2014 Outlook for the Queensland Property Market – Michael Matusik

Name five ways to best describe the 2014 Queensland residential market.

After several years of consolidation & the chatter of “green shoots”, the signs are now positive.

Queensland property owners can look forward to a much stronger 2014. Just don’t expect a lot of price growth.

13 good things

Given the time of year, let’s not bore you rigid with heaps of prose.

A short list of 13 bullet points should do the trick.

  • Change in federal government
  • Expanding population
  • Undersupply of new housing stock
  • Low interest rates
  • Increasing buyer inquiry
  • Rising sales volumes
  • Australian dollar lower
  • Tight vacancy rate
  • Less stock on the market
  • Less private treaty discounting
  • Reduced time to sell
  • Rising property confidence
  • Some price growth

Who said the Number 13 was bad!

[sam id=36 codes=’true’]

Some limits

We worked on several themes throughout 2013.

One of which was that ‘property cycles’ & that demand for property is influenced by many things; a great deal of which is not so much about economics but psychological.

Confidence plays a big part.

There is no economic reason why Queensland’s property market should remain subdued.  Yet locals remain cautious – maybe they are finding it hard to see the forest for the trees – and also continue to anticipate the worst.  After several years of major weather events & a rudderless previous State Government, maybe this restraint can be forgiven.

Another possible brake is the relative high price of property (on average) when compared to household income.

We stress that there are lots of affordable housing options across much of the state.  True, these are less house than many would desire.

But as a multiple of disposable family (with a mortgage) household  income to end dwelling price, there are few places across Australia & even Queensland which are below the traditional ratio of four.

This to me doesn’t mean that Australian property prices are in need of a correction – as our high home equity isn’t taken into consideration when working out such ratios – but it does suggest that the average punter won’t be rushing in to buy a property.

In simple terms, property isn’t cheap.  It isn’t a steal.  It isn’t undervalued.

New data

Take a few minutes to study the table below:

dwelling price v income ratio - missive 18 Dec 13

For mine, it shows that dwelling prices in Sydney & Melbourne have already overshot the market.  Both now have multiples over 7.

The Perth market is also close to the high tide mark.

There is also little long-term wriggle room (price-wise) when it comes several markets, including the Gold & Sunshine Coasts, Brisbane, Adelaide, Darwin & Canberra.

Assuming limited bad household debt (under $10,000 pa) & using a 5.25% variable interest rate over a 25 year owner-resident mortgage, all the markets outlined in the table (except Sydney & Melbourne) have some room to grow in terms of price during 2014.  Even Perth.

Using Brisbane as an example, the average Brisbane family household under these terms could afford to borrow up to $590,000 to buy a home.  This is a big difference from the current $466,000 middle price.

In contrast, the typical Sydney family can only really afford $640,000, which is $80,000 less than Sydney’s current median dwelling price of $724,000.  Melbourne typical family can only afford a home priced in the high $500,000 price range.  Melbourne’s middle price now exceeds $620,000.

In short, Brisbane has the capacity for some price growth.  Whilst Sydney’s (and Melbourne’s) prices may continue to rise, there are serious limits now on affordability in both cities.

Yet a $590,000 Brisbane maximum isn’t sustainable.  When using a 7% variable home loan rate – the previous ten year average – the longer term (say next three years) Brisbane maximum middle price comes in at around $525,000.

Over the next two phases of the property cycle (recovery & market peak, or between 2014 & 2016) – all things being equal – the median dwelling price across Brisbane could rise by about $60,000 or around 15%.  Such a growth rate should be sustainable.  Anything more might see a price correction, post 2016.

2014 in a nutshell

2014 should see more sales.

In Queensland – and despite the difference between the current price & maximum borrowing capacity – it still will remain largely a buyer’s market.

Sellers will make fast sales if they meet the price expectations of buyers.  The price should be higher during 2014 than 2013, but maybe not significantly so.

Jobs, wage growth & importantly, housing credit, will determine the strength of the 2014 Queensland residential market.  Already, some silly things are being done.  A few months ago we began seeing the seeds of the next downturn being sowed.  The high price being paid for Brisbane infill sites is just one case in point.

And that is the point i.e. property cycles.  For much of Queensland:

  • 2014 & 2015 = recovery
  • 2016 = market peak
  • 2017 & 2018 = downturn

Or pretty much something close to this.  An overshoot in price next year, means a correction later.

With the current interest rate setting, many Queensland residential markets have some capacity to grow.

Southern buying & migration aside, once interest rates rise, much of this momentum will be lost.  And with that, much needed new housing starts.  Interest rates really need to be lower.

Last week the Westpac-Melbourne Institute ‘good time to buy a dwelling’ confidence index took a nose dive.  This index is a great forward indicator, suggesting the price growth will likely soften in coming three to six months.

I think they could actually fall in both Sydney & Melbourne during 2014.

In our opinion, those thinking about buying Queensland property should get a wiggle on; just be pretty careful about how much you pay.

Buy now.

[post_ender]



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Michael Matusik

About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


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