House prices post biggest gain in 3 years

Housing recovery ahead?

Capital city house prices rose on average by 2.8% in the March quarter, its largest jump in three years, amid signs the property market is starting to pick up.

The RP Data-Rismark Home Value index shows home prices increased by 1.3% in March alone, although Adelaide was the only capital city to see a decline (0.5%) in the quarter.

Hobart showed the strongest rise for the quarter, posting a 6.1% increase in value, followed by Perth with 4.3%, Canberra 3.8% and Sydney 3.4%. Melbourne bucked fears of further price falls with a modest 2.5% rise. Year-on-year results show Darwin has recorded the strongest gain in values – up by 7.3%.

RP Data also said that auction and private treaty home sales have shown strong results, so it appears the housing market is continuing its recovery trend. Auction clearance rates in capital cities have averaged 60% and haven’t been below 55% so far this year. Sydney and Melbourne have even seen clearance rates nudging 70%.

Since November 2011, the Reserve Bank of Australia (RBA) has cut official cash rates by 1.75%, which finally appear to be working their magic in the housing industry, despite the major banks not passing on all rate cuts in full.

With capital city rental yields of around 5% and mortgage rates not far off that, investors may have cottoned on faster than owner occupiers. That will be something the RBA will be watching closely, as the central bank is keen to avoid creating a housing bubble (although many commentators have suggested Australian housing is already overpriced).

Foolish takeaway

The banks and mortgage brokers including Bank of Queensland (ASX: BOQ), Suncorp Group (ASX: SUN), Mortgage Choice (ASX: MOC) and MyState Limited (ASX: MYS) will be pleased with the news as it will likely translate into an uplift in credit growth, which like the housing industry, has been in the doldrums for some time.

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