More negotiating power for investors in 2011

Australia’s housing market changed direction last year, according to RP Data research director Tim Lawless reported in API Magazine.

He says capital growth ground to a halt, on the back of 17 months of consecutive gains. Based on the RP Data-Rismark Home Value Indices, capital cities saw home values increase by 18.5 per cent, after values fell by 3.8 per cent during 2008. However, over the three months ending in October, capital city home values were virtually flat, increasing by just 0.3 per cent.

Lawless says the cause for slower property market conditions is due to a number of factors, with the most significant being higher interest rates. He says the market was also affected by the First Home Owners Grant, which halved in October 2009 and finished in January 2010.

“Additionally, a general wind-down in the market cycle was at play,” he says.

“The high rates of capital growth between January 2009 and June 2010 could not have been sustained as interest rates rose, affordability constraints became a greater barrier and buyer demand began to fall.”

“For 2011, we are likely to see vendor expectations change as slower market conditions come into play. The outcome will be that houses will take longer to sell and buyers will be negotiating much harder than they were in 2009 and the first half of 2010.”

This, of course, is good news for investors. The average time it takes to sell a house across the capital cities has increased from 38 days in October 2009 to 49 days in October 2010 and the average level of vendor discounting has increased from 4.7 per cent to 5.5 per cent over the year to October 2010.

Auction clearance rates across the combined capitals are now averaging in the low to mid 50 per cent range as seller and buyer expectations change. The low rate of clearance suggests that vendors will have to become more flexible in their price expectations if they want to make a sale. According to Lawless, these factors provide the best indicator that buyers are becoming more empowered and vendors are losing some of their leverage in the market.

Despite the fact that capital growth is trending out of the housing market, rental rates are starting to show some upwards pressure. Since peaking in mid 2009, first homebuyers have fallen back to about 15 per cent of the overall owner-occupier market. The fall away in first homebuyer numbers is now being reflected in increased rental demand, which is starting to cause rents to move upwards again.

“That’s great for investors, but not so great for renters,” Lawless says.

“The improving rental market is also likely to see rental yields improving for investors. As capital gains outpaced rental markets in 2009 and the first half of 2010, rental yields were sharply eroded. We are now seeing the first signs of yield improvement, which is likely to provide a further encouragement for investors looking to strategically position themselves in the market.”

Sources: API Magazine Property News  RPData