The significant interest rate hike in November last year has bitten, with Australian capital city dwelling values down 1.2 per cent in the three months to end April. Expensive suburbs have been the poorest performers in line with the share market.

Based on more than 85,000 home sales nationally in 2011, the RP Data-Rismark Home Value Index for the combined capital city dwelling markets declined by 0.3 per cent in the month of April. This is in line with RP Data-Rismark’s forecasts since late 2009.

In the 12 months to end April, Australian capital city dwelling values are now down 1.5 per cent. This trend is also reflected closely in the regional markets.

RP Data-Rismark’s ‘Rest of State’ index tracks house values in all non-capital city areas, which account for about 40 per cent of the population. In the three months to end April, house values in the ‘Rest of State’ regions fell by 1.5 per cent. Over the 12 months to April, ‘Rest of State’ house values are off by 1.8 per cent.

Luxury suburbs drag market

Expensive suburbs have helped drag the overall market down according to Tim Lawless, RP Data’s research director. RP Data and Rismark divide their capital city index into three sub-indices: the bottom 20 per cent of suburbs ranked by price, the middle 60 per cent, and the top 20 per cent.

Over the year to end April, dwellings in the most expensive capital city suburbs recorded a 5.4 per cent loss. In contrast, home values in the middle 60 per cent of suburbs were down by only 0.9 per cent. Dwellings located in the cheapest 20 per cent of suburbs were the best performers, hardly moving.

“The solid performance of cheap suburbs runs against the grain of popular claims that default rates are rocketing up amongst first time buyers, which the RBA recently rejected,” Mr Lawless said.

“The luxury end of the housing market is also showing its volatility. During the growth phase of the cycle the most expensive homes realised the highest capital gains. Yet as the market cools premium home values seem to be losing steam the fastest,” he said.

Rismark Joint Managing Director, Christopher Joye, added, “The uber-luxury segment is risky and highly illiquid and has had the rug whipped from under it via a combination of the soaring Aussie dollar and the volatile share market.

"A final fly in the ointment is the much lower growth - and pay packets - expected in the financial services industry going forward. Luxury homes in areas like Sydney’s Eastern Suburbs will continue to face valuation headwinds as banks deal with the new normal of subdued credit growth.”

Near-double rate hike puts downward pressure on house prices

A substantial increase in rates was expected to push down dwelling prices.

Mr Joye observed, “In October before the near-double rate hike last year, we commented, “Our analysis suggests a substantial increase in rates would put some downward pressure on dwelling prices.

In November last year Riskmark noted, “Our central case is that there will be little-to-no nominal dwelling price growth over 2011, with a chance of small nominal declines.”

Mr Joye said this is precisely what has panned out.

"We have had a substantial increase in interest rates preceding a modest softening in house prices. Rismark expect at least another one to two rate hikes this year, which will solidify the cooling in residential valuations.”