Rental yields recovering

Yields recover

Mortgage rates in Australia have fallen sharply from around 8 to 10 per cent since 2008.

So it's reasonable to expect that housing rental yields would be considerably lower too.

At the nadir, though, gross rental yields across the combined capital cities had sunk to below 3½ per cent, which is clearly far too low (and that's a gross figure). 

Here's an interesting chart from CoreLogic today, showing combined capital city yields tracking back quite quickly towards a rather more sustainable 4 per cent. 

Sydney has done some of that lifting, but with more pressure on its rental market the main driver has been Melbourne, with gross rental yields rising from near-record lows of 3.1 per cent in February 2018 to 3.6 per cent. 

Source: CoreLogic

There has been a wide variation of results across markets, with demand largely coming from the bottom up thanks to first home buyer stimulus, but the upper quartile of the market seeing far fewer transactions on tight lending standards.

Negative equity hasn't featured too much in Australian housing in recent years, but with tighter credit holding down markets in Perth, Darwin, and some other regions, this is starting to become a factor of concern, especially as some borrowers are forced off interest-only mortgages.

Noted CoreLogic on the second wind for the Perth and Darwin downturn:

'This renewed downwards pressure on home values coincides with a softening in labour market conditions, with weaker housing market results likely compounded by credit scarcity.'

Perth's median price has fallen by about 20 per cent over a downturn now spanning more than 4½ years.

Source: CoreLogic