The Immediate Outlook for the Property Market

By Chris White, Prosper Group

The outlook for the next 12 years
Property is a medium to long term investment and the housing cycle in Australia is generally over a 7-10 year period; during which there are always high growth spurts, lows and steady patches. The chart below shows that many capital cities enjoyed double digit price growth over the past twelve months. Price growth going forward is generally forecast by many experts to be single digit over the next couple of years but still price growth nevertheless.

The Average Median House Price and % Change Year on Year

City

Median Price

% change in index value, year on year
Sydney $517,250 11.3%
Melbourne $480,000 18.2%
Brisbane $445,000 6.7%
Adelaide $387,500 10.5%
Perth $475,000 6.1%
Darwin $481,775 16.8%
Canberra $508,500 16.4%
National $468,000 12.1%
Hobart* $340,000 6.2%

* Hobart results are based on final April data; based on settled sales over quarter;
based on capital growth to May 2010. Source: RP Data

RP Data's Director of Research Tim Lawless said he believed concerns in some quarters about a big market correction taking place are overstated.

The market's underlying fundamentals are such that any material fall in home values is unlikely. Housing supply remains very low at a time when housing demand is healthy, interest rates appear to be on hold for the foreseeable future, and the Australian economy is performing well compared to all other developed countries, he said.

People feel that house prices in Australia are quite high, and that's quite often because the ratio of house prices to income that are published for Australia tend to focus mainly on prices in the cities, and they are quite elevated. But, if you look across the whole country, the ratio of house prices to income is not that different from most other countries...

The house prices in cities aren't high relative to the income in the cities because most of the figures you see published on house prices to income what they do is they measure house prices in the city and express it as a proportion of income of the whole country. But, if you do house prices relative to the incomes of the people living in those areas, then the prices in the cities also are quite reasonable.

Tim Lawless said RP Data-Rismark's May index results reinforce mounting speculation that the Australian real estate market is transitioning towards a lower and more sustainable growth path, which will be encouraging for the RBA.

This second consecutive month of single-digit annualised gains sends a signal that the double-digit growth rates recorded since January 2009 are behind us. The signposts have been in the market for several months now with lower auction clearance rates, fewer housing finance commitments, and weakening consumer confidence, he said.

Rismark International Managing Director, Christopher Joye, expects to see more of the same over the remainder of the year. RP Data-Rismark's new Rest of State Hedonic Index, which was developed for the RBA, shows that the disconnect between the capital city and non-capital city markets, is as wide as ever.

Rismark's Christopher Joye added, This is simply a function of demand and supply. The demand for homes is stronger in the major conurbations whereas the supply of new dwellings has been weak. In comparison, the smaller metro and regional markets have relatively less demand combined with much more elastic housing supply.

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