Housing values surge, shares falter and RBA acts

MARCH 4, 2020

A rally in the pace of capital gains across the Australian housing market throughout February saw the national index rise by 1.1% over the month, according to the latest Home Value Index Results.

The most robust capital gains were produced by Sydney (+1.7%) and Melbourne (+1.2%) in February, according to CoreLogic. On an annual basis, Sydney and Melbourne moved back into yearly double-digit growth rates, with values up 10.9% and 10.7% respectively over the twelve months ending February. Melbourne has joined with Brisbane, Canberra, Hobart and Adelaide where housing values are also tracking at record highs.

Meanwhile, Australian shares continue to freefall with 1.8% wiped off the All Ords on 4 March alone as fears about coronavirus continue to spook equity investors. The threat of the virus becoming a pandemic also encouraged the Reserve Bank of Australia to make an emergency cut at their March meeting to the official cash rate to a record low of 0.5%. The US Federal Reserve followed suit the next day by 0.5% taking it to a range of 1-1.25%, to help combat the economic threat posed by coronavirus.

Shane Oliver, Chief Economist, AMP Capital commented that: “Ideally more help from fiscal stimulus is required, but so far the Government appears to be focussed on a “targeted” and “modest” approach. As a result, most of the pressure to support the economy remains on the RBA.

“As such, we expect another rate cut, taking the cash rate to 0.25% next month. With the RBA signalling on several occasions that 0.25% is likely the floor for the cash rate we don’t see rates falling beyond this as there is not much evidence that zero of negative rates would help.”

On the property investment front, Darwin continues to lead the way with rental yields of 5.9%. Glenn Grantham, General Manager Raine & Horne Darwin told the NT News, “Raine & Horne Darwin general manager Glenn Grantham said the yield was proving attractive to investors.

“Investors now are making up to 15% of our market. Six months ago, we were lucky to be at 1%,” he said.

“The biggest difference is the investors are not local. Darwin has come back on the radar for this reason.

“If you secure the property today at the lowest price, then rents continue to increase like they are, then obviously your yield continues to increase.

“It’s an extremely attractive place for investors to become involved in.”