Residential property prices surged to a record in August buoyed by low interest rates and rising confidence about the job market.
The RP Data-Rismark Home Value Index showed strong capital gains across Australia with home values rising by 1.9% in the month of August alone. This exceptional performance brings the cumulative capital growth in the first eight months to a better-than-expected 7.9%.
Melbourne led the solid recovery with a stunning 11.6% gain in value to $467,280 since the beginning of the year. Sydney came second with values jumping by 8.6% to $546,867 during the same period.
"The August results surprised on the upside and are indicative of very high levels of buyer confidence combined with low levels of listing," said Tim Lawless, research director, rpdata.com. "These buoyant conditions sit in striking contrast to the same time last year when values were falling, less than half of the auctions held cleared and sales volumes were at rock bottom. We are now seeing home values rising at a solid rate, almost 80% of auctions are clearing and sales volumes bounced back significantly.
Darwin continued to rack up the highest rental yields of 6.1% for houses and 6.3% for units. Melbourne recorded the lowest gross yields of 4$ for houses and 4.6% for units. However, units in Melbourne were selling the fastest - taking only 25 days to sell while it takes 27 days to offload a unit in Sydney.
The result also showed recovery in the middle to top end segment of the market, dispelling fears that the turn around is limited to the lower end of the property sector.
"In contrast to claims that this is a first time buyer bubble, the cheapest 20% of the suburbs in Australia have actually underperformed both the mid-priced market and Australia's 20% most expensive suburbs since the housing market bottomed in December 2008," said Christopher Joye, managing director, Rismark International.
Based on this strong showing, CommSec expects home prices to rise by around 8% over the coming year, a rate of growth in line with longer-term averages.
"Strong fundamental demand for homes will continue over the year but affordability will soften as the Reserve Bank lifts interest rates to more 'normal' levels. The strong lift in home prices increases the risk that the Reserve Bank will lift rates later this year rather than early next year. CommSec still expects the Reserve Bank to deliver the first rate hike in February 2010, but the chance of a move in November or December has risen to around 40-45" it said in a report.