National rents rose by only 0.4% over the 12 months to the end of January, but the 5.6% drop in national dwelling values has caused gross rental yields to climb above 4 % for the first time since May 2016, according to new data from CoreLogic.

CoreLogic’s study found that every capital city, except for Hobart and Darwin, has posted an increase in rental yields over the past 12 months because rental conditions outperformed housing prices.

The yields rose despite relatively slow rental conditions. Canberra recording the strongest rental growth among capital cities, with rents up 5.6% over the year.

The improved yield profile for Australian housing comes after rental yields reached record lows during the growth phase. Data showed that gross yields across the combined capitals hit an all-time low of 3.39% in August 2017 and have since recovered to reach 3.75% against a decade average of 4.06%.

While yields are gradually improving, the national gross rental yield of 4.01% remains below the decade average of 4.29%.

“The recovery back to average levels will be gradual, especially considering the weak rental market conditions across the cities with the lowest yield profile. Sydney gross yields are the lowest of any capital city at 3.4%, and rents were down 3% over the past 12 months,” said Tim Lawless, head of research at CoreLogic.

CoreLogic also reported that national dwelling values decreased by 1% more over the first month of the year. This resulted in a 6.1% cumulative decline in Australian dwelling values since the market peaked in October 2017. The national index has declined over 13 of the past 15 months, and national dwelling values are now back to levels last seen in October 2016.

Sydney and Melbourne continue to have the weakest housing market conditions, with prices dropping by at least 1% on a monthly basis since November.

Sydney and Melbourne dwelling values declined by 4.5% and 4%, respectively, over the three months ending January 2019. These results bring Sydney dwelling values back to levels last seen in July 2016. Melbourne dwelling values are back to January 2017 levels.

Among the capitals, only Hobart and Canberra recorded a rise in values over the past three months.

 “January can be a difficult month to read the housing market due to low levels of activity. However, the recent trend in housing market data has generally weakened over the past three months, with the pace of decline accelerating across markets already in their down phase, and growth generally moderating in other areas. Tight credit conditions, weakening consumer sentiment, less domestic and foreign investment and higher levels of housing supply are the primary drivers of the worsening conditions,” Lawless said.