The only way is up for rental yields and housing affordability

Improved housing affordability and rental yield increases signal a prime time for opportunistic buying, according to May’s RP Data-Rismark Hedonic Home Value Index.

Housing affordability in May has returned to June 2003 levels, with the Australian dwelling price-to-disposable income ratio down to 4.2, reports the Index.

With increased housing affordability, the natural direction for rental yields is up, said RP Data research director Tim Lawless.

“For property investors, rental yields are also improving with RP Data-Rismark’s Index showing that gross Australian apartment yields have now risen to five per cent,” said Lawless.

Lawless said the best rental yields could be located in Darwin (5.7 per cent for units and 5.4 per cent for houses), Canberra (5.4 per cent), Brisbane (5.2 per cent) and Sydney (5.2 per cent).

“The worst yields are in Melbourne (4.2 per cent for units and 3.6 per cent for houses), Adelaide (4.6 per cent) and Perth (4.9 per cent),” he said.

In the three months to May, capital city dwelling values have fallen by 1.2 per cent on a seasonally adjusted basis; over the 12 months to May these values have fallen by 2.3 per cent. The first five months of 2011 saw a 2.7 per cent decline in capital city dwelling values.

Zooming into individual performance, Sydney is the only market to have recorded a modest capital gain over the past 12 months of one per cent, said RP Data.

Canberra housing has held steady with only a 0.1 per cent decline, however all other capitals have slipped behind, with the weakest results in Perth (7.5 per cent decline year-on-year to May) and Brisbane (with a 5.9 per cent decline in the same period).

“After extraordinary capital gains in recent years, Darwin (-3.2 per cent) and Melbourne (-2.9 per cent) have also both experienced small corrections,” said Lawless.

“Interestingly, in the last three months the laggards have again been Perth (-4.2 per cent), Melbourne (-1.8 per cent) and Brisbane (-1.4 per cent).”

While big expectations are ahead for the Perth market with the resources boom, Lawless said it doesn’t appear to be turning yet.

“For a city that is recording rapid population growth, low unemployment and a large private capex boom, house prices have nevertheless been contracting since late 2007 after years of above average capital growth in the pre-GFC (global financial crisis) period. Today the critical missing piece of the puzzle seems to be buyer demand,” Lawless said.

Overall the weak level of consumer confidence is what’s driving the property price downturn, said Lawless.

“Consumers are well and truly focused on saving, not spending,” he said.

“Despite the low rate of unemployment and the strength of the resources sector, it is clear that the average Australian is content to pay-down debt and wait for some economic certainty to return. As a consequence, transaction volumes in the real estate market are about 20 per cent below the five-year average and listing volumes are about 25 per cent higher than what they were last year.”


SOURCE: RP Data-Rismark Hedonic home Value Index

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