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House price crash unlikely says leading economists

We all know that house price growth has stalled in 2011. The residential markets around Australia have been impacted by rising interest rates, and the decline in both first home buyers and general purchaser activity

But with a slowing economy and hints of further interest rate rises, can our improving economic conditions underpin further price growth or will affordability constraints hamper sentiment?

A new report by BIS Shrapnel, Residential Property Prospects, 2011 to 2014, says Australian house prices are unlikely to fall dramatically over the next two years, and tips steady residential property prices forecast through 2011, with prices in some capital cities even forecast to show moderate growth.

In the report BIS Shrapnel senior manager Angie Zigomanis said that economic growth is forecast to regain traction through 2011, and continue to accelerate in 2012 and 2013 as the resources boom flows through to the rest of the economy.

“Strengthening employment growth – the unemployment rate is forecast to fall below four per cent in 2013 – will also see net overseas migration inflows turn around, and the underlying demand for new dwellings begin to rise,” he said.

“With new dwelling starts currently declining, the corresponding fall in completions means the underlying deficiency of dwellings nationally will increase.”

Mr Zigomanis said that this would underpin the strength of residential conditions, causing rental markets to tighten and demand to pick up, particularly in those markets that have suffered in recent years.

The report forecasts SydneyPerth and Brisbane to show the strongest price growth through to 2014.

“With economic conditions and income growth to be strongest in Western Australia and Queensland (and to a lesser extent New South Wales), this should underpin moderate price rises averaging five to six per cent per annum in the three years to June 2014.”

“These markets are currently building new dwellings at well under the level of underlying demand, while price growth has also been relatively weak in these cities in recent years, causing affordability to be improved from previous lowest levels,” the report said.

The report found that in 2010, the housing market was hit by a variety of factors including a fall in first home buyer numbers, softer economic conditions and interest rates hikes. Zigomanis expects first- home buyers to re-enter the market across Australia. Numbers fell by 50 per cent in 2010 after government incentives brought first-home buyers forward into 2009.

“At some point many will reach a life stage where they will want their own dwelling,” he said.

“If higher interest rates mean they can’t afford their first choice of dwelling initially then they will purchase a more affordable type of dwelling.

“In any event, this period will allow future first-home buyers to build up their deposit and take advantage of softer house prices.”

“These movements in the property market coincided with the economy stalling due to government stimulus tapering off, and the resources boom yet to gain traction,” Mr Zigomanis said in the report.

“The combination of weaker demand, a more uncertain economic outlook, weak consumer confidence and prospects of further interest rate rises has resulted in weaker house prices.”

Throughout the rest of the year, affordability is expected to remain strained, putting a dampener on price rises. But over the next three years, Perth, Sydney and Brisbane are expected to see the biggest rises through 2014 due to new dwelling construction remaining under demand levels.

Growth outlook by capital:

The report forecast the following growth in median prices over the next 3 years:-

Sydney: Median price will increase by 18% to $640,000 in June 2011. Prices to increase at 5.7% per year to 2014 due to low construction and vacancy rates.

Melbourne: Upward pressure falling as construction ramps up, and economic growth to flow through into wages. Price growth to be 6% in the next three years.

Brisbane: Median house price of $440,000 in June 2011 representing 4% decline over the year. State economic weakness, flooding and underlying demand weakened by migration all lead to downward pressure. Then prices will start increasing by 4.7% over the next three years.

Adelaide: Median house price to grow by 8% over next three years.

Perth:  Stronger population growth will lead to a deficiency in dwellings and growth will return with prices rising by 19% in the next 3 years.

Hobart: Growth to be 5% over the next three years.

Darwin: Lack of resource investments in the future will reduce upward pressure and prices to rise by 7% in the next three years.

Canberra: High incomes to support house prices, with the median price rising  7% over three years to 2014.

Gold Coast & Sunshine Coast: With a wide range of properties and a low flow of migrants prices will growing by 3.7% over the next three years.

Obviously a lot is going to happen in the world over the next 3 years and there are many factors that will affect our property markets. No one has a crystal ball – it will be interesting to see how things pan out.

Source: BIS Shrapnel



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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