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What’s ahead for property in 2014 – Annual State of the Market Report – Dr. Andrew Wilson

Over the last few weeks a number of  commentators have given their views on what’s ahead for our property markets in 2014. You can read Pete Wargent’s views here and those of John Edwards from Residex here.

Below is Dr Andrew Wilson,  Senior Economist for Australian Property Monitors’ annual property market update report plus his views of the year ahead.

Here’s what he had to say…

The national housing market continued to recover during 2013 as the impact of the lowest interest rates in 60 years, improved affordability and rising confidence activated home buyers at varying levels in most capital city markets.

Individual performances however remained patchy and mixed both between capital city markets and market segments reflecting the underlying impact of local supply and demand factors.

The national median house price is set to rise by 5 percent over 2013 which will be the best annual result since 2009 when prices increased by 12.6 percent.[sam id=31 codes=’true’]

Capital city contributions to the national result are however inconsistent with Sydney the standout performer with 2013 median house price growth expected at 11 percent followed by Perth  and Hobart each with 8 percent , Melbourne and Darwin both 7 percent,  Brisbane 3 percent, Adelaide 2 percent with Canberra  median house prices however set to fall by 2 percent over 2013.

Although most capitals will register house price growth over 2013, only Sydney, Perth and Darwin will have recovered to previous peak-levels. All other capitals will remain below their previous house price peaks recorded in 2010 with Brisbane clearly the outlier still 5 percent behind.

The outlook for capital city housing markets in 2014 remains mixed with the impact of declining economic activity to act to generally moderate house price growth.

Mixed-speed local economic conditions will however prevail with under performances from Sydney, Melbourne, Adelaide and Canberra offset by continued strength in Perth and a solid re-emergence of the Queensland economy impacting on Brisbane and regional markets.

Rising unemployment will likely activate the Reserve Bank to again cut interest rates notwithstanding a downward trajectory for the local currency dependant as usual on the international economy particularly the performance of the US.

Although lower interest rates will be a bonus to mortgage holders the impact on housing markets will be muted by concerns over job security and continued low income and profit growth.

The prospect of a continued modest performance by the stockmarket will  act to subdue prestige property buyers – particularly in Sydney.

Within a fluid and uncertain economic outlook, expect the national median house price to increase by between 3 and 5 percent in 2014 bolstered by solid early-year contributions from Sydney, Perth Darwin, Brisbane and Hobart with more modest inputs from Melbourne, Adelaide and Canberra.

Much will depend as usual on the economic environment as it unfolds with pessimism currently outweighing optimism over the short-term prospects.

Sydney

The Sydney housing market recorded strong levels of buyer activity through 2013 with record levels of buyer and seller activity reported during the spring home auction season. Sydney’s median house price has increased by over 10 percent in 2013 to record-high levels now well over $700,000. The unit market in Sydney has also performed strongly with the median price now above $500,000 for the first time.

Buyer activity and prices growth were particularly strong in the mid-priced sections of the market with the inner west, the south and the upper north shore regions recording annual prices growth over 15 percent. The budget market was also strong driven by a surge in investor activity again at record levels.

The Sydney market however remained patchy with buyer activity in the prestige market continuing subdued and record low levels of first home buyers.

A weakening economy will impact on the Sydney housing market through 2014 with prices growth set to moderate through the year. Falling yields, rising vacancy rates and subdued rental growth will act as a disincentive for investors, and first home buyer numbers, although gradually increasing, will nonetheless remain at low levels. The prestige market will remain relatively flat with much of the changeover buyer activity in mid-price segments having dissipated with significant demand brought forward in 2013.

Sydney house prices will increase by between 5 and 7 percent in 2014 with most of that increase recorded over the first half of the year.

Melbourne

The Melbourne housing market has recorded a solid year of buyer activity with most price sections, buyer types and suburban regions reporting growth. Melbourne median house price is set to increase by 7 percent over 2013 which is clearly higher than last year’s result of just 0.2 percent.

Although recording solid growth this year the Melbourne median house price still remains just below its previous price peak of June 2010. Melbourne’s prestige market recorded strong buyer activity this year, particularly in the inner east suburbs, but prices nonetheless remain significantly below the levels recorded three years ago.

Melbourne’s outer east suburb region has also recorded strong prices growth this year with prices now at peak levels.

Buyer activity is set to wane in the Melbourne market through 2014 with signs of a slowdown already emerging late in 2013. This slowdown will be exacerbated be growing concerns over the performance of the local economy where unemployment remains stubbornly above 6 percent – a full 1 percent higher than a year ago.

Melbourne’s median house price will increase by between 3 and 5 percent in 2014 with much dependant on a second-half improvement in the economy.

Brisbane

The Brisbane housing market will move more solidly though recovery mode in 2014 as the Queensland economy reactivates through a lower dollar environment.

Brisbane house prices have increased gradually but steadily over 2013 to record growth of 3 percent. Despite this growth Brisbane house prices remain 5 percent below their previous price peaks which is the worst performance of all the capital cities.

Brisbane’s inner and middle-ring suburbs particularly to the north of the city have recorded the best performance this year although the outer suburban budget market has remained relatively subdued.

Falling unemployment, population growth from southern jobseekers, increased house investor activity chasing high yields, rising rents and rising prices together with ongoing perceptions of value buying opportunities in the mid and upper price ranges will continue to drive the Brisbane market next year.

Brisbane house prices will increase by 5 to 7 percent in 2014 to finally recover to the previous peak levels of 2010.

Adelaide

The Adelaide housing market has remained relatively subdued this year despite the stimulus of low interest rates. Adelaide’s median house price will increase by 2 percent in 2013 which will be the first annual increase since 2010.

Adelaide has the lowest median house price of all the mainland capitals and despite the lack of growth over the past 2 years the median price is just 3.4 percent below its previous peak reflecting the relative stability of its price cycle.

Adelaide’s affordability continues to translate into first home buyer activity which remains consistently amongst the highest of all the capitals for market share.

Australia’s highest capital city unemployment rate and a weakening economy will continue to act to generally subdue buyer activity in Adelaide over 2014 with prices growth between 0 and 3 percent

Perth

Overall the Perth market will record a solid year of buyer activity although signs emerged over the latter part of the year of a flattening in demand.

High population growth has activated the rental market with high and rising rents motivating strong numbers of first home buyers into the Perth market. Changeover buyers in mid-price range suburbs were also active through 2014.

The Perth median house will increase by 8 percent over 2013 following a rise last year of 5.8 percent. Perth median house prices will end 2013 5 percent higher than the previous prices peak recorded in June 2010.

Although likely subdued early in 2014, buyer activity in the Perth market will resume sooner rather than later driven by an underlying strong and strengthening local economy. Perth’s median house price will increase by between 5 and 7 percent in 2014.

Hobart

The Hobart housing market has finally reactivated following a lengthy period of subdued buyer activity. Hobart house prices increased solidly over the second half of 2013 and are set to record an increase of 8 percent over the full year. This result will bring the Hobart median house price close to its previous price peak recorded three years ago over December 2010.

The outlook for the Hobart housing market remains positive with an improvement in the local economy a key factor in increased buyer activity in 2014. Signs are emerging of a slow regeneration of economic activity and if it continues Hobart house prices will rise by between 3 and 5 percent over 2014.

Darwin

The Darwin housing market will record a solid 2013 with house prices rising by 7 percent and most of this increase over the latter part of the year. Darwin house prices will end the year 6 percent higher than their previous price peaks of March 2011.

The continued strong performance by the local economy will be a key driver of housing demand particularly from interstate workers seeking employment in the resource sector.

Although unemployment levels have fluctuated recently, they remain low and the economic outlook is generally positive and as a consequence house prices in Darwin will increase by between 5 and 7 percent in 2014

Canberra

The Canberra housing market produced a subdued performance through 2013 with median prices set to fall by 2 percent – the worst performance of all the capitals and the only capital to record negative growth in 2013.

A deteriorating local economy particularly in regard to rising unemployment and job shedding in the public service has been a catalyst for declining buyer activity and confidence over the past year.

The outlook remains problematic for the Canberra market with further job losses in prospect and as a consequence Canberra median house prices can be expected to increase by between 0 and 3 percent over 2014.

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