Rental rates stabilize

As more renters leave the rental market

and opt for their first new home,

rental rates are starting to stabilize

 More recently the rental market appears to have peaked with national weekly median rents falling slightly in each month post March. On average weekly house rents fell by 5 percent ($15) over the June quarter. As demand for rental accommodation grew, the supply of new housing and investor numbers remained consistently low (the market is reliant on private investors to provide the vast majority of rental housing).With rental affordability becoming a real issue it is likely more renters are choosing units rather than houses for the lower rents, lower upkeep and the fact that they can live in more desirable locations compared to detached housing rents. At the other end of the spectrum, the only mainland capital city to record an improvement in the median weekly rental rate was Darwin which now has the most expensive weekly rental rate for houses of any capital city. The resilience of the rental market for units is not surprising. As more households were financially blocked from buying a home the only other option was to rent. The largest falls in house rents have been recorded in Canberra where the median weekly rent is down just over 6 percent for the June quarter. On average, renters in Darwin are paying about $100/week more to rent a house than someone renting in Sydney.The net result of this high demand and lack of new supply is that there has been a large amount of upwards price pressure on weekly rents. Investors shouldn’t be discouraged by the recent peak in rental markets. With such low vacancy rates and not a great deal of new supply entering the market it is logical to expect weekly rents to avoid any significant declines for the foreseeable future. The average gross rental yield for units has fallen only slightly (4 percent to 3 percent over the June quarter) thanks to rents staying relatively firm and a lower rate of growth in unit values over the quarter (2 percent). The figures presented above outline the broad trends in the market – astute investors need to be digging below the surface of these macro trends and identifying strategic markets that will satisfy their investment criteria. In fact, rental rates have been rising steadily since housing affordability became a real issue in the early part of the new decade. Rental yields remain historically higher than the long term average and competition amongst investors hasn’t gathered too much pace just yet. The improvement in housing affordability together with declines in rental affordability has caused many renters to assess whether buying is now a better option than renting. Additionally capital growth has once again become evident which demonstrates the resilience and consistency of returns in the Australian residential property market. Nationally, the gross rental yield for houses peaked at 7 percent in March and has since fallen to 4 percent due to a fall in weekly rents and increase in house values of 1 percent over the quarter. With rental rates now coming off the boil and property values once again rising we are seeing the first signs of rental yields being eroded. The median weekly rent for a Canberra house has fallen from $530 in March ‘09 to $498 in June. Unit rents have been much more resilient, recording a fall of just 6 percent over the June quarter. Renters have been hit hard over the last three years with rents across the country rising by an average of 30 percent over this period; renters, on average, are now paying $95/week more to the landlord than three years ago.The easing in weekly rents comes as housing affordability returns to levels not seen since 2002 thanks to interest rates reaching 75 percent and modest falls in housing values. Vacancy rates remain tight across the nation with all capitals recording less than 3 percent vacancy in rental stock. Renters shouldn’t get their hopes up too much however. For investors, units have historically provided stronger rental yields and it looks set for this trend to continue. Unit rents have virtually remained steady since March and actually improved in Brisbane, Darwin and Adelaide over the June quarter. Commonwealth Bank of Australia showed there had been a substantial increase in the number of suburbs around Australia that are now cheaper to buy than rent. Locally vacancy rates still remain very low with any property listed for rent receiving enormous amounts of enquiry. Many tenants are experiencing landlords selling the property from under them, thus having to find other suitable housing. As the grant is starting to be wound up for the first home buyers boost, we are going to experience more vacancy shortages.

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RP Data Sourced

21/08/09

Property stock on the rise

 

As business confidence returns,

vendor confidence is also returning with

properties hitting the market

The last month has seen a record number of CMA reports conducted by real estate agents. The national ‘vendor discount’ (the average difference between the original listing price and final selling price) has fallen from 8 per cent last year to just 5 percent and the average number of days on market is down to 35 days (47 days at the same time last year). Business confidence hasn’t been this high or almost two years. We are now seeing a higher level of vendor confidence and surging agent activity. On average, a property is sold within two months after the first CMA report is conducted. Consumer confidence is now at its highest level in two years.
Many prospective vendors have been holding their property off the market until selling conditions improve. This week we saw three key data releases that all suggested the Australian residential property market should continue to provide modest improvements over the coming months. Both business confidence and consumer confidence also continued to rise with both indicators now above the all important 100 point mark where optimists outweigh pessimists. One of the most important leading indicators is the number of CMA (Comparative Market Analysis) reports being produced by agents. The surge in CMA reports suggests the market is already gearing up for what is likely to be a very active spring selling season this year. Housing finance commitments again trended up, with the value of housing loans taken out in June at their highest level since June 2007. Investor activity is also ramping up, with investors now comprising one quarter of housing finance commitments.
Property values have increased by 5 per cent over the first half of 2009 according to the RP Data-Rismark Home Value Indices. Locally property is still being snapped up, with cases of properties being listed for less than half an hour before being sold. Stock levels are still low, thus creating a slightly undersupply of homes for sale.  

 

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 17/08/2009

Rate rise set to begin

 

As the market starts to stabilise,

 the beginning of the end of low rates  

is just about to begin

 

The Reserve Bank Governor’s statements seem to suggest that the scope for further interest rate cuts is very minor and given this, the latest interest rate futures yield curve is indicating that financial markets believe that rates will not fall any further. With the first increase in rates expected around November or December this year.With fewer properties being built than required to cater to demand, competition for available stock increases and as a result, upwards price pressure is created. In the three largest states, which as a result are the states with the strongest demand for housing and requirement for new dwelling building approvals, the number of approvals on a trend basis rose by: 1.0% in New South Wales, 0.2% in Victoria and 1.8% in Queensland.  Later this week the ABS will release the labour force statistics and many expect unemployment to be recorded at or around 6%. The ANZ released their latest July job advertisements survey this week and the results showed a -1.7% fall in advertisements during July. Even compared to just one year ago, the number of dwelling approvals nationally in June 2009 is -14% lower with approvals in New South Wales -28% lower and in Queensland they were -31% lower. Late last week the ABS released their building approvals data and although building approvals increased by 3% during June on a seasonally adjusted basis, on a state-by-state basis the performance was quite varied.  The yield curve shows an expectation that in one year’s time interest rates will sit 1.5% above their current level. The results although showing a decline in the number of jobs advertised represented a marked slowdown from the previous month when job advertisements fell by -1.7%. In the Federal Government’s Budget they anticipated that unemployment would peak at 8.5% in mid 2010. Despite the fact that unemployment is still rising the rate of increase in the unemployment rate to date coupled with the fact that the rate of decline in the number of job advertisements appears to be slowing suggest that the forecast unemployment rate of 8.5% may have been a little too pessimistic.These results highlight the significant demand and supply imbalance and also provides some insight as to why property values are once again beginning to rise.The Reserve Bank of Australia decided to keep Australia’s cash rate at a near 50 year low of just 3% when they met this week. This is why Governor Steven’s highlighted the under supply issues in his speech last week and why governments need to be much more proactive in allowing additional construction and most importantly, these new dwellings need to be available at affordable prices coupled with provision of critical infrastructure in and around these dwellings. He also stated that economic conditions have been stronger than anticipated in Australia for a few months and that the risk of a severe economic contraction had now abated. In his statement the Reserve Bank Governor pointed to the fact that worldwide economic stimulus was helping the global economy to stabilise. Locally the market has not improved with an under supply of stock. Homes that are listed on the market are receiving offers in the first day of marketing and proceeding to sale very quickly. There is a real sense of panic at the moment with a great deal of buyers. Those that dont have there finance pre approved, are going to find it tough to get the finance in place before October 30th , when the first home buyers boost starts to be wound down. No lenders are financing more than 97% LVR, where most are wanting 10% from the buyers. 

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 07/08/09