Unseasonably festive season sales and auctions against record low stock levels gave house prices another price boost in January with Sydney and Melbourne recording the highest growth, Corelogic’s January Hedonic Home Value Index shows.
Sydney posted a 1 per cent rise in dwelling values while Melbourne rose 0.8 per cent. Every other capital city, except for Darwin, recorded rises resulting in an overall combined capital states 0.7 per cent growth.
Year on year, Sydney values have risen 16 per cent while Melbourne has shot up 11.8 per cent. Since the growth cycle started in June 2012, Sydney dwelling values have increased by a cumulative 70.5 per cent.
The January result might be lower than the 1.4 per cent rise in December, but it was higher than the readings for October and November last year of 0.5 per cent and 0.2 per cent respectively.
Transaction numbers experienced the normal seasonal slowdown during December and January, however prior to the festive season, transaction numbers had been tracking higher.
The last week of January also saw a strong combined city auction clearance result of 75 per cent.
“While the pace of capital gains remained strong in January, our view is that growth rates will trend lower over 2017, with several factors likely to dampen the strong capital gains trend,” head of research Tim Lawless said.
“Affordability constraints are likely to become more pressing, particularly in Sydney, where the dwelling price to income ratio was approaching 8.5 times in September 2016. The deposit hurdle is becoming a larger barrier to entry with additional costs such as stamp duty adding to the high entry costs for housing.”
“While mortgage serviceability remains reasonably healthy, mortgage rates are already edging higher on the back of higher funding costs, which could progressively take some heat out of investment demand. In addition, with house prices continuing to increase, the supervisory focus from APRA and risk committees can only be expected to increase in 2017.”
With investors comprising nearly 50 per cent of new mortgage demand nationally, any regulatory move to clamp down investor activity could lead to a significant slowdown in price growth.
Settlement issues could also become a bigger headline this year after Corelogic analysis shows 40 per cent of off-the-plan settlement valuations have come under contract price in the Melbourne, Brisbane and Perth unit sectors.
“While the large majority of these ‘under valuations’ are not showing a significant gap between the contract price and settlement valuation, more significant differences can be seen in some projects and precincts.
Buyers who receive a valuation lower than the original contract price will generally require a large-than-expected deposit in order to meet the loan to valuation ratio required by the lender,” Mr Lawless said.
The gap between valuation and contract prices were mostly about 1 per cent, while only a small proportion were as high as 10 per cent.
Most of these units are in city-based large high density projects in the Melbourne CBD, Dockands and South Bank and in Brisbane, Fortitude Valley and Bowen Hills. Sydney off the plan apartments are in good shape and most dwellings have risen well above contract price.
At present, apartment settlements are still tracking well, with little signs of defaults, Australia’s largest non-bank commercial loan manager, Balmain Capital’s Michael Holm said on Tuesday.