Rental yields fall well behind home price surge

According to new research by RP Data, April's housing market results show capital gains through rent are falling further behind home prices with dwelling values only 0.3% higher over the month.

Capital city rents have only increased by 2.3% over the past year, while dwelling values have risen by 11.5%. Gross rental yields on a typical Melbourne house are sitting at 3.3% and Sydney gross yields are a bit higher at 3.7%. 

The figures indicate dwelling values are moving at a faster pace than rental rates, particularly in those cities recording very high rates of capital growth.

RP Data’s CEO Ben Skilbeck said that while the Sydney housing market recorded yet another increase in April, it was the lowest rate of monthly growth since its run of 11 consecutive month-end increases commencing June 2013.

"The last time Sydney strung together 11 consecutive month-end increases was in November 2007 when the market added 14.7% and before that in November 2002 when it delivered 19.6% growth. The record for Sydney consecutive growth months was 12 recorded in Nov 1996," Skilbeck said.

RP Data’s director of research Tim Lawless said the strong market conditions have sparked a new round of debate around the sustainability of recent rates of housing value growth and the impact on affordability for housing, particularly in Sydney and Melbourne.

"The reduction in the rate of capital gains across the combined capital cities housing market brings growth back into a more sustainable range and will be a welcome relief for first home buyers," said Lawless.

Lawless suggests the slowdown in housing value growth will likely be another factor that will help keep the Reserve Bank's low interest rate setting in place. “The RBA has been keeping a close eye on the housing market, and while their commentary hasn't signalled any housing market alarm bells, the lower rate of growth will be another signal that official interest rates don't need to move higher."

Get the latest details on the Reserve Bank’s interest rate decisions here and search Mozo’s home loan market to help you save on your current loan to get financially ahead in the ever changing housing market.