This article is from the Australian Property Journal archive
AUSTRALIAN residential property prices growth will moderate to around 3% to 4% over the next 12 months, which is a major slowdown when compared to 26% as seen in Melbourne in 2009, according to BIS Shrapnel.
BIS Shrapnel senior project manager Angie Zigomanis said a combination of factors have caused the momentum that built up in house prices in the second half of 2009 to stall in 2010.
BIS Shrapnel’s Residential Property Prospects, 2010 to 2013 report shows lending activity is already easing, with first-home buyer demand in the March quarter of 2010 down by 44% on the same period last year, and upgrader activity plateauing. This is flowing through to softer demand for residential property.
“The strong price growth in the second half of 2009 was a rapid adjustment to housing variable interest rates that were at 40-year lows. With interest rates quickly lifting from these ‘emergency’ levels, and the current variable rate of 7.4% now being close to long term trends, the recent levels of price growth cannot be maintained,” he added.
Zigomanis predicts that current round of interest rate rises has run its course and he forecasts the cash rate to increase by 50 basis points in 2010/11, and a further 50 basis points in 2011/12.
“The more stable interest rate environment is expected to underpin purchaser confidence as economic conditions continue to strengthen, and should continue to push through moderate house prices rises.
“Higher interest rates will maintain price growth at a more moderate level, despite the acceleration in economic growth driven by the recovery in resources investment,” he added.
The spectre of strained affordability is expected to remain over the residential market for the near future. BIS Shrapnel said affordability in most capital cities is now at around 2007 levels, after which further rate rises in early 2008 caused price growth to weaken despite a booming resource-led economy.
Similarly, further economic growth will have only a limited impact on prices, with affordability constraints keeping a lid on price rises as interest rates rise. This is expected to keep price growth to an average in the mid-single digit percentage range over the next 3 years.
In Sydney, the median house price is forecast to be $615,000 in June 2010. Whilst this represents a 12% increase for the year, house prices in real terms remain 10% below their peaks. On this basis, Sydney house prices are at 2002 levels in terms of affordability.
“We are forecasting total price growth in Sydney over the 3 years to June 2013 to be 20%, representing average growth of around 6% per annum,” he added.
Price levels in Newcastle and Wollongong are significantly lower than across Sydney. Total growth in Newcastle over the 3 years to June 2013 is forecast to reach 18%, while the total rise for Wollongong is forecast to be 17%.
Melbourne’s median house price experienced a rise of 27% in the 18 months to December 2007, followed by a decline of 10% during calendar year 2008. However, the decline has been more than offset by the substantial 26% rise that came through in 2009, with the estimated median of $550,000 at June 2010 representing a further 3% rise.
Zigomanis said the substantial growth has led to affordability in Melbourne becoming very strained in a long-term sense.
“Our forecast is for Melbourne’s median house price to rise by a total of 11% over the 3 year period to June 2013, or a modest 3.5% per annum,”
Although Brisbane’s forecasted median house price of $465,000 at June 2010 represents an 11% rise for the year, it only reflects an annual rise of a moderate 5% over 2 years, after taking into account the declines of the previous year.
Zigomanis said price growth has been impacted by weaker economic conditions due to the downturn in resources investment, as well as a collapse in non-residential building.
“By the time economic conditions in Queensland gain momentum we expect the peaking of interest rates in 2012/13 will halt any traction in price growth that may have emerged.
“As a result, overall price growth to 2012/13 is expected to be only moderate, totalling 12% in the 3 years, or just under 4% per annum,”
On the Gold Coast and Sunshine Coast, prices are forecasts to increase by 11% over the 3 years to June 2013, with a rise of 13% anticipated for the Sunshine Coast. Price growth over the 3 years to 2013 is expected to be 17% for Townsville and 16% for Cairns.
Meanwhile Adelaide has the lowest median house price of the mainland state capitals. Adelaide’s forecast median house price of $410,000 at June 2010 represents a 14% increase for the year. the median house price is forecast to rise by 20% over the 3 years to June 2013, an increase averaging 3% per annum.
The Perth residential property market began to slow in 2007, well ahead of the eastern state capitals, after the median house price nearly tripled over the previous 5 years. This massive growth was supported by a rise in underlying demand and booming economic conditions, led by strong investment in the resources sector.
Price growth has recovered in 2009, and BIS Shrapnel’s forecast median house price of $500,000 at June 2010 represents an annual rise of 11%. However, in real terms, prices will remain 3% below their December 2007 peak.
BIS Shrapnel forecasts Perth house prices to rise by 22% over the 3 years to June 2013, representing an annual average rise of 7% per annum.
Hobart’s forecast median house price of $390,000 at June 2010 represents a 16% rise for the year. The median house price is forecast to rise by 12% over the 2009 to 2012 period, reflecting an average increase of 4% per annum.
Canberra’s forecast median house price of $520,000 at June 2010 reflects a 16% rise for the year. Prices are forecast to increase by a total of 14% over the 3 years to June 2013, which reflects a rise of 4.5% per annum.
Darwin forecast median house price of $570,000 at June 2010 represents a 23% rise for the year. Price growth has been supported by the oil and gas sector, which did not weaken to the same extent as other commodities. Total price growth of 12% is forecast over the 3 years to June 2013, or an average of 4% per annum.
Australian Property Journal
