The national rental index was up 2.8% in the March quarter, the fastest quarterly pace of rental growth since the three months ending May 2022 (2.9%), according to CoreLogic.
Rental conditions do show some seasonal strength through the first quarter of the year, which helps to explain some of the renewed upwards pressure on rents. However, the annual trend in rental growth has generally been moving higher since October last year, implying the re-acceleration in rental growth is more than a seasonal inflection.
Unit rents are continuing to rise faster than house rents across the combined capitals, up 2.9% and 2.7% respectively in the March quarter. However, we are seeing a gradual narrowing of the gap between house and unit rental growth trends.
With rents once again rising faster than housing values, there has been some renewed upwards pressure on rental yields. At 3.75%, the gross rental yield nationally hasn’t been this high since October 2019.
Average Home Rises Nearly $72,000 Since Last November
Housing values increased by 1.6% in the March quarter, adding around $12,000 to the value of each Australian home.
CoreLogic’s national Home Value Index (HVI) rose 0.6% in March, on par with February’s increase, taking the current upswing in housing values through its 14th straight month of growth. Since declining -7.5% between April 2022 and January 2023, the national HVI has increased 10.2%, or, in dollar terms, by approximately $71,832, rising to new record highs each month since November last year.
Melbourne records significant lift in rental yields
Melbourne has recorded one of the most significant lifts in gross rental yields, from 2.76% two years ago to reach 3.57% in March 2024, the highest gross yield since March 2015. Such a substantial jump in the gross rental yield can be attributed to a -4.1% fall in Melbourne dwelling values over the past two years while rents have surged 21.1% higher.
“A rise in rental yields alongside an expectation that housing values could rise and rental markets remain tight for an extended period of time is likely to be seen as an attractive opportunity for property investors,” Mr Lawless said. “However, with investor mortgage rates averaging in the mid 6% range, it’s likely that most investors who are new to the market will be experiencing a cash flow loss, unless they are able to stump up a sizeable deposit.” Says CoreLogic’s research director, Tim Lawless.
Investors return to the marketplace
Based on housing finance data, investors have recorded the most substantial lift in activity over the 12 months ending January 2024, with the value of lending up 18.5% compared with a 3.4% increase in owner occupier lending.
Overall, it looks as though housing markets are continuing to traverse the high interest rate and high cost of living environment better than most would have expected. Values and rents are recording broad-based rises, albeit with significant diversity across the capitals and regional markets.
The outlook for housing values remains positive amid a growing expectation that interest rates will start to fall later this year, providing a boost to borrowing capacity and consumer sentiment.
