John McGrath predicts price growth for spring

John McGrath chief executive of McGrath Real Estate predicts the next phase of the property market’s growth cycle will kickstart within 60 days.

“It’s normal for the property sector to experience short periods of high growth followed by shorter periods of market stabilisation in a long-term growth cycle. Real estate markets rarely grow in a straight line,” he said.

In his column in McGrath strongly disagrees with commentators predicting a major correction in Australian real estate prices, saying he’s heard these predictions intermittently over the past 30 years and no correction eventuated beyond 20 to 30 per cent or continued longer than 18 months.

“Neither constitutes a collapse – more so a short term repricing or pause in the growth cycle which is indeed a healthy thing,” he said.

McGrath agrees with predictions of Dr. Frank Gelber chief economist at BIS Shrapnel, who forecast that residential prices in inner city and key coastal locations will grow by 30 %  over the next 3 years.

“I am optimistic due to the underlying fundamentals of strong population growth, a major undersupply of housing, a robust local economy and the return of the property investor,” he said.

John McGrath’s market observations in his Spring market reviews  include:

  • Spring will be a strong selling market with listings hitting the market at the traditional peak selling period coinciding with growing buyer confidence courtesy of an improving economy. The other factor is a slight backlog of buyers seeking homes after the Federal Election, which should add to the pressure. Only a double dip recession could hold back this growth and that appears unlikely. Therefore he anticipates the market growth phase to kickstart within 60 days.
  • Interest rates will continue to dictate market demand particularly at the lower end. First homebuyers will probably accept one more rate rise but beyond that there may be a slowdown in activity.
  • Sydney’s most active market sector is sub $2 million due to demand from upgrading families in the inner and middle rings. As the sharemarket improves, so will the $2 million to $4 million bracket, but this may take a little more time.
  • The market above $4 million has been somewhat stagnant but there may be an increase in demand as the top end of town gathers confidence as the global financial crisis moves further into the past. It’s likely there’ll be patchy growth over the next 12 months depending on the depth of demand and the unique traits of any given home for sale.
  • Regional markets are still relatively soft but the increasing strength of the major metropolitan markets should spill over to the regionals in 2011. There’s already new interest in holiday homes and weekenders plus rising demand from executive families looking for a lifestyle change in areas with a fast CBD commute.
  • Apartments have had stronger capital growth than houses over the last 5 years. Changing demographics will contribute to apartment popularity with the ABS predicting the most common household type will be couples without kids by 2013-14 (meaning, empty-nesters and young professionals).
  • Rents will continue to rise due to the current undersupply and investors can reasonably expect average annual yields of 4.5 to five per cent in prime metro locations close to transport, cafes and beaches.
  • First homebuyers have dwindled but an RP Data report proves that in every major capital you can still buy a house within 10km of the CBD for less than the city’s median if you know where to look.

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