Home prices drop 0.3% in May, RP Data reveals

Home prices have continued to drop, with values falling 0.3% in May and 1.2% in the past three months, according to RP Data.

The figures come just days after a separate report from BIS Shrapnel found price growth will remain moderate for the rest of the year as demand wanes for new home construction.

The RP Data-Rismark Hedonic Home Value Index for May also found  property values over the past 12 months fell to a median price of $420,000 – resulting in the lowest dwelling price to disposable income ratio since 2003.

Capital city home values have now fallen for the last five consecutive months, the figures show. Since the beginning of the year values have fallen 2.7%, with 1.2 percentage points of that fall concentrated in January.

“Consumers are well and truly focussed on saving, not spending. Despite the low rate of unemployment and the strength of the resources sector, it is clear that the average Australian is content to pay-down debt and wait for economic certainty to return,” RP Data research director Tim Lawless said in a statement.

“As a consequence, transaction volumes in the real estate market are about 20% below the five-year average and listing volumes are about 25% higher than what they were last year.”

The biggest falls were in Perth, which saw values fall 4.6% in the quarter to May, followed by a 1.9% decline in Hobart, and a 1.8% fall in Melbourne, which now has a median price of exactly $500,000, according to the figures.

Prices also fell by 1.3% in Adelaide, by 1.4% in Brisbane, and by 0.1% in Sydney. Canberra values fell by 0.7%, while Darwin prices rose by 2.1%.

The highest rental yields were in Darwin, at 5.4% for houses and 5.7% for units, while Melbourne recorded the lowest at 3.6% for houses and 4.2% for units.

The results paint a weak picture of the market. Sydney is the only city to have recorded a “modest capital gain” of just 1%, while all other capital cities have “slipped into the red”. Over the past year, Perth prices are 7.5%, while Brisbane prices are down 5.9%.

The index found Sydney still the most expensive market, with a median price of $522,000, while the cheapest are Hobart at $315,000 and Adelaide at $382,500.

Rismark joint managing director Ben Skilbeck points out demand for luxury homes has also waned, due to the high dollar making it more expensive for overseas investors.

“Financial markets are currently pricing in a decent chance of an interest rate cut over the next 6-9 months. If the RBA does indeed reduce rates, this would provide substantial support to the market.”

However, Skilbeck points out that rates are almost certainly going up: “Thus we are not looking for any capital gains in 2011.”