Residex repeat sales index shows an acceleration in housing market performance across most capital cities over the second half of 2016. Residex recently released the results of their repeat sales index for the December quarter of 2016. The quarterly results showed house and unit prices, based on resold properties, increased across every capital city and housing type with the exception of Perth, where house and unit prices fell, and the Brisbane market, where unit prices were lower.
Table 1: Residex Repeat Sales Statistical Summary – December Data
The Residex repeat sales index provides a unique perspective on the housing market, considering the resales methodology is very different to other housing market measurements available in the marketplace, which are typically price based (simple median prices and stratified median prices) or quality adjusted value based measures (hedonic regression index). In simple terms, the Residex repeat sales method examines sale pairs (ie where a property has sold at least twice, the most recent sale price is compared with the previous sale price to measure the extent of capital gain or loss). Inherently, a resale method of measuring housing market conditions excludes the effect of newly developed properties because they don’t have a previous sale price to compare with. The methodology also excludes those properties that have seen a change in their attributes over time, which controls for the effects of obvious capital works on the property. Based on the December quarter data, property transactions with a sales pair accounted for approximately 70% of all house sales across the capital cities and 63% of all unit sales. The remaining transactions were either properties that sold for the first time over the quarter (ie new to market) or there were changes to the property attributes such as additional bedrooms or bathrooms or a change to the land area.
Graph 1: Resales as a proportion of all dwelling sales, December quarter, 2016
Importantly, the Residex repeat sales index is revisionary. As more data flows through, more sale pairs are identified which may result in some upwards and downwards revisions to the indices. The latest release of the Residex Repeat Sales index provides a timely update to housing market trends based on resales, and also relative to the widely followed CoreLogic hedonic index. During 2016 the CoreLogic hedonic index showed some divergence from the Residex repeat sales indices, as well other median priced based measures, with CoreLogic growth trends showing some acceleration over the second half of the year. Part of the divergence can be explained by the different methodologies, and also the high frequency of the hedonic index reporting (a daily index with monthly updates compared with less frequent quarterly readings from other indices). Additionally, the unprecedented level of new dwelling construction likely affects housing market readings and adds to volatility. There hasn’t been a time in the past when the mix of housing stock has changed so quickly and dramatically. The repeat sales method will inherently overlook the effect of new housing, while long settlement periods for off the plan sales, which now comprise a larger proportion of sales, will influence median price measures well after the reporting period has passed. Other factors affecting divergence can be found based on differences in reporting geographies, differences in the underlying data sets and sampling techniques and weightings applied to housing stock. According to the Residex repeat sales index, Sydney house prices were 3.1% higher over the December quarter to be 7.1% higher over the calendar year. While price growth based on resales remains substantially lower than a year ago, the September and December quarter readings were approximately twice as high as the March quarter, highlighting a substantial bounce in capital gains across the Sydney market. The acceleration in market conditions can also be seen across the Sydney unit market with the repeat sales index increasing by 2.3% over the December quarter to be 7.4% higher over the calendar year.
Graph 2: Residex Repeat Sales Index Results, Sydney
The Residex repeat sales index showed a 2.5% capital gain on Melbourne house resales over the December quarter, taking the annual growth rate to 5.4%, which is substantially lower than a year ago when the capital gain on resales was recorded at 16.9%. Despite the weaker annual performance the second half of 2016 saw the quarterly rate of growth rebound strongly across the Melbourne detached housing market. In fact, the capital gain based on resales was down 1.4% for Melbourne houses over the first half of 2016 before rebounding to 6.9% growth over the second half of the year. A similar trend was seen across the unit sector; despite concerns around an oversupply of inner city units, the capital gain based on unit resales across Melbourne was 4.5% over the calendar year, with the majority of that gain being realised over the second half of 2016.
Graph 3: Residex Repeat Sales Index Results, Melbourne
Brisbane housing market conditions have remained relatively subdued according to the Residex repeat sales index. Although there was as subtle improvement in the growth trend for houses over the second half of 2016, the annual growth rate has softened compared with 2015, with the capital gain on houses recorded at 2.4% over the year, while unit prices were negative over the year at -2.1%. With population growth gathering some pace in 2016, higher housing demand may start to push dwelling prices higher across Brisbane this year, however labour markets remain weaker than Sydney and Melbourne which is one of the key challenges of the Brisbane housing market blocking a higher rate of capital gain.
Graph 4: Residex Repeat Sales Index Results, Brisbane
The Adelaide housing market remained in positive growth territory based on the capital gain from resales over the past calendar year. House and unit resales saw a subtle increase in capital gains over the second half of the year, however the overall growth trend remains relatively sedate across the Adelaide housing market. The subdued growth comes as population growth trends slow and the manufacturing sector faces some uncertainty as the local auto sector transitions towards a shutdown.
Graph 5: Residex Repeat Sales Index Results, Adelaide
The trend of negative price movements in Perth has been sustained through 2016 with house prices down 4.1% over the 2016 calendar year based on resales, and unit prices down 6.0%. A more positive trend was developing over the second half of 2016, with a deceleration in the pace of capital gain declines. Listing numbers remain high across Perth at a time when housing demand is low, which is one of the primary reasons for prices continuing to fall, however a rebound in the commodity price index from mid-2016 may help to boost confidence and the economic conditions across the state in 2017.
Graph 6: Residex Repeat Sales Index Results, Perth
The Hobart dwelling market has well and truly moved out of the doldrums, with the detached housing sector posting a 3.3% gain based on resales over the December quarter and recording a full calendar year growth rate of 7.4%. The unit sector has also seen some momentum gather, with the capital gain on unit resales tracking at 5.5% over the 2016 calendar year compared with a 1.0% fall over 2015. Improved tourism numbers and population growth, as well as the sheer affordability of housing are driving a sustained improvement in Hobart housing market conditions.
Graph 7: Residex Repeat Sales Index Results, Hobart
The Residex repeat sales index saw both Darwin house and unit returns continue their negative run, with the capital return on houses down -7.8% over the 2016 calendar year and unit returns down to -6.4%. Both dwelling types saw a quarter on quarter rise based on resales, however the trend across Darwin can be volatile due to the small size of the market. Other indicators remain soft across the market suggesting there is likely to be further falls in prices before this market starts to show a recovering trend.
Graph 8: Residex Repeat Sales Index Results, Darwin
The ACT has recorded a growth rate of 2.9% in house returns over the 2016 calendar year, which indicates a slowdown in the rate of capital gains based on resales after posting a 2015 capital gain of 8.0%. The unit sector has also seen a slowing of capital gain, albeit from a lower base than detached housing. The slower conditions based on resale show the opposite trend from other market measures which have been showing accelerating growth conditions across the nations capital.
Graph 9: Residex Repeat Sales Index Results, Canberra
Addendum to blog:
Director of Research, CoreLogic