination of several factors working together,” he said.

“Higher mortgage rates and tighter credit policies have dented investor appetite. This is clear from the RBA’s monthly credit aggregates which show investment related housing credit growth has consistently slowed from late last year.”

Mr Lawless also said higher mortgage rates are affecting both interest only loans and fixed rate loans, which is predicted to turn away potential buyers.

CoreLogic data additionally shows advertised stock levels are on the rise, especially in Sydney, being 14 per cent higher than this time last year.

“More choice for buyers implies less urgency which may be easing upward pressure on prices,” Mr Lawless said.

“Affordability challenges are also likely to be impacting buyer demand across Sydney, where the median house price remains over $1 million.”

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