Softer house prices predicted for 2011, say experts

After a strong surge in property values during the last half of 2009 and the first half of 2010, many industry experts are predicting a slower paced market in 2011. Of course for investors, this means potentially good buying opportunities as prices soften.

However according to CommSec chief economist Craig James, a bursting bubble is not on the cards for Australia’s property market, regardless of the incessant banter from some commentators (particularly from overseas) who insist this will occur.

In a report in the Herald-Sun, James says that with average house price growth slightly below the long term annual average for the past five years, at 7.3%, there is little evidence of a housing bubble now or in the near future.

“Some commentators make inaccurate and damaging comments about housing bubbles and affordability without facing consequences,” says James. “While it may be an emotive story, inaccuracies can limit housing investment and prevent supply from adjusting to higher demand.”

Adding to the scepticism from many analysts about a price bubble is the Reserve Bank’s moves to keep inflation in check, with rising interest rates in 2010 putting the brake on property prices. With interest rates expected to continue climbing this year, it’s likely we will see a much softer market over 2011.

National research director with RP Data Tim Lawless says, “For 2011, we are likely to see vendor expectations change as slower market conditions come into play.”

“Houses will take longer to sell and buyers will be negotiating much harder than they were in 2009.”

According to Lawless, properties were languishing for longer on the market toward the end of 2010, with the average time to sell a home rising from 38 days in October 2009 to 49 days in October 2010.

The slow down in first home buyers particularly, is also creating higher rental demand and placing upward pressure on yields says Lawless.

“Over 2011 it is likely that rental growth will at least move back to the historic average of between 6 per cent and 8 per cent year on the year,” he predicts.

Australia Property Monitors senior economist Andrew Wilson says while property prices are expected to rise nationally for the year by a modest 3%, the strongest growth is forecast in Sydney and Perth.

He says, “Investors will emerge in the marketplace once the floor of the current price cycle becomes apparent, recognising the potential for high relative yields and capital growth.”


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