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Home values reach new high

Strong market conditions have seen dwelling values rise to a record high during September, but that doesn’t mean we need to fear a ‘housing bubble’, industry analysts said this week.

The latest Home Value Index released by RP Data and Rismark International shows that Australia's capital city dwelling values grew by a further 1.6 per cent in September, taking the combined capitals index to a new record high.

Putting that into perspective, however, RP Data research director and analyst Tim Lawless pointed out that the index has in fact only moved 0.7 per cent higher than the previous record high, which was last recorded back in October 2010.

Combined capital city dwelling values fell by 7.4 per cent from the October 2010 market peak to a trough in May 2012. Since then, values have increased by 8.7 per cent through to the end of September 2013.

According to Mr Lawless, the September gains were fuelled by Australia’s two largest housing markets, Sydney and Melbourne, where residential property values were up by more than 2 per cent over the month.

"Sydney home values were 2.5 per cent higher over the month and are up 5.2 per cent over the September quarter, while Melbourne values have seen a similar 2.4 per cent month-on-month gain and a 5.0 per cent quarterly lift”, Mr Lawless said.

“We haven't seen market conditions this strong since April 2009 for Sydney and May 2010 for Melbourne."

While Sydney and Melbourne dwelling values powered higher in September, most other capital cities are recording much more subdued housing market conditions.

Dwelling values moved lower in Brisbane (down 0.3 per cent), Perth (0.1 per cent), Hobart (2.0 per cent), Darwin (2.5 per cent) and Canberra (0.7 per cent). Adelaide values posted a 1.1 per cent capital gain over the month.

According to Mr Lawless, the latest housing market data is likely to be closely scrutinised by policy makers.

"Any debate about unsustainable growth in housing markets should be very much focussed on Sydney and Melbourne”, he warned.

“Most other capital city housing markets are in fact showing only a modest growth trend.

“Perth’s housing market, which was previously the stand out for capital gains, has seen dwelling values rise by just 1.3 per cent over the September quarter.

“Brisbane’s housing market remains sluggish, with values up only 1.1 per cent over the past twelve months."

Another important factor to note when considering the current rate of capital gains is to look at the longer history of capital gains.

According to Mr Lawless, Sydney dwelling values have appreciated by just 2.5 per cent per annum over the past decade, which is less than annual rates of inflation and wages growth over this period.

“Sydney’s annual average rate of capital gain over the past ten years is actually the lowest of any capital city", he concluded.