Australian property growth rates will stabilize this year, following strong performance in the market over the past 12 months, as affordability issues and consumer sentiment affects buyers, according to the latest insight from Onthehouse’s property research arm Residex.
The latest data shows that the median value of Sydney houses increased by more than 15% in the 12 months to February 2014. In the same period, Melbourne saw median house values rise by over 10% while Perth experienced 9.25% growth.
However, this is predicted to drop over the next five years, as Sydney has reached its peak. With Sydney leading the property market, other capital cities are expected to follow suit.
While property values experienced strong growth in the last quarter of 2013, wages have not grown at the same rate.
Sydney’s property market, which is a leading indicator for the national market, has consistently outperformed wages growth which continues to push property out of reach of buyers.
There is a natural limit on the maximum value of an asset at any point in time and that is the value at which the masses deem it to be unaffordable. At that point, competition for the asset diminishes. In Sydney, the trend data suggests that house prices are reaching their peak value in dollar terms for this period of growth.
Two factors contributing to the slowdown of growth are:
[sam id=41 codes=’true’]·Consumer Sentiment: the Westpac Melbourne Institute Index of Consumer Sentiment is at its lowest level since May last year.
The Index declined by 0.7% in March (from 100.2 in February to 99.5 in March), and has fallen by 10.9% from its November peak.
·Unemployment fears: the Westpac Melbourne Institute of Unemployment Expectations rose by 5.5% since May last year, and is now 13.6% above its November level.
The Index is now at 164.4, which is an extreme high, only eclipsed by readings during 2008-09 and the recessions in the early 1990s and early 1980s.
As consumer sentiment and affordability concerns affect buyers in Australia, it is expected that growth in Australia will slow down. The Onthehouse data predictions show that Sydney’s annual growth over the next five years will be 4%, Melbourne 3% and Perth 3%. Houses are also still expected to outperform units.
|Area||Median Value – Houses||Growth in Value Feb 2013-Feb 2014||Growth in Rental Rates Feb 2013-Feb 2014||Growth in Sales Feb 2013-Feb 2014||Predicted annual growth over 5 years|
|Area||Median Value – Units||Growth in Value Feb 2013-Feb 2014||Growth in Rental Rates Feb 2013-Feb 2014||Growth in Sales Feb 2013-Feb 2014||Predicted annual growth over 5 years|
Source: Onthehouse.com.au / Residex
The poor news on the employment front will be impacting on consumer sentiment and without strong consumer sentiment the market is unlikely to stretch beyond affordability comfort levels.
The good news for investors is that that while house price growth for the balance of the year in Sydney will slow from here, other states and capital cities are probably yet to reach their peak value for this growth period.