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Rebounding Sydney surge leads house price growth

Rebounding Sydney surge leads house price growth

Sydney has recorded its largest monthly house price increase in almost a year.

House prices in Sydney surged in May as the city’s real estate market rebounds in value growth following a relatively flat start to the year.

According to CoreLogic RP Data’s latest Home Value Index (HVI) report, house values in the NSW capital spiked by 3.6% over the month – twice that recorded for Melbourne – helping to increase monthly house values across the combined capital cities by 1.8%.

Darwin and Canberra both also saw house prices spike by more than 3% in May.

There's been house price growth in every capital city in 2016 so far except Perth (down 2.8%), with Sydney (up 8.3%), Hobart (up 6.5%) and Canberra (up 6.2%) the strongest performers.

CommSec chief economist Craig James attributed Hobart’s strong year-to-date performance to owner-occupiers and investors looking beyond Sydney and Melbourne as both cities grow increasingly unaffordable for many would-be buyers.

It was a different story for apartments, however, which were flat in May across the combined capitals. Unit values in Sydney and Melbourne were up 0.7% and 0.5% respectively over the month, but fell by more than 6% in both Perth and Canberra.

Melbourne continues to outperform Sydney for annual capital gain, with combined dwelling values up 13.9% over the year to May compared to 13.1%.

CoreLogic noted Sydney’s rebound was supported by other improving market indicators such as auction clearance rates, which have been sitting around the mid-70% mark for the past three weeks.

Investor comeback

CoreLogic RP Data research director Tim Lawless suggested the return of property investors might explain Sydney’s rebounding fortunes.

“The extent to which investors are fuelling the latest surge in Sydney home values is difficult to quantify, however housing finance data to March shows investors, as a proportion of all new mortgage commitments, have been trending higher since reaching a recent trough in November," he said.

"The March data shows investors now comprise of 47.6% of all new mortgage commitments, which is the highest proportional reading since August last year.  

“Anecdotal evidence suggests investor numbers may have increased further from this time, with some lenders reversing the tighter lending requirements that were previously in place for investment purposes as growth in investor-related credit tracks well under the APRA speed limit of 10% per annum.”

James predicted that Australia’s current record dwelling construction activity would lead to property prices softening in the 2016-17 financial year as more homes were completed.

“The plethora of cranes dotting skylines across the country indicates that plenty of sparkling new apartments will be coming onto the market over the next few years,” he said.

James also argued that “the Reserve Bank may be reticent about cutting rates again until there is more solid evidence that housing supply is indeed outstripping demand, causing prices to grow at a more pedestrian pace”.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. The commentary provided from external companies that are not a member of the Commonwealth Bank of Australia Group of Companies (the CBA Group) does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. The CBA Group does not accept any liability for losses or damage arising from any reliance on external companies and their products, services and material.