According to the latest RP Data-Rismark Home Value Index, capital city dwelling values moved 4.2 per cent higher during the winter months, driven by large capital gains across the Sydney and Melbourne markets.
Canberra was the second best performing city, with values creeping 2.5 per cent higher over the same three month period. This trend was driven by a gain in detached house values which largely compensated for the 2.1 per cent fall across the weaker apartment market. The winter months saw moderate conditions across other capital cities, with Adelaide up 1.5 per cent, Brisbane achieving a 1.3 per cent gain and Perth a 1.0 per cent increase. Darwin and Hobart both recorded slight drops.
The latest growth cycle has seen Sydney dwelling values rising by 27.2 per cent while Melbourne was also up by 19.5 per cent. Since the beginning of 2009 values have risen by 50.1 per cent and 46.1 per cent respectively in Sydney and Melbourne, figures which confirm both cities to be the strongest performers in this cycle.
According to RP Data research director Tim Lawless, the onset of spring is likely to be accompanied by an increase in listings numbers which will be a real test for the housing market.
"Considering the ongoing high rate of auction clearance rates, a generally rapid rate of sale and the ongoing low interest rate environment, it's likely that dwelling values will rise even further over the next three months," said Mr Tim Lawless.
"Consumer confidence is also moving in the right direction now after the post-budget slump which will add fuel to the exuberant buying and selling conditions we have seen during winter."
RP data is expecting a compression in rental yields as rental rates rise at a slower pace than dwelling values. Across the combined capital cities, the typical gross yield on a house has reduced from 4.1 per cent to 3.7 per cent over the past twelve months.
Sydney and Melbourne have experienced the largest yield compression evidenced by a fall of 47 and 32 basis points respectively. However the current rate of value growth and moderate rental growth suggests that Sydney yields will move below Melbourne in the near future.
"With yields so low in the cities where values are seeing the largest capital gains, it is clear that investors remain very much focussed on value growth rather than yield," said Mr Tim Lawless.
Investor loan commitments have represented 38 per cent of all mortgage lending for the last nine months, which is the lengthiest period investor lending has held above that level. These investors are typically focused on the Sydney and Melbourne apartment markets where capital gains are high and yields lower.
"Investment returns may be higher however in smaller capital growth cities where the growth trend is more mature and yields are also healthier," concluded Mr Lawless.