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Residential property outlook turns negative

The outlook for residential property has turned negative, with those involved in the residential property market, real estate agents, property managers, property owners and real estate asset and fund managers expecting house prices to decline until June 2013, according to NAB’s Australian Residential Property Survey for the June quarter of 2011.

House prices are expected to fall by 1.4% over the next year. This is in sharp contrast to the March 2011 survey, where nationwide prices were tipped to increase by 0.6% over the next year.

What is interesting is that the mood in the property sector industry is very different to consumers, who after all are the ones that drive the markets.

According to the latest Westpac/Melbourne Institute Consumer Confidence Index for July, housing confidence had increased to an 18-month high, with the majority of consumers surveyed still expecting house prices to rise this year.

However, the NAB Residential Property Index, constructed based on house price and rental expectations, is now in negative territory with a reading of -5 points compared with +16 points in March.

The NAB report said the Australian housing market continues to soften, with nationwide house prices falling by -2% in the June quarter (-1.1% in March).

House prices fell in all states, with the largest declines seen in Queensland (-3.7%), SA/NT (-2.7%) and Victoria (-2.4%).

The biggest turnaround was noted in Victoria, where the index declined from +23 points to -16 points. NSW is clearly now the strongest housing market state, with the index at +18 points in June, although this is down from +39 points in March.

The index is forecast to rise to +21 points over the next year, led by WA and NSW, with national house prices tipped to fall by -1.4% and rents to rise by 3.1%.

By June 2013, the index is expected to reach +44 points, with WA a clear out-performer, reflecting mildly positive national house price growth (+0.5%) and stronger rents (4.4%).

House buyers continue to cite tight credit conditions as a major constraint in buying property, but concerns over rising interest rates and house price levels are also growing, suggesting that affordability is still a major issue in the housing market.

The Australian housing market continues to soften, with nationwide house prices falling by -2% in the June quarter (-1.1% in March). House prices fell in all states, with the largest declines seen in Queensland (-3.7%), SA/NT (-2.7%) and Victoria (-2.4%).

Housing Market trend in 2012

Future house price expectations also weakened, with the survey now predicting a fall of -1.4% over the next year (+0.5% in March), with negative growth forecast in all states except Western Australia (0.2%).

Rebound in 2013

Looking further ahead, house prices are expected to recover by June 2013 with modest growth of 0.5% predicted. House prices in WA are expected to significantly out-perform the other states with prices rising by 3%. House prices are expected to remain flat in Victoria during this period and fall slightly in Queensland (-0.3%).

 Rents, Lease on the Up trend
Nationwide rents increased by 1.3% in June, but this was down from 1.7% in March. Rental growth was positive in all states, with the biggest increases recorded in SA/NT (2.4%), WA (2%) and NSW (1.5%). Rental growth in Queensland was slowest at 0.4%. Future expectations for rents have been revised down slightly with the latest survey pointing to nationwide rental increases of 3.1% over the next year (3.5% in March). Rental expectations were downgraded in all states.

Over the next two years, nationwide rents are expected to increase by 4.4% (5.2% in March), with expectations strongest in WA (6.3%) and NSW (4.6%) and weakest in Victoria (3.7%).

Who are the Buyers?
The new housing market continues to be dominated by resident owner occupiers (46% of total demand). Resident investors make up the next biggest share with 28%, but this was down from 34% in March. First home buyers accounted for 17% of the market, with first home buyers most active in NSW (24%) and least active in Queensland (10%).

Demand for new residential developments is currently strongest for inner city low rise apartments, but there has been a notable deterioration in demand for all types of new residential property since March. Tight credit conditions are still seen as the main impediment to new residential developments, but concerns over rising interest rates are growing.



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About

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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